<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): September 8, 1999
NovaCare Employee Services, Inc.
(Exact name of registrant as specified in its charter)
Delaware 000-23343 23-2866146
(State or other (Commission (IRS Employer
Jurisdiction of File Number) Identification No.)
Incorporation)
Valley Forge Corporate Center
2621 Van Buren Avenue
Norristown, Pennsylvania 19403
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (610) 650-4700
<PAGE> 2
2
Item 5. Other Events.
On September 8, 1999, NovaCare Employee Services, Inc., a Delaware
corporation (the "Company"), entered into an Agreement and Plan of Merger (the
"Merger Agreement") with Plato Holdings, Inc., a Delaware corporation
("Parent"), and New Plato Acquisition, Inc., a Delaware corporation and wholly
owned subsidiary of Parent ("Merger Sub"), pursuant to which Merger Sub agreed
to commence a cash tender offer (the "Offer") to acquire any and all shares of
the issued and outstanding common stock, $.01 par value ("Common Stock" or
"Shares"), of the Company, for $2.50 per share, net to the seller in cash (the
"Offer Price"). Parent is a newly organized corporation formed in connection
with the Offer and all of the outstanding capital stock of Parent is owned by
Plato Holdings, LLC, a Delaware limited liability company ("Plato LLC"). Plato
LLC is a newly organized limited liability company formed in connection with the
Offer. Plato LLC's equity interests currently are owned approximately: 26.9% by
Fidelity Ventures Limited; 13.5% by Fidelity Investors II Limited Partnership;
6.75% by The P/A Fund III, L.P.; 33.37% by APA Excelsior V, L.P.; 0.28% by The
Patricof Private Investment Club II, L.P.; and 19.2% by AFLAC Incorporated.
Subsequent to Parent or Merger Sub accepting for payment and paying for
that number of Shares which, when added to any Shares owned beneficially by
Parent or Merger Sub, would constitute a majority of the Shares outstanding on a
fully diluted basis (the "Minimum Condition"), in accordance with applicable law
and subject to the terms and conditions of the Merger Agreement, Merger Sub will
merge with and into the Company, with the Company becoming a wholly owned
subsidiary of Parent (the "Merger"). Upon the consummation of the Merger, each
share of Common Stock outstanding immediately prior to the Merger (other than
Shares owned by Parent or Merger Sub or shares held by stockholders who properly
perfect their
<PAGE> 3
3
dissenters' rights under the Delaware General Corporation Law (the "DGCL")) will
be converted into the right to receive the Offer Price.
The Merger Agreement provides that, upon the purchase by Merger Sub or
Parent or any subsidiary of Parent of a majority of the Shares and from time to
time thereafter, Parent will be entitled to designate such number of directors,
rounded up to the next whole number, on the Board of Directors of the Company
(the "Company Board") so that the percentage of Parent's designees on the
Company Board equals the percentage of outstanding Shares beneficially owned by
Merger Sub, Parent and their affiliates. The Company will take all action
necessary to cause such persons designated by Parent to be appointed or elected
to the Company Board and to secure resignations of such number of its incumbent
directors as is necessary to enable Parent's designees to be so elected or
appointed.
Consummation of the Merger is conditioned upon, among other things, (i)
the approval and adoption of the Merger Agreement by the holders of a majority
of the outstanding Shares of the Company, if required by applicable law, and
(ii) the approval of the holders of a majority of the outstanding shares of
common stock, $.01 par value, of NovaCare, Inc., a Delaware corporation and
principal stockholder of the Company ("NovaCare"), which such approval occurred
on September 21, 1999.
Under the DGCL and pursuant to the Company's Certificate of
Incorporation, the affirmative vote of the holders of a majority of the
outstanding Shares is the only vote of any class or series of the Company's
capital stock that would be necessary to approve the Merger Agreement at a
meeting of the Company's stockholders. If Merger Sub purchases a majority of the
outstanding Shares in the Offer (which will be the case if the Minimum Condition
is satisfied and the other conditions to the Offer are satisfied or waived),
Merger Sub will be able to effect
<PAGE> 4
4
the Merger without the affirmative vote of any other stockholder. Pursuant to
the Merger Agreement, Parent and Merger Sub have agreed to vote the Shares
acquired by them pursuant to the Offer in favor of the Merger.
Under Section 253 of the DGCL, if a corporation owns at least 90% of
the outstanding shares of each class of a subsidiary corporation, the
corporation holding such stock may merge such subsidiary into itself, or itself
into such subsidiary, without any action or vote on the part of the board of
directors or the stockholders of such other corporation (a "short-form merger").
In the event that Merger Sub acquires in the aggregate at least 90% of the
outstanding Shares pursuant to the Offer or otherwise, then, at the election of
Parent, a short-form merger could be effected without any further approval of
the Company Board or the stockholders of the Company.
Even if Merger Sub does not own 90% of the outstanding Shares following
consummation of the Offer, Parent or Purchaser could seek to (a) purchase
additional Shares in the open market or otherwise in order to reach the 90%
threshold and employ a short-form merger or (b) exercise its option to purchase
newly issued Shares pursuant to the Short Form Merger Option Agreement, dated as
of September 8, 1999, among Parent, Merger Sub and the Company (the "Short Form
Merger Option Agreement"). It is the Company's understanding that Parent
presently intends to effect a short-form merger, if permitted to do so under the
DGCL, pursuant to which Merger Sub will be merged with and into the Company.
In connection with the Merger Agreement, Parent, Merger Sub and the
Company have entered into the Short Form Merger Option Agreement, pursuant to
which the Company granted to Merger Sub an irrevocable option to purchase from
the Company, at the Offer Price, newly issued Shares in an amount equal to the
number of Shares (up to a maximum of 19.9% of
<PAGE> 5
5
the number of Shares outstanding) that, when added to the number of Shares owned
by Merger Sub and its affiliates immediately following consummation of the
Offer, constitutes 90% of the Shares then outstanding on a fully diluted basis
(giving effect to the issuance of such Shares). The option is exercisable at any
time after the acceptance for payment by Merger Sub of Shares in the Offer. For
a more detailed description of the short-form merger, reference is made to the
Short Form Merger Option Agreement included as Exhibit 2(b) to this Current
Report on Form 8-K.
The Offer and the Merger are also subject to various other conditions,
including the Minimum Condition being satisfied, the receipt of all necessary
consents and approvals from the Company's and NovaCare's lenders, and the
expiration of the applicable waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, if applicable. Subject to satisfaction of
these conditions and others, and assuming the Company will be able to effectuate
a short-form merger, it is expected that the Merger will be consummated sometime
in mid to late October 1999.
For a more detailed description of the Merger and the Merger Agreement,
reference is made to the Merger Agreement included as Exhibit 2(a) to this
Current Report on Form 8-K.
Item 7. Financial Statements, Pro Forma
Financial Information and Exhibits.
(c) Exhibits:
The exhibits required to be filed as part of this Current
Report on Form 8-K are listed in the attached Index to Exhibits.
<PAGE> 6
6
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
NOVACARE EMPLOYEE SERVICES, INC.
By /s/ Loren J. Hulber
--------------------------------------------
Name: Loren J. Hulber
Title: President and Chief Executive Officer
Dated: September 22, 1999
<PAGE> 7
INDEX TO EXHIBITS
Exhibit Page
Number Description Number
- ------ ----------- ------
2(a) Agreement and Plan of Merger dated as of
September 8, 1999.
2(b) Short Form Merger Option Agreement dated as of
September 8, 1999.
99 Press release dated September 9, 1999.
<PAGE> 1
EXHIBIT 2(a)
<PAGE> 2
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
PLATO HOLDINGS, INC.,
NEW PLATO ACQUISITION, INC.
AND
NOVACARE EMPLOYEE SERVICES, INC.
dated as of
September 8, 1999
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Pages
<S> <C>
AGREEMENT AND PLAN OF MERGER.................................................... 1
RECITALS ....................................................................... 1
ARTICLE I THE OFFER AND MERGER................................................. 2
1.1 The Offer; Merger Election.................................... 2
1.2 Company Actions............................................... 3
1.3 Directors..................................................... 4
1.4 The Merger.................................................... 5
1.5 Effective Time................................................ 5
1.6 Closing....................................................... 6
1.7 Certificate of Incorporation of the Surviving Corporation..... 6
1.8 By-Laws of the Surviving Corporation.......................... 6
1.9 Directors and Officers of the Surviving Incorporation......... 6
1.10 Subsequent Actions............................................ 6
1.11 Stockholders' Meeting......................................... 6
1.12 Merger Without Meeting of Stockholders........................ 8
ARTICLE II CONVERSION OF SECURITIES............................................ 8
2.1 Conversion of Capital Stock................................... 8
2.2 Exchange of Certificates...................................... 9
2.3 Withholding Taxes............................................. 10
2.4 Appraisal Rights.............................................. 11
ARTICLE III REPRESENTATIONS AND WARRANTIES..................................... 11
3.1 Organization and Qualification; Company Subsidiaries.......... 11
3.2 Conflicts..................................................... 12
3.3 Capitalization................................................ 12
3.4 SEC Reports: Financial Statements; Undisclosed Liabilities.... 13
3.5 Schedule 14D-9; Offer Documents; Proxy Statement.............. 14
3.6 Absence of Certain Changes.................................... 15
3.7 Taxes......................................................... 15
3.8 Real Property Owned or Leased................................. 17
3.9 Title to Assets............................................... 17
3.10 Contractual and Other Obligations............................. 18
3.11 Employee Benefit Plans........................................ 19
3.12 Labor Relations............................................... 20
3.13 Insurance..................................................... 21
3.14 Litigation.................................................... 21
3.15 Permits; Compliance with Applicable Law....................... 21
3.16 Bank Accounts................................................. 23
3.17 Intellectual Property......................................... 23
3.18 Consents...................................................... 24
3.19 Foreign Person................................................ 25
3.20 Authority..................................................... 25
</TABLE>
i
<PAGE> 4
<TABLE>
<S> <C>
3.21 Board Approvals Regarding Transactions........................ 25
3.22 Vote Required................................................. 25
3.23 Approvals, Antitakeover Provisions............................ 26
3.24 Brokers and Finders........................................... 26
3.25 Fairness Opinion.............................................. 26
3.26 Compensation.................................................. 26
3.27 Full Disclosure............................................... 26
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT............................ 27
4.1 Corporate Organization and Qualification...................... 27
4.2 Authority..................................................... 27
4.3 Consents and Approvals; No Violation.......................... 27
4.4 Interim Operations of Sub..................................... 28
4.5 Financing..................................................... 28
4.6 Share Ownership............................................... 28
4.7 Information in Proxy Statement and Schedule 14D-9............. 28
4.8 Brokers and Finders........................................... 29
ARTICLE V ADDITIONAL COVENANTS AND AGREEMENTS.................................. 29
5.1 Interim Operations of the Company............................. 29
5.2 Alternative Proposals......................................... 32
5.3 Reasonable Best Efforts....................................... 34
5.4 Access to Information......................................... 35
5.5 Publicity..................................................... 35
5.6 State Takeover Laws........................................... 36
5.7 Directors' and Officers' Insurance and Indemnification........ 36
5.8 Conduct of Business of Sub.................................... 37
5.9 Transfer of Stockholder's Shares.............................. 37
5.10 Notification of Certain Matters............................... 37
5.11 Company Employees............................................. 37
5.12 Guaranty...................................................... 38
ARTICLE VI CONDITIONS TO CONSUMMATION OF THE MERGER............................ 38
6.1 Conditions to Each Party's Obligations to Effect the Merger... 38
ARTICLE VII TERMINATION........................................................ 39
7.1 Termination................................................... 39
7.2 Effect of Termination......................................... 41
ARTICLE VIII MISCELLANEOUS AND GENERAL......................................... 42
8.1 Payment of Expenses and Other Payments........................ 42
8.2 Survival of Representations and Warranties; Survival of
Confidentiality Agreement..................................... 42
8.3 Modification or Amendment..................................... 42
8.4 Waiver of Conditions.......................................... 42
8.5 Counterparts.................................................. 42
8.6 Governing Law................................................. 42
8.7 Notices....................................................... 43
8.8 Entire Agreement, Assignment.................................. 44
8.9 Parties in Interest........................................... 44
8.10 Obligation of Parent.......................................... 44
</TABLE>
ii
<PAGE> 5
<TABLE>
<S> <C>
8.11 Validity...................................................... 44
8.12 Captions...................................................... 45
8.13 Specific Performance.......................................... 45
8.14 Knowledge of the Company...................................... 45
8.15 Confidentiality............................................... 45
ARTICLE IX DEFINITIONS......................................................... 45
9.1 Certain Definitions........................................... 45
</TABLE>
iii
<PAGE> 6
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of
September 8, 1999, by and among Plato Holdings, Inc., a Delaware corporation
("Parent"), New Plato Acquisition, Inc., a Delaware corporation and a wholly
owned subsidiary of Parent ("Sub"), and NovaCare Employee Services, Inc., a
Delaware corporation (the "Company"). Capitalized terms used herein and not
defined in the specific Section in which they are used shall have the meanings
assigned to such terms in Article IX hereof.
RECITALS
WHEREAS, the Board of Directors of each of Parent, Sub and the
Company has approved, and deems it advisable and in the best interests of its
respective stockholders to consummate, the acquisition of the Company by Parent
upon the terms and subject to the conditions set forth herein;
WHEREAS, in furtherance thereof, it is proposed that Parent
make a cash tender offer (the "Offer") to acquire any and all shares of the
issued and outstanding common stock, $0.01 par value, of the Company (referred
to herein as either the "Shares" or "Company Common Stock") for $2.50 per share,
net to the seller in cash or, in the alternative, at Parent's election, to
purchase Shares from NC Resources, Inc., a Delaware corporation and the holder
of record of 19,400,000 Shares of the Company ("Target Parent"), pursuant to the
Stockholder Agreement (as defined below) and thereafter to acquire the remaining
Shares pursuant to the Merger provided for herein; and
WHEREAS, also in furtherance of such acquisition, the Board of
Directors of each of Parent, Sub and the Company has approved this Agreement and
the Merger (as defined in Section 1.4 hereof) following the Offer in accordance
with the General Corporation Law of the State of Delaware (the "DGCL") and upon
the terms and subject to the conditions set forth herein; and
WHEREAS, the Board of Directors of the Company (the "Company
Board") has determined that the consideration to be paid for each Share in the
Offer and the Merger is fair to the holders of such Shares and has resolved to
recommend that the holders of such Shares accept the Offer and approve this
Agreement and each of the transactions contemplated by this Agreement, including
the Offer and the Merger (the "Transactions"), upon the terms and subject to the
conditions set forth herein; and
WHEREAS, Parent, Sub and the Company desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger; and
WHEREAS, as a condition and inducement to Parent's and Sub's
entering into this Agreement and incurring the obligations set forth herein,
Target Parent and NovaCare, Inc., a Delaware corporation and the holder of all
of the issued and outstanding capital stock of Target Parent ("Ultimate
Parent"), concurrently herewith, are executing a stockholder agreement (the
"Stockholder Agreement") dated as of the date hereof, with Parent and Sub,
pursuant to which
<PAGE> 7
Target Parent is agreeing, among other things, to grant Parent a proxy with
respect to the voting of such Shares and to tender the Shares held by it in the
Offer or, at Parent's election, to sell such Shares to Sub on the terms and
conditions set forth therein, and Ultimate Parent is agreeing to hold a meeting
of its stockholders to approve certain of the transactions contemplated by the
Stockholder Agreement; and
WHEREAS, as a further condition and inducement to Parent's and
Sub's entering into this Agreement and incurring the obligations set forth
herein, the Company, concurrently herewith, is executing a Short Form Merger
Option Agreement (the "Stock Option Agreement"), dated as of the date hereof,
with Parent and Sub pursuant to which the Company is granting to Sub an option
to purchase Shares on the terms and subject to the conditions set forth therein.
NOW, THEREFORE, in consideration of the foregoing and the
mutual representations, warranties, covenants and agreements set forth herein,
Parent, Sub and the Company hereby agree as follows:
ARTICLE I
THE OFFER AND MERGER
1.1 The Offer; Merger Election. (a) Within five business days
following the date hereof, Sub shall commence (within the meaning of Rule 14d-2
under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) a
cash tender offer to acquire any and all Shares at a price of $2.50 per Share,
net to the seller in cash (such price, or such higher price per Share as may be
paid in the Offer, being referred to herein as the "Offer Price") and, subject
to there being validly tendered and not withdrawn prior to the expiration of the
Offer such number of Shares which, when added to the Shares, if any,
beneficially owned by Parent or Sub, would constitute a majority of the Shares
outstanding on a fully diluted basis (the "Minimum Condition") and to the other
conditions set forth in Annex A hereto (any of which may be waived in whole or
in part by Sub in its sole discretion), Sub shall, on the terms and subject to
the prior satisfaction or waiver of the conditions of the Offer, accept for
payment and pay for Shares tendered as soon as it is legally permitted to do so
under Applicable Law. The obligations of Sub to commence the Offer and to accept
for payment and to pay for any Shares validly tendered on or prior to the
expiration of the Offer and not withdrawn shall be subject only to the
conditions set forth in Annex A hereto. The Offer shall be made by means of an
offer to purchase (the "Offer to Purchase") containing the terms set forth in
this Agreement, the Minimum Condition and the conditions set forth in Annex A
hereto. Sub expressly reserves the right to amend any of the terms and
conditions of the Offer; provided, that Sub shall not without the prior written
consent of the Company (such consent to be authorized by the Company Board or a
duly authorized committee thereof) (i) decrease the Offer Price, (ii) decrease
the number of Shares sought, (iii) change the form of consideration to be paid
pursuant to the Offer, (iv) impose conditions to the Offer in addition to those
set forth in Annex A hereto, (v) amend any other term or condition of the Offer
in any manner adverse to the holders of the Shares or (vi) extend the expiration
date of the Offer. Notwithstanding the foregoing, Sub may, without the consent
of the Company, (A) extend the Offer, if at the initial scheduled or any
extended expiration date of the Offer any of the conditions of the Offer shall
not be satisfied or waived, until such time as such conditions are satisfied or
waived, (B) extend the Offer for any period required by any rule,
2
<PAGE> 8
regulation, interpretation or position of the United States Securities and
Exchange Commission (the "SEC") or the staff thereof applicable to the Offer,
(C) extend the Offer for up to ten business days if there have not been validly
tendered and not withdrawn prior to the expiration of the Offer such number of
Shares that, together with Shares, if any, beneficially owned by Parent or Sub,
would constitute at least 90% of the fully diluted Shares as of the date of
determination, provided that all other conditions to the Offer are satisfied or
waived and (D) extend the Offer for any reason for up to two business days;
provided, that no more than three extensions in the aggregate shall be permitted
under clauses (C) and (D) of this sentence. In addition, the Offer Price may be
increased and the Offer may be extended to the extent required by law, in each
case without the consent of the Company.
(b) On the date the Offer is commenced, Parent and Sub shall
file with the SEC a Tender Offer Statement on Schedule 14D-1 with respect to the
Offer (together with all amendments and supplements thereto and including the
exhibits thereto, the "Schedule 14D-1"). The Schedule 14D-1 will include, as
exhibits, the Offer to Purchase and a form of letter of transmittal and summary
advertisement (collectively, together with any amendments and supplements
thereto, the "Offer Documents").
(c) Parent and Sub further agree to take all steps necessary
to cause the Offer Documents to be filed with the SEC and to be disseminated to
holders of Shares, in each case as and to the extent required by applicable
federal securities laws. Each of Parent and Sub, on the one hand, and the
Company, on the other hand, agrees promptly to correct any information provided
by it for use in the Offer Documents if and to the extent that it shall have
become false and misleading in any material respect and Parent and Sub further
agree to take all steps necessary to cause the Offer Documents as so corrected
to be filed with the SEC and to be disseminated to holders of Shares, in each
case as and to the extent required by applicable federal securities laws. The
Company and its counsel shall be given a reasonable opportunity to review the
Schedule 14D-1 and the Offer Documents before they are filed with the SEC. In
addition, Parent and Sub agree to provide the Company and its counsel in writing
with any comments, whether written or oral, that Parent, Sub or their counsel
may receive from time to time from the SEC or its staff with respect to the
Offer Documents promptly after the receipt of such comments or other
communications.
1.2 Company Actions.
(a) On the date the Offer Documents are filed with the SEC,
the Company shall file with the SEC a Solicitation/Recommendation Statement on
Schedule 14D-9 (together with all amendments and supplements thereto and
including the exhibits thereto, the "Schedule 14D-9") containing the
recommendation described in Section 3.21 hereof. At the time the Offer Documents
are first mailed to the stockholders of the Company, the Company shall mail or
cause to be mailed to the stockholders of the Company such Schedule 14D-9
together with such Offer Documents. The Company further agrees to take all steps
necessary to cause the Schedule 14D-9 to be disseminated to holders of Shares,
in each case as and to the extent required by applicable federal securities
laws. Each of the Company, on the one hand, and Parent and Sub, on the other
hand, agrees promptly to correct any information provided by it for use in the
Schedule 14D-9 if and to the extent that it shall have become false and
misleading in any material respect and the Company further agrees to take all
steps necessary to cause the Schedule 14D-9 as so corrected
3
<PAGE> 9
to be filed with the SEC and to be disseminated to holders of the Shares, in
each case as and to the extent required by applicable federal securities laws.
Parent and its counsel shall be given a reasonable opportunity to review the
Schedule 14D-9 before it is filed with the SEC. In addition, the Company agrees
to provide Parent, Sub and their counsel in writing with any comments, whether
written or oral, that the Company or its counsel may receive from time to time
from the SEC or its staff with respect to the Schedule 14D-9 promptly after the
receipt of such comments or other communications.
(b) In connection with the Offer and the Merger, if requested
by Sub, the Company shall promptly furnish or cause to be furnished to Sub
mailing labels, security position listings and any available listing or computer
file containing the names and addresses of the record holders of the Shares as
of a recent date, and shall furnish Sub with such information and assistance as
Sub or its agents may reasonably request in communicating the Offer to the
stockholders of the Company. Except for such steps as are necessary to
disseminate the Offer Documents, Parent and Sub shall hold in confidence the
information contained in any of such labels and lists and the additional
information referred to in the preceding sentence, will use such information
only in connection with the Offer and the Merger, and, if this Agreement is
term-mated, will upon request of the Company deliver or cause to be delivered to
the Company all copies of such information then in its possession or the
possession of its agents or representatives.
1.3 Directors.
(a) Promptly upon the purchase of and payment for Shares by
Parent or any of its subsidiaries which represent at least a majority of the
then outstanding shares of Company Common Stock, Parent shall be entitled to
designate such number of directors, rounded up to the next whole number, on the
Company Board as is equal to the product of the total number of directors on the
Company Board (giving effect to the directors designated by Parent pursuant to
this sentence) multiplied by the percentage that the aggregate number of Shares
beneficially owned by Sub, Parent and any of their Affiliates (including Shares
so accepted for payment) bears to the total number of shares of Company Common
Stock then outstanding (on a fully diluted basis). The Company shall take all
action necessary to cause Parent's designees to be elected or appointed to the
Company Board and to secure the resignations of such number of its incumbent
directors as is necessary to enable Parent's designees to be so elected or
appointed. At such times, the Company will cause individuals designated by
Parent to constitute the same percentage (rounded up to the nearest whole
number) as such individuals represent on the Company Board of (A) each committee
of the Company Board and (B) each board of directors (and committee thereof) of
each Company Subsidiary (as defined in Section 3.1 hereof) in each case to the
extent permitted by Applicable Law or the rules or applicable listing agreement
of any stock exchange or over-the-counter market on which the Company Common
Stock is listed or traded. Notwithstanding the foregoing, until the Effective
Time (as defined in Section 1.5 hereof), the Company shall use its best efforts
to retain as members of the Company Board at least two directors that are
directors of the Company on the date hereof (the "Independent Directors");
provided, that subsequent to the purchase of and payment for Shares pursuant to
the Offer, Parent shall always have its designees represent at least a majority
of the entire Company Board. The Company's obligations under this Section 1.3(a)
shall be subject to Section 14(f) of the Exchange Act and Rule 14f-1 promulgated
thereunder. The Company shall promptly take all
4
<PAGE> 10
actions required pursuant to such Section 14(f) and Rule l4f-1 in order to
fulfill its obligations under this Section 1.3(a), including mailing to
stockholders the information required by such Section 14(f) and Rule 14f-1 as is
necessary to enable Parent's designees to be elected or appointed to the Company
Board. Parent or Sub shall supply the Company any information with respect to
either of them and their nominees, officers, directors and affiliates required
by such Section 14(f) and Rule 14f-1. The provisions of this Section 1.3 are in
addition to and shall not limit any rights which Sub, Parent or any of their
Affiliates may have as a holder or beneficial owner of Shares as a matter of law
with respect to the election of directors or otherwise.
(b) In the event that Parent's designees are elected or
appointed to the Company Board, until the Effective Time, the Company shall use
its best efforts to maintain as members of the Company Board at least two
directors who are Independent Directors, provided that, in such event, if the
number of Independent Directors shall be reduced below two for any reason
whatsoever, the remaining Independent Director, if any, shall be entitled to
designate a person to fill such vacancy who shall be deemed to be an Independent
Director for purposes of this Agreement or, if no Independent Director then
remains, the other directors shall designate two persons to fill such vacancies
who shall not be stockholders, Affiliates or associates of Parent or Sub, and
each such person shall be deemed to be an Independent Director, for purposes of
this Agreement. Notwithstanding anything in this Agreement to the contrary, in
the event that Parent's designees constitute a majority of the directors on the
Company Board, the affirmative vote of a majority of the Independent Directors
shall be required after the acceptance for payment of Shares pursuant to the
Offer and prior to the Effective Time, to (a) amend or terminate this Agreement
by the Company, (b) exercise or waive any of the Company's rights, benefits or
remedies hereunder if such exercise or waiver materially and adversely affects
holders of Shares other than Parent or Sub, (c) take action with respect to the
retention of counsel and other advisors in connection with the transactions
contemplated hereby or (d) take any other action under or in connection with
this Agreement if such action materially and adversely affects holders of Shares
other than Parent or Sub; provided, that if there shall be no such directors,
such actions may be effected by unanimous vote of the entire Company Board. The
Independent Directors shall have the right to retain, at the expense of the
Company, one separate firm of counsel to represent them in connection with the
Transactions.
1.4 The Merger. Subject to the terms and conditions of this
Agreement, the Company and Sub shall consummate a merger (the "Merger") pursuant
to which (a) Sub shall be merged with and into the Company and the separate
corporate existence of Sub shall thereupon cease, (b) the Company shall be the
successor or surviving corporation in the Merger and shall continue to be
governed by the laws of the State of Delaware and (c) the separate corporate
existence of the Company with all its rights, privileges, immunities, powers and
franchises shall continue unaffected by the Merger. The corporation surviving
the Merger is sometimes hereinafter referred to as the "Surviving Corporation."
The Merger shall have the effects set forth in the DGCL.
1.5 Effective Time. Parent, Sub and the Company will cause a
Certificate of Merger (the "Certificate of Merger") to be executed and filed on
the date of the Closing (as defined in Section 1.6 hereof) (or on such other
date as Parent and the Company may agree) with the Secretary of State of the
State of Delaware (the "Secretary of State") as provided in the DGCL. The Merger
shall become effective at the time at which the Certificate of Merger has
5
<PAGE> 11
been duly filed with the Secretary of State or at such time as is agreed upon by
the parties and specified in the Certificate of Merger, and such time is
hereinafter referred to as the "Effective Time."
1.6 Closing. The closing of the Merger (the "Closing") shall
take place at 10:00 a.m., local time, on a date to be specified by Parent or
Sub, which shall be no later than the second business day after the satisfaction
or waiver of all of the conditions set forth in Article VI hereof (the "Closing
Date") at the offices of Blank Rome Comisky & McCauley LLP, One Logan Square,
Philadelphia, Pennsylvania 19103, unless another date, time or place is agreed
to in writing by the parties hereto.
1.7 Certificate of Incorporation of the Surviving Corporation.
The Certificate of Incorporation of the Company, as in effect immediately prior
to the Effective Time, shall be the Certificate of Incorporation of the
Surviving Corporation until thereafter amended as provided by Applicable Law and
such Certificate of Incorporation.
1.8 By-Laws of the Surviving Corporation. The By-Laws of the
Company, as in effect immediately prior to the Effective Time, shall be the
By-Laws of the Surviving Corporation until thereafter amended as provided by
Applicable Law, the Certificate of Incorporation of the Surviving Corporation
and such By-Laws.
1.9 Directors and Officers of the Surviving Incorporation. The
directors of Sub at the Effective Time and the officers of the Company at the
Effective Time shall be the initial directors and officers, respectively, of the
Surviving Corporation until their respective successors have been duly elected
or appointed and qualified or until their earlier death, resignation or removal
in accordance with the Surviving Corporation's Certificate of Incorporation and
By-Laws.
1.10 Subsequent Actions. If at any time after the Effective
Time, the Surviving Corporation will consider or be advised that any deeds,
bills of sale, assignments, assurances or any other actions or things are
necessary or desirable to vest, perfect or confirm of record or otherwise in the
Surviving Corporation its right, title or interest in, to or under any of the
rights, properties or assets of either of the Company or Sub acquired or to be
acquired by the Surviving Corporation as a result of, or in connection with, the
Merger or otherwise to carry out this Agreement, the officers and directors of
the Surviving Corporation shall be authorized to execute and deliver, in the
name and on behalf of either the Company or Sub, all such deeds, bills of sale,
instruments of conveyance, assignments and assurances and to take and do, in the
name and on behalf of each of such corporations or otherwise, all such other
actions and things as may be necessary or desirable to vest, perfect or confirm
any and all right, title and interest in, to and under such rights, properties
or assets in the Surviving Corporation or otherwise to carry out this Agreement.
1.11 Stockholders' Meeting.
(a) If required by Applicable Law in order to consummate the
Merger, the Company, acting through the Company Board, shall, in accordance with
Applicable Law:
6
<PAGE> 12
(i) duly call, give notice of, convene and hold a
special meeting of its stockholders (the "Special Meeting") as soon as
practicable following the acceptance for payment and purchase of Shares
by Sub pursuant to the Offer for the purpose of considering and taking
action upon the approval of the Merger and the adoption of this
Agreement;
(ii) prepare and file with the SEC a preliminary proxy
or information statement relating to the Merger and this Agreement and
shall obtain and furnish the information required to be included by the
SEC in the Proxy Statement (as hereinafter defined) and, after
consultation with Parent, to respond promptly to any comments made by
the SEC with respect to the preliminary proxy or information statement
and cause a definitive proxy or information statement, including any
amendment or supplement thereto (the "Proxy Statement"), to be mailed
to its stockholders, provided that no amendment or supplement to the
Proxy Statement will be made by the Company without consultation with
Parent and its counsel,
(iii) include in the Proxy Statement the
recommendation of the Company Board that stockholders of the Company
vote in favor of the approval of the Merger and the adoption of this
Agreement; and
(iv) use its best efforts to solicit from holders of
Shares proxies in favor of the Merger and shall take all other action
necessary or, in the reasonable opinion of Parent, advisable to secure
any vote or consent of stockholders required by the DGCL to effect the
Merger.
(b) Parent agrees that it will provide the Company with the
information concerning Parent and Sub required to be included in the Proxy
Statement and will vote, or cause to be voted, all of the Shares then owned by
it, Sub or any of its other subsidiaries and Affiliates in favor of the approval
of the Merger and the adoption of this Agreement; provided that this Section
1.11(b) shall not apply to Shares held in any client or customer accounts over
which FMR Corp. or any of its Affiliates has investment management or advisory
responsibilities, including any of the Fidelity Investments mutual funds.
(c) The Company represents that the Proxy Statement (or any
amendment thereof or supplement thereto) at the date mailed to Company
stockholders and at the time of the Special Meeting, if any, will not contain
any untrue statement of material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading, except that no representation is made by the Company with respect to
statements made therein based on information supplied by Parent or Sub in
writing for inclusion in the Proxy Statement. If at any time prior to the
Effective Time, any event with respect to the Company, Stockholder or any of the
Company Subsidiaries should occur which is required to be described in a
supplement to the Proxy Statement, such event shall be so described, and such
supplement shall be promptly filed with the SEC and, as required by law,
disseminated to the stockholders of the Company. With respect to the information
relating to the Company or Stockholder, the Proxy Statement will comply as to
form and substance in all material respects with the requirements of the
Exchange Act.
7
<PAGE> 13
1.12 Merger Without Meeting of Stockholders. Notwithstanding
Section 1.11 hereof, in the event that Parent, Sub or any other subsidiary of
Parent shall acquire in the aggregate a number of the outstanding Shares,
pursuant to the Offer or otherwise, sufficient to enable Sub or the Company to
cause the Merger to become effective under Applicable Law without a meeting of
stockholders of the Company, the parties hereto shall, at the request of Parent
and subject to Article VI hereof, take all necessary and appropriate action to
cause the Merger to become effective as soon as practicable after such
acquisition, without a meeting of stockholders of the Company, in accordance
with Section 253 of the DGCL.
ARTICLE II
CONVERSION OF SECURITIES
2.1 Conversion of Capital Stock. As of the Effective Time, by
virtue of the Merger and without any action on the part of the holders of any
shares of Company Common Stock or common stock, par value $.01 per share, of Sub
("Sub Common Stock"):
(a) Sub Common Stock. Each issued and outstanding share of
Sub Common Stock shall be converted into and become one fully paid and
nonassessable share of common stock of the Surviving Corporation.
(b) Cancellation of Treasury Stock and Parent-Owned Stock.
All shares of Company Common Stock that are owned by the Company as treasury
stock and any shares of Company Common Stock owned by Parent, Sub or any other
wholly owned subsidiary of Parent shall be cancelled and retired and shall cease
to exist and no consideration shall be delivered in exchange therefor.
(c) Conversion of Shares. Each share of Company Common
Stock issued and outstanding (other than Shares to be cancelled in accordance
with Section 2.1 (b) hereof and Dissenting Shares (as defined in Section 2.4
hereof)), shall be converted into the right to receive the Offer Price, payable
to the holder thereof, without interest (the "Merger Consideration"), upon
surrender of the certificate formerly representing such share of Company Common
Stock in the manner provided in Section 2.2 hereof. All such shares of Company
Common Stock, when so converted, shall no longer be outstanding and shall
automatically be cancelled and retired and shall cease to exist, and each holder
of a certificate representing any such shares shall cease to have any rights
with respect thereto, except the right to receive the Merger Consideration
therefor, without interest, upon the surrender of such certificate in accordance
with Section 2.2 hereof or the right, if any, to receive payment from the
Surviving Corporation of the "fair value" of such Shares in accordance with
Section 262 of the DGCL.
(d) Stock Options. Information concerning outstanding
stock options to purchase Shares ("Options") granted under the Company's stock
option plans and agreements (the "Option Plans") (including the names of the
optionees, the dates of grant, the number of shares subject to such options and
the exercise prices of such options) is set forth in Section 2.1(d) of the
disclosure schedule delivered to Parent and Sub by the Company concurrently with
the execution hereof (the "Company Disclosure Schedule"). In consideration for
the cancellation of the outstanding "in the money" Options pursuant to this
Section 2.1(d),
8
<PAGE> 14
the Company shall pay to the holders of such Options an amount, in cash, equal
to the product of (A) the difference between the Offer Price and the per share
exercise price of such Options multiplied by (B) the number of Shares covered by
such Options. The Company agrees that with respect to all outstanding
"underwater" Options, the Company shall, prior to completion of the Offer,
obtain agreements from the holders of Options who are senior management,
executive officers, and/or directors of the Company and the officers and
directors of Ultimate Parent deemed to have been founders of the Company, as set
forth in Section 2.1(d) of the Company Disclosure Schedule, to cancel their
Options and shall use its best efforts to obtain agreements from all other
holders of Options to cancel their Options, and, after such cancellation
pursuant to this Section 2.1(d), there shall be outstanding no more than an
aggregate of underwater Options to purchase 75,000 shares held by such other
holders of Options.
2.2 Exchange of Certificates.
(a) Paying Agent. Parent shall designate a bank or trust
company reasonably acceptable to the Company to act as agent for the holders of
shares of Company Common Stock in connection with the Merger (the "Paying
Agent") to receive the funds to which holders of shares of Company Common Stock
shall become entitled pursuant to Section 2.1(c) hereof. Parent shall, from time
to time, make available to the Paying Agent funds in amounts and at times
necessary for the payment of the Merger Consideration as provided herein. Such
funds shall be invested by the Paying Agent as directed by Parent. Earnings from
such investments shall be the sole and exclusive property of Parent, and no part
of such earnings shall accrue to the benefit of holders of Shares.
(b) Exchange Procedures. As soon as reasonably
practicable, but in no event more than five business days, after the Effective
Time, Parent shall cause the Paying Agent to mail to each holder of record of a
certificate or certificates, which immediately prior to the Effective Time
represented outstanding shares of Company Common Stock (the "Certificates"),
whose shares were converted pursuant to Section 2.1 hereof into the right to
receive the Merger Consideration (i) a letter of transmittal (which shall
specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the Paying
Agent and shall be in such form and have such other provisions not inconsistent
with this Agreement as Parent may reasonably specify) and (ii) instructions for
use of such letter of transmittal in effecting the surrender of the Certificates
in exchange for payment of the Merger Consideration. Upon surrender of a
Certificate for cancellation to the Paying Agent or to such other agent or
agents as may be appointed by Parent, together with such letter of transmittal,
duly executed, the holder of such Certificate shall be entitled to receive in
exchange therefor the Merger Consideration for each share of Company Common
Stock formerly represented by such Certificate and the Certificate so
surrendered shall forthwith be cancelled. If payment of the Merger Consideration
is to be made to a person other than the person in whose name the surrendered
Certificate is registered, it shall be a condition of payment that the
Certificate so surrendered shall be properly endorsed or shall be otherwise in
proper form for transfer and that the person requesting such payment shall have
paid any transfer and other taxes required by reason of the payment of the
Merger Consideration to a person other than the registered holder of the
Certificate surrendered or shall have established to the satisfaction of the
Surviving Corporation that such tax either has been paid or is not applicable.
Until surrendered as contemplated by this Section 2.2, each Certificate shall be
deemed at any time after the Effective
9
<PAGE> 15
Time to represent only the right to receive the Merger Consideration in cash as
contemplated by this Section 2.2. No interest shall be paid or will accrue on
the Merger Consideration payable to holders of Certificates pursuant to the
provisions of this Article II.
(c) Transfer Books; No Further Ownership Rights in Company
Common Stock. At the Effective Time, the stock transfer books of the Company
shall be closed and thereafter there shall be no further registration of
transfers of shares of Company Common Stock on the records of the Company. From
and after the Effective Time, the holders of Certificates evidencing ownership
of shares of Company Common Stock outstanding immediately prior to the Effective
Time shall cease to have any rights with respect to such Shares, except as
otherwise provided for herein or by Applicable Law. If, after the Effective
Time, Certificates are presented to the Surviving Corporation for any reason,
they shall be cancelled and exchanged as provided in this Article II.
(d) Termination of Fund, No Liability. At any time
following six months after the Effective Time, the Surviving Corporation shall
be entitled to require the Paying Agent to deliver to it any funds (including
any interest received with respect thereto) which had been made available to the
Paying Agent and which have not been disbursed to holders of Certificates, and
thereafter such holders shall be entitled to look to the Surviving Corporation
(subject to abandoned property, escheat or other similar laws) only as general
creditors thereof with respect to the Merger Consideration payable upon due
surrender of their Certificates, without any interest thereon. Notwithstanding
the foregoing, none of Parent, the Surviving Corporation or the Paying Agent
shall be liable to any holder of a Certificate for Merger Consideration
delivered to a public official pursuant to any applicable abandoned property,
escheat or similar law.
(e) Lost Certificates. If any Certificate shall have been
lost, stolen or destroyed, upon the making of an affidavit of that fact by the
person claiming such Certificate to be lost, stolen or destroyed with such
assurances as the Paying Agent may, in its discretion require, and, if required
by the Surviving Corporation, the posting by such person of a bond in such
reasonable amount as the Surviving Corporation may direct as indemnity against
any claim that may be made against it with respect to such Certificate, the
Paying Agent shall pay in exchange for such lost, stolen or destroyed
Certificates the Merger Consideration pursuant to this Agreement.
2.3 Withholding Taxes. Parent and Sub shall be entitled to
deduct and withhold, or cause the Paying Agent to deduct and withhold, from the
Offer Price or the Merger Consideration payable to a holder of Shares pursuant
to the Offer or the Merger any withholding and stock transfer Taxes (as defined
in Section 3.8 hereof) and such amounts as are required under the Code or any
applicable provision of state, local or foreign Tax law. To the extent that
amounts are so withheld by Parent or Sub, such withheld amounts shall be treated
for all purposes of this Agreement as having been paid to the holder of the
Shares in respect of which such deduction and withholding was made by Parent or
Sub.
2.4 Appraisal Rights. Notwithstanding anything in this
Agreement to the contrary, Shares (the "Dissenting Shares") that are issued and
outstanding immediately prior to the Effective Time and which are held by
stockholders who did not vote in favor of the Merger
10
<PAGE> 16
and who comply with all of the relevant provisions of Section 262 of the DGCL
(the "Dissenting Stockholders") shall not be converted into or be exchangeable
for the right to receive the Merger Consideration, unless and until such holders
shall have failed to perfect or shall have effectively withdrawn or lost their
rights to appraisal under the DGCL, but the holders thereof shall be entitled to
only such rights as are granted by the DGCL. If any Dissenting Stockholder shall
have failed to perfect or shall have effectively withdrawn or lost such right,
such holder's Shares shall thereupon be converted into and become exchangeable
for the right to receive, as of the Effective Time, the Merger Consideration
without any interest thereon, upon surrender of the Certificate or Certificates
representing such Shares pursuant to Section 2.2 hereof. The Company shall give
Parent (i) prompt notice of any written demands for appraisal of any Shares,
attempted withdrawals of such demands and any other instruments served pursuant
to the DGCL and received by the Company relating to the stockholders' rights of
appraisal and (ii) the opportunity to direct all negotiations and proceedings
with respect to demands for appraisal under the DGCL. Neither the Company nor
the Surviving Corporation shall, except with the prior written consent of
Parent, voluntarily make any payment with respect to, or settle or offer to
settle, any such demand for payment. If any Dissenting Stockholder shall fail to
perfect or shall have effectively withdrawn or lost the right to dissent, the
Shares held by such Dissenting Stockholder shall thereupon be treated as though
such Shares had been converted into the right to receive the Merger
Consideration pursuant to Section 2.1 (c) hereof.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY
The Company hereby represents and warrants to Parent and Sub
as follows:
3.1 Organization and Qualification; Company Subsidiaries. The
Company and each of its subsidiaries (each a "Company Subsidiary" and
collectively, the "Company Subsidiaries") is validly existing and in good
standing under the laws of the jurisdiction of its organization, and has all
requisite corporate or partnership (as applicable) power, authority and legal
right to own, operate and lease its assets and properties and to conduct the
businesses in which it is now engaged. The Company and each Company Subsidiary
is duly qualified and in good standing to transact business as a foreign
corporation or limited partnership (as applicable) in all jurisdictions wherein
it is required to be so qualified, except where the failure to be so qualified
would not have, individually or in the aggregate, a Company Material Adverse
Effect. Neither the Company nor any Company Subsidiary conducts business in any
jurisdiction outside of the United States. The Company does not have any
subsidiaries other than the Company Subsidiaries listed in Section 3.1 of the
Company Disclosure Schedule. Except as set forth in Section 3.1 of the Company
Disclosure Schedule, the Company, directly or indirectly through a wholly owned
Company Subsidiary, owns of record and beneficially all of the issued and
outstanding shares of capital stock of each Company Subsidiary, free and clear
of all Liens. Other than the Company Subsidiaries and other than as set forth in
Section 3.1 of the Company Disclosure Schedule, the Company does not own any
capital stock or other proprietary interest, directly or indirectly, in any
corporation, association, trust, partnership, joint venture, limited liability
company or other entity nor is the Company bound by any agreement to acquire any
such capital stock or other proprietary interest. Copies of the Certificate of
Incorporation and
11
<PAGE> 17
By-Laws of the Company and each Company Subsidiary which is a corporation and
copies of the Certificate of Limited Partnership and Agreement of Limited
Partnership of each Company Subsidiary which is a limited partnership have been
heretofore made available to Parent and Sub, which copies are complete and
correct and include all amendments, modifications or supplements thereto.
3.2 Conflicts. Neither the execution, delivery or performance
of this Agreement or the Stock Option Agreement by the Company, nor the
consummation of the Transactions contemplated hereby or thereby to be
consummated by the Company, (a) violates any provision of the Certificate of
Incorporation or By-Laws or other organizational documents of the Company or any
Company Subsidiary or (b) constitutes a violation of any Applicable Law. Except
as set forth in Section 3.2 of the Company Disclosure Schedule, neither the
execution, delivery or performance of this Agreement or the Stock Option
Agreement by the Company nor the consummation of the Transactions contemplated
hereby or thereby to be consummated by the Company, with or without notice
and/or lapse of time, (i) violates, conflicts with, results in any breach of any
of the terms of, or results in the termination or modification of, or the
exercise or acceleration of any right or remedy under, any Company Material
Contract (as defined in Section 3.10 hereof), any other contract of the Company
or any Company Subsidiary, or other obligation to which the Company or any
Company Subsidiary is subject, (ii) violates, conflicts with, results in any
breach of any of the terms of, or results in the termination, modification or
revocation of, any Permit held by the Company or any Company Subsidiary, or
(iii) results in the creation of any Lien on any of the assets or properties
owned or used by the Company or any Company Subsidiary, except where such
violation, conflict, breach, termination or Lien would not have, individually or
in the aggregate, a Company Material Adverse Effect.
3.3 Capitalization. The authorized capital stock of the
Company consists of: (i) 60,000,000 Shares, of which, as of the date hereof,
30,274,000 Shares were issued and outstanding and (ii) 1,000,000 shares of
preferred stock, $0.01 par value per share, none of which, as of the date
hereof, were issued and outstanding. As of the date hereof, 2,271,250 Shares
were reserved for issuance upon exercise of outstanding Options under the 1997
Stock Option Plan, as amended, with an exercise price range of a minimum
exercise price of $2.80 and a maximum exercise price of $9.13. All outstanding
shares of capital stock and other equity securities of the Company and each
Company Subsidiary are, and all Shares which may be issued pursuant to the
exercise of outstanding Options and as earn-out payments pursuant to the
Acquisition Agreements, will be, when so issued, duly authorized, validly
issued, fully paid and nonassessable and not subject to preemptive rights. There
are no bonds, debentures, notes or other indebtedness or securities of the
Company or of any Company Subsidiary issued and outstanding which have the right
to vote (or are convertible into, or exchangeable for, securities having the
right to vote) on any matters on which stockholders of the Company or any
Company Subsidiary may vote. Except as set forth above or in Section 2.1(d) of
the Company Disclosure Schedule and except for a maximum of 6,124,000 Shares
which may be issued pursuant to earn-out arrangements contained in the
Acquisition Agreements (as defined in Section 3.10 hereof) assuming that the
targets set forth in the projections delivered to Parent by the Company with
respect to earn-out obligations to which the Company or any Company Subsidiary
is subject pursuant to the Acquisition Agreements and assuming that the
applicable market price of the Shares is equal to the Offer Price (it being
understood that all earn-out obligations can be satisfied in cash), as of the
date of this Agreement: (i) no shares of capital stock or other
12
<PAGE> 18
securities of the Company are issued, reserved for issuance or outstanding, (ii)
there are no stock appreciation rights, phantom stock units, restricted stock
grants, contingent stock grants or Benefit Plans (as defined in Section 3.11
hereof) which grant awards of any of the foregoing, and there are no other
outstanding contractual rights to which the Company is a party the value of
which is based on the value of Shares; and (iii) except as set forth above,
there are no outstanding securities, options, warrants, calls, rights,
commitments, agreements, arrangements or undertakings of any kind to which the
Company or any Company Subsidiary is a party or by which any of them is bound
obligating the Company or any Company Subsidiary to issue, deliver or sell, or
cause to be issued, delivered or sold, shares of capital stock or other
securities of the Company or of any Company Subsidiary or obligating the Company
or any Company Subsidiary to issue, grant, extend or enter into any such
security, option, warrant, call, right, commitment, agreement, arrangement or
undertaking. Except as set forth in Section 3.3 of the Company Disclosure
Schedule, there are no programs in place, nor any outstanding contractual
obligations of the Company or any Company Subsidiary, to repurchase, redeem or
otherwise acquire any shares of capital stock or other equity securities of the
Company or any Company Subsidiary or to provide funds to make any investment (in
the form of a loan, capital contribution or otherwise) in any Company Subsidiary
or any other entity. There are no voting trusts or other agreements or
understandings to which the Company or any Company Subsidiary is a party with
respect to the voting of the capital stock or other equity securities of the
Company or any Company Subsidiary. Except as set forth in Section 3.3 of the
Company Disclosure Schedule, no indebtedness of the Company or any Company
Subsidiary or as to which the Company or any Company Subsidiary has given a
guarantee or by which any of their respective assets or properties are bound
contains any restriction upon (i) the prepayment of any indebtedness of the
Company or any Company Subsidiary, (ii) the incurrence of indebtedness by the
Company or any Company Subsidiary or (iii) the ability of the Company or any
Company Subsidiary to grant any Lien on the properties or assets of the Company
or any Company Subsidiary. Except as set forth in Section 3.3 of the Company
Disclosure Schedule, each outstanding share of capital stock or other equity
interest of each Company Subsidiary is owned by the Company or a Company
Subsidiary that is wholly owned by the Company, free and clear of all Liens.
3.4 SEC Reports: Financial Statements; Undisclosed
Liabilities.
(a) The Company has filed all forms, reports, schedules,
statements and other documents required to be filed by it with the SEC since its
inception pursuant to the federal securities laws and the SEC rules and
regulations thereunder, all of which, as of their respective dates, complied in
all material respects with applicable requirements of the Securities Act of
1933, as amended (the "Securities Act"), and the Exchange Act, as the case may
be, and the applicable rules and regulations of the SEC thereunder
(collectively, the "Company SEC Reports"). None of the Company SEC Reports,
including, without limitation, any financial statements or schedules included
therein, as of their respective dates, contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(b) The financial statements (including the related notes
thereto) of the Company included in the Company SEC Reports comply in all
material respects with applicable
13
<PAGE> 19
accounting requirements and the published rules and regulations of the SEC with
respect thereto, have been prepared in conformity with generally accepted
accounting principles ("GAAP") in the United States applied on a consistent
basis during the periods involved (except as otherwise noted therein), and
present fairly the consolidated financial position of the Company and its
consolidated Company Subsidiaries as of their respective dates, and the
consolidated results of their operations and cash flows for the periods
presented therein (subject, in the case of the unaudited interim financial
statements, to normal year-end adjustments).
(c) Except (i) as set forth in Section 3.4(c) of the
Company Disclosure Schedule, (ii) as set forth in the consolidated balance sheet
of the Company as of March 31, 1999 set forth in the Company's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1999 (the "Balance Sheet") and
(iii) for current liabilities and obligations incurred in the ordinary course of
business consistent with past practice since March 31, 1999 (and not materially
different in type or amount), neither the Company nor any Company Subsidiary has
any material liabilities or obligations of any nature (whether accrued,
absolute, contingent or otherwise).
(d) All accounts receivable of the Company and each
Company Subsidiary that are reflected in the Balance Sheet or on the accounting
records of the Company and the Company Subsidiaries as of the date any Shares
have been accepted for payment pursuant to the Offer represent and will
represent valid obligations arising from sales actually made or services
actually performed in the ordinary course of business. Section 3.4(d) of the
Company Disclosure Schedule contains a complete and accurate aged accounts
receivable list of the Company and the Company Subsidiaries as of June 30, 1999.
As of the date any Shares have been accepted for payment pursuant to the Offer,
there shall have been no material increase in the accounts receivable of the
Company and the Company Subsidiaries that are 30 days or more past due. Unless
paid prior to the date any Shares have been accepted for payment pursuant to the
Offer, the accounts receivable of the Company and each Company Subsidiary are or
will be as of the date any Shares have been accepted for payment pursuant to the
Offer, collectible net of the respective reserves shown in Section 3.4(d) of the
Company Disclosure Schedule or on the accounting records of the Company and each
Company Subsidiary as of the date any Shares have been accepted for payment
pursuant to the Offer (which reserves are adequate and calculated consistent
with past practice and, in the case of the reserves as of the date any Shares
have been accepted for payment pursuant to the Offer, will not represent a
greater percentage of the 30 days or more past due accounts receivable as of
such date than the reserves reflected in Section 3.4(d) of the Company
Disclosure Schedule represented of such past due accounts receivable reflected
therein).
3.5 Schedule 14D-9; Offer Documents; Proxy Statement. Neither
the Schedule 14D-9, any other document required to be filed by the Company with
the SEC in connection with the Transactions, nor any information supplied by the
Company for inclusion in the Offer Documents shall, at the respective times the
Schedule 14D-9, any such other filings by the Company, the Offer Documents or
any amendments or supplements thereto are filed with the SEC or are first
published, sent or given to stockholders of the Company, as the case may be,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
made therein, in light of the circumstances under which they are made, not
misleading. The Proxy Statement, if any, will not, on the date the Proxy
Statement (including any amendment or supplement thereto) is first mailed
14
<PAGE> 20
to stockholders of the Company and at the time of the Special Meeting, contain
any untrue statement of a material fact, or omit to state any material fact
required to be stated therein or necessary in order to make the statements made
therein, in light of the circumstances under which they are made, not misleading
and the Proxy Statement will not, at the time of the Special Meeting, omit to
state any material fact necessary to correct any statement in any earlier
communication with respect to the solicitation of proxies for the Special
Meeting which shall have become false or misleading in any material respect. The
Schedule 14D-9, any other document required to be filed by the Company with the
SEC in connection with the Transactions, and the Proxy Statement will, when
filed by the Company with the SEC, comply as to form in all material respects
with the applicable provisions of the Exchange Act and the rules and regulations
thereunder. Notwithstanding the foregoing, the Company makes no representation
or warranty with respect to the statements made in any of the foregoing
documents based on and in conformity with information supplied in writing by or
on behalf of Parent or Sub specifically for inclusion therein.
3.6 Absence of Certain Changes. Except as set forth in Section
3.6 of the Company Disclosure Schedule or in the Company SEC Reports, since the
date of the Balance Sheet, (i) the Company and each Company Subsidiary has
conducted its respective business in all material respects in the ordinary and
usual course consistent with past practice, (ii) there has not occurred any
events or changes (including the incurrence of any liabilities of any nature,
whether or not accrued, contingent or otherwise) having or reasonably likely to
have, individually or in the aggregate, a Company Material Adverse Effect, and
(iii) neither the Company nor any Company Subsidiary has taken any action that
would have been prohibited by Section 5.1 if such section applied to the period
between the date of the Balance Sheet and the date hereof.
3.7 Taxes. Except as set forth in Section 3.7 of the Company
Disclosure Schedule:
(a) The Company and each Company Subsidiary has filed or
caused to be filed on a timely basis all material returns, reports or other
declarations relating to Taxes required to be filed by it (the "Tax Returns"),
all of which were complete and correct in all material respects and the Company
and each Company Subsidiary has timely paid or caused to be paid all federal
income and all material other federal, state, local and foreign taxes
(including, but not limited to, income, franchise, property (real, tangible and
intangible), sales, use, unemployment, withholding, gross receipts, business
license, transfer, capital, net worth, gains, excise, social security and
workers' compensation taxes and estimated income and franchise tax payments, and
penalties, interest and fines with respect to any thereof) (collectively,
"Taxes") due and payable by it. Since their respective dates of acquisition, the
taxable income of the Company and each Company Subsidiary has been included in
the consolidated federal income Tax Returns of the Company to the extent
required to be included under the Code and in the consolidated, combined or
unitary state income Tax Returns of the Company to the extent required to be
included under applicable state income Tax rules.
(b) With respect to any Taxes of the Company or any
Company Subsidiary not yet due and payable, adequate reserves and accruals for
such Taxes have been made in the Financial Statements or in the books and
records of the Company.
15
<PAGE> 21
(c) Neither the Company nor any Company Subsidiary has
received written notice from any taxing authority of any material deficiency,
claim or other dispute relating to the payment or assessment of any Taxes for
any period which remains unsettled at the date hereof, and the Company has no
reasonable basis to believe that any such deficiency, claim or other dispute
exists materially in excess of reserves and accruals set forth in the Financial
Statements or in the books and records of the Company or of any Company
Subsidiary.
(d) Neither the Company nor any Company Subsidiary has
executed any waiver of any statute of limitations on the assessment or
collection of Taxes with respect to the Company or any Company Subsidiary or
executed any agreement in each case now in effect extending the period of time
to assess or collect any Taxes with respect to the Company and the Company
Subsidiary.
(e) There are no material Liens for Taxes (other than
Permitted Liens) upon or, to the knowledge of the Company, threatened against
any assets of the Company or any Company Subsidiary.
(f) Neither the Company nor any Company Subsidiary has
been or currently is a party to any pending or, to the knowledge of the Company,
threatened action, proceeding or assessment by any taxing authority, foreign or
domestic, relating to the Company or any Company Subsidiary.
(g) No election under Section 341(f) of the Code has been
or will be made to treat the Company or any Company Subsidiary as a "consenting
corporation" as defined in such Section 341(f).
(h) Neither the Company nor any Company Subsidiary is or
has been a United States real property holding corporation within the meaning of
Section 897(c)(2) of the Code.
(i) The Company and each Company Subsidiary has withheld
and paid all Taxes required to have been withheld and paid in connection with
amounts paid or owing to any employee (including, to the Company's knowledge,
Worksite Employees), independent contractor, creditor, stockholder, or other
third party.
(j) The Company has delivered or caused to be delivered to
Parent correct and complete copies of all federal income Tax Returns,
examination reports, and statements of deficiencies assessed against or agreed
to by the Company or any Company Subsidiary, as the case may be, since the
inception thereof.
(k) Neither the Company nor any Company Subsidiary has
made any payments, is obligated to make any payments, or is a party to any
agreement that under certain circumstances could obligate it to make any
payments that will not be deductible under Code Section 280G.
(l) The Company and each Company Subsidiary (during such
time as it was a Company Subsidiary) has disclosed on its federal income Tax
Returns all positions taken
16
<PAGE> 22
therein that could, in the reasonable judgment of the Company, give rise to a
substantial understatement of federal income Tax within the meaning of Code
Section 6662.
(m) Neither the Company nor any Company Subsidiary is a
party to any Tax allocation or sharing agreement. Neither the Company nor any
Company Subsidiary (A) has been a member of an affiliated group (other than the
group of which they are now a member) filing a consolidated federal income Tax
Return or (B) to the Company's knowledge, has any liability for the Taxes of any
person or entity (other than the Company and the Company Subsidiaries) under
Treasury Regulation Section 1. 1502-6 (or any similar provision of state, local,
or foreign law), as a transferee or successor, by contract, or otherwise.
(n) Section 3.7 of the Company Disclosure Schedule sets
forth the Company's Tax basis in each Company Subsidiary as of the date of this
Agreement.
(o) There have been no changes in tax accounting methods
by the Company or any Company Subsidiary which have resulted or will result in
an adjustment under Code Section 481.
(p) Neither the Company nor any Company Subsidiary has an
"excess loss account" within the meaning of Treasury Regulation Section
1.1502-19(a) with respect to its investment in any other subsidiary corporation.
3.8 Real Property Owned or Leased. Neither the Company nor any
Company Subsidiary owns any real property. A list of all real property leased by
the Company and each Company Subsidiary is set forth in Section 3.8 of the
Company Disclosure Schedule. Except as set forth in Section 3.8 of the Company
Disclosure Schedule, all such leased real property is held subject to written
leases under which neither the Company nor any Company Subsidiary has received a
written notice of any existing defaults or events of default or events which
with notice or lapse of time or both would constitute defaults on the part of
the Company or any Company Subsidiary, except for any such default which would
not have, individually or in the aggregate, a Company Material Adverse Effect.
3.9 Title to Assets. Except as set forth in Section 3.9 of the
Company Disclosure Schedule, the Company and each Company Subsidiary has (i)
good and valid title to all of the properties and assets which they own, free
and clear of all Liens except for Permitted Liens, and (ii) leases or has the
right to use pursuant to valid and binding contracts (as to which no material
default exists) all of the material properties and assets leased or used by
them. The Company and each Company Subsidiary leases, owns or has the right to
use all material properties and assets necessary for the operation of its
business as currently conducted.
3.10 Contractual and Other Obligations. Section 3.10 of the
Company Disclosure Schedule sets forth a true and complete list, as of the date
hereof, and the Company has delivered to Parent a complete and correct copy of
each of the following to which the Company or any Company Subsidiary is a party:
(i) each agreement for the provision of professional employer services to the
ten largest subscribers based on the number of covered employees and all other
material agreements and contracts to which the Company or any Company Subsidiary
is a party, (ii) all non-competition agreements or any other agreements or
17
<PAGE> 23
obligations which purport to limit in any material respect the manner in which,
or the localities in which, the business of the Company or any of the Company
Subsidiaries may be conducted, (iii) all agreements, arrangements or
understandings with any director, officer or Affiliate that would be required to
be disclosed under Item 404 of Regulation S-K under the Securities Act,
including all agreements with Ultimate Parent or any of its other direct or
indirect subsidiaries whether or not required to be disclosed under Item 404,
(iv) all voting or other agreements governing how any Shares shall be voted, (v)
all acquisition, merger, asset purchase or sale agreements pursuant to which the
Company acquired any of the Company Subsidiaries or any other company, operation
or business (the "Acquisition Agreements"), (vi) all contracts or other
agreements which would prohibit or materially delay the consummation of the
Merger or any of the Transactions, (vii) all contracts or other agreements
evidencing or relating to indebtedness for money borrowed by the Company or any
Company Subsidiary, (viii) all contracts or other agreements not entered into in
the ordinary course of business involving an amount in excess of $250,000, (ix)
all material licenses, sublicenses, contracts or other agreements to which the
Company or any Company Subsidiary is a party and pursuant to which any person or
entity is authorized to use any Company Intellectual Property or pursuant to
which the Company or any Company Subsidiary is authorized to use the
Intellectual Property of another person or entity, and (x) all employment or
severance contracts or agreements with officers or key employees of the Company
and each Company Subsidiary and all agreements or arrangements that provide for
any payment by the Company or any Company Subsidiary upon a change of control
(all contracts of the type described in clauses (i) - (x) whether existing as of
the date hereof or entered into at any time between the date hereof and the
Closing being referred to herein as "Company Material Contracts"). Each Company
Material Contract is valid and binding on the Company (or, to the extent a
Company Subsidiary is a party, such Company Subsidiary) and is in full force and
effect, and the Company and Company Subsidiary have performed in all material
respects all obligations required to be performed by them to date under each
Company Material Contract. Neither the Company nor any Company Subsidiary knows
of, or has received notice of, any violation or default under (nor, to the
knowledge of the Company, does there exist any condition which with the passage
of time or the giving of notice or both would result in such a violation or
default under) any Company Material Contract by either the Company or a Company
Subsidiary, as the case may be, or any other party to a Company Material
Contract, except for violations or defaults which would not, individually or in
the aggregate, result in a Company Material Adverse Effect. Originals or true,
correct and complete copies of all Company Material Contracts have been provided
or made available to Parent. The Company has delivered to Parent the standard
forms of agreement used by the Company and the Company Subsidiaries for the
provision of professional employer services, and, except for the agreements
entered into with Ultimate Parent, Hanger Orthopedic Group, Inc., and The Boston
Financial Group Limited Partnership, each agreement entered into by the Company
or a Company Subsidiary (during such time as it was a Company Subsidiary) with a
subscriber for the provision of such services is substantially the same as one
of the standard forms of agreement. The Company has sent a Notice of Termination
to the shareholders of Unified Management Corporation and its affiliated
corporations (collectively, "Unified") notifying Unified and the shareholders of
Unified of the Company's termination of the Agreement of Purchase and Sale dated
as of June 16, 1999 by and among Unified, the shareholders of Unified and the
Company.
18
<PAGE> 24
3.11 Employee Benefit Plans.
Except as set forth in Section 3.11 of the Company Disclosure
Schedule:
(a) Neither the Company nor any Company Subsidiary
maintains or sponsors, nor is required to make contributions to, any pension,
profit-sharing, bonus, incentive, welfare or other employee benefit plan within
the meaning of Section 3(3) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA") or any other material employee benefit program (such
plans and related trusts, insurance and annuity contracts, funding media and
related agreements and arrangements, other than any "multiemployer plan" (within
the meaning of Section 3(37) or Section 4001(a)(3) of ERISA), being hereinafter
referred to as the "Benefit Plans" and such multiemployer plans being
hereinafter referred to as the "Multiemployer Plans");
(b) Each Benefit Plan complies in all material respects
with all requirements of ERISA and the Code;
(c) Each Benefit Plan that is intended to be qualified
under Section 401(a) of the Code has received a favorable determination letter
from the Internal Revenue Service as to such qualification within the period of
time prescribed by law;
(d) Neither the Company nor any Company Subsidiary
maintains, sponsors or contributes to (nor is required to contribute to) any
Multiemployer Plan;
(e) No Benefit Plan is a "defined benefit plan" (within
the meaning of Section 3(35) of ERISA);
(f) Neither the Company nor any Company Subsidiary has
engaged in, and the Company has no knowledge of any fiduciary or other
"disqualified person or party in interest" of any Benefit Plan of any Company
Subsidiary that has engaged in, any "prohibited transaction" (within the meaning
of Section 406 of ERISA or Section 4975(c) of the Code); and
(g) There are no claims, actions, lawsuits, proceedings,
investigations or audits pending or, to the knowledge of the Company, threatened
against any of the Benefit Plans, the assets of any of the trusts under such
plans, the plan sponsor, the plan administrator or any fiduciary of any of the
Benefit Plans (other than routine benefit claims) and, to the knowledge of the
Company, there is no basis for any such claim, action, lawsuit, proceeding,
investigation or audit.
3.12 Labor Relations.
(a) The Company and each Company Subsidiary and, to the
knowledge of the Company, to the extent that the Company has direct control over
Worksite Employees (as hereinafter defined), the related worksite employers, are
in compliance in all material respects with all Applicable Laws relating to
employment of its employees, including, to the Company's knowledge, Worksite
Employees, including, but not limited to, those governing employment practices,
the terms and conditions of employment, compensation, payment of wages, health
and safety, labor relations and plant closings for its employees,
19
<PAGE> 25
including, to the Company's knowledge, Worksite Employees. There are no material
audits or investigations pending or, to the knowledge of the Company, threatened
by any Governmental Authority against the Company or any Company Subsidiary for
the enforcement of any such laws.
(b) Except as set forth in Section 3.12 of the Company
Disclosure Schedule, (i) neither the Company nor any Company Subsidiary is
subject to any strike, work stoppage, lockout or other concerted activity or, to
the knowledge of the Company, any threats thereof; (ii) neither the Company nor
any Company Subsidiary is a party to or bound by any collective bargaining
agreement with any labor organization or other representative of any of its
employees or Worksite Employees, and no such contract, collective bargaining
agreement or other agreement is currently being negotiated by or on behalf of
the Company or any Company Subsidiary; (iii) to the knowledge of the Company,
there is no activity or proceeding by any labor organization or other group
seeking to represent employees or to organize any employees of the Company or
any Company Subsidiary, or, to the knowledge of the Company, to the extent that
the Company has direct control over Worksite Employees, any Worksite Employees,
or any questions concerning representation; and (iv) there is no unfair labor
practice, labor dispute (other than routine individual grievances), demand for
arbitration or arbitration proceeding pending or, to the knowledge of the
Company, threatened involving the Company or any Company Subsidiary or, to the
knowledge of the Company, to the extent that the Company has direct control over
Worksite Employees, any related worksite employer, on the one hand, and any
employees of the Company or any Company Subsidiary including Worksite Employees,
on the other.
(c) Except as limited by any employment contracts listed
in Section 3.10 of the Company Disclosure Schedule, and except for any
limitations of general application which may be imposed under Applicable Law,
the Company and each Company Subsidiary has the right to terminate the
employment of each of its employees (excluding Worksite Employees) at will and
without incurring any material penalty or liability.
(d) As of June 30, 1999, the number of worksite employees
of the Company's customers of whom the Company may be deemed a "co-employer"
("Worksite Employees") was 54,313. As of June 30, 1999, the Company and each
Company Subsidiary had paid all salaries, wages, employer's portion of social
security, Medicare premiums, federal and state employment Taxes, health care and
workers' compensation costs and state unemployment Taxes with respect to all of
its employees, including, to the Company's knowledge, Worksite Employees, due
and payable by such date and since June 30, 1999 the Company has continued and
will continue to pay such amounts as they have become due and payable.
(e) Neither the Company nor any Company Subsidiary is a
contractor or subcontractor of any Governmental Entity.
3.13 Insurance. Set forth in Section 3.13 of the Company
Disclosure Schedule is a list as of the date hereof of the property and casualty
insurance policies maintained by the Company and each of the Company
Subsidiaries or by Ultimate Parent or any of its other direct or indirect
subsidiaries on behalf of the Company or any Company Subsidiary. All such
policies are in full force and effect, all premiums due thereon have been paid
and the Company and each
20
<PAGE> 26
of the Company Subsidiaries has complied in all material respects with the
applicable provisions of such policies. Neither the Company nor any Company
Subsidiary has been advised of any defense to coverage in connection with any
claim asserted or noticed by the Company or any Company Subsidiary under or in
connection with any of its existing insurance policies. Neither the Company nor
any Company Subsidiary has received any notice from or on behalf of any
insurance carrier issuing policies or binders relating to or covering the
Company or any Company Subsidiary that there will be a cancellation or
non-renewal of existing policies or binders or that the Company or any Company
Subsidiary will be required to materially modify any of their respective methods
of doing business. Section 3.13 of the Company Disclosure Schedule sets forth a
list of all states in which the Company or any Company Subsidiary participates
in a worker's compensation self-insured fund. There are no audits pending or,
to the knowledge of the Company, threatened by any Governmental Authority with
respect to any worker's compensation self-insured fund in which the Company or
any Company Subsidiary participates.
3.14 Litigation. Except as described or provided for in the
Company SEC Reports or as set forth in Section 3.14 of the Company Disclosure
Schedule, there is no (i) litigation, arbitration, investigation or other legal
proceeding (collectively, "Actions") pending or, to the knowledge of the
Company, threatened against either the Company or any of the Company
Subsidiaries, except for any such Action which is not reasonably likely to
result in liability to the Company or any Company Subsidiary in excess of
$100,000, individually, or $500,000, in the aggregate, or (ii) outstanding
judgment, order, writ, injunction or decree, or application, request or motion
therefor, relating to or including the Company or any Company Subsidiary or
their respective properties, assets or businesses.
3.15 Permits; Compliance with Applicable Law.
(a) General. Except as set forth in Section 3.15(a) of
the Company Disclosure Schedule, the Company and each of the Company
Subsidiaries is in compliance in all material respects with all Applicable Law
relating to it and its respective assets and properties.
(b) Permits. Except as set forth in Section 3.15(b) of
the Company Disclosure Schedule, the permits, licenses, approvals, franchises
and authorizations (collectively, but excluding Environmental Permits, the
"Permits") issued to or held by the Company and the Company Subsidiaries are all
material Permits required for the ownership, operation and use by them of their
properties and assets and for the conduct of the business in which they are
presently engaged. Neither the Company nor any Company Subsidiary is in default
under, or in violation of, any such Permits, and such Permits are in full force
and effect, except where such default or violation or the failure to be in
effect would not have, individually or in the aggregate, a Company Material
Adverse Effect.
(c) Environmental. Except as set forth in Section 3.15
(c) of the Company Disclosure Schedule or in the Company SEC Reports:
(i) The Company and each Company Subsidiary and, to
the knowledge of the Company, to the extent the Company has
direct control over Worksite Employees, each related worksite
employer is in compliance in all
21
<PAGE> 27
material respects with the provisions of all federal, state
and local laws, codes and ordinances relating to the
protection of public health, the environment or natural
resources, and all rules and regulations promulgated
thereunder (the "Environmental Laws"), including with respect
to the Company and each Company Subsidiary, the real property
leased by the Company and each Company Subsidiary listed in
Section 3.8 of the Company Disclosure Schedule and the
improvements thereon (all such leased real property and
improvements thereon hereinafter referred to collectively as
the "Premises").
(ii) The Company and each Company Subsidiary and, to
the knowledge of the Company, to the extent the Company has
direct control over Worksite Employees, each related worksite
employer has obtained all required federal, state and local
permits, licenses, certificates and approvals applicable to
the Company or any Company Subsidiary or any such worksite
employer, as the case may be, of their respective businesses
(the "Environmental Permits") including relating to (A) air
emissions, (B) discharges to surface water or ground water,
(C) noise emissions, (D) solid or liquid waste disposal, and
(E) the use, generation, storage, transportation or disposal
of toxic or hazardous substances or wastes (intended hereby
and hereafter to include any and all such materials listed in
any Environmental Law, as hazardous or potentially hazardous
(including, without limitation, (1) any chemical, compound,
material or substance that is defined, listed in, or otherwise
classified pursuant to, any of the Environmental Laws as a
"hazardous substance", "hazardous material", "hazardous
waste", "toxic substance," "toxic pollutant," "contaminant" or
"pollutant" and (2) petroleum, natural gas, natural gas
liquids, liquefied natural gas, and synthetic gas)
(collectively, "Hazardous Substances")), except where the
failure to have obtained or maintained any such Environmental
Permit would not have, individually or in the aggregate, a
Company Material Adverse Effect.
(iii) Neither the Company, any Company Subsidiary,
nor, to the knowledge of the Company, to the extent the
Company has direct control over Worksite Employees, any
related worksite employer has received any written notice of
any material violations of any Environmental Law which have
not been cured, relating to the use, ownership or occupancy of
any of the Premises or relating to the business of the Company
or any Company Subsidiary or any worksite employer, as the
case may be.
(iv) Neither the Company, any Company Subsidiary nor,
to the knowledge of the Company, to the extent the Company has
direct control over Worksite Employees, any related worksite
employer, has engaged in the generation, storage, treatment,
recycling, transportation, release or disposal of any
Hazardous Substance, except in compliance in all material
respects with applicable Environmental Laws.
(v) No Hazardous Substances have been released or
disposed of on the Premises, except in quantities that are not
reasonably likely to have a Company Material Adverse Effect,
and to the Company's knowledge, no real property to
22
<PAGE> 28
which the Company or any Company Subsidiary has, directly or
indirectly, transported or arranged for the transportation of
any Hazardous Substances, is listed on the National Priorities
List promulgated pursuant to the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended
("CERCLA"), on CERCLIS (as defined in CERCLA) or on any
similar federal, state or foreign list of sites requiring
investigation or clean-up.
3.16 Bank Accounts. The Company has delivered to Parent a list
as of the date hereof of all bank and securities accounts and lockboxes
maintained by the Company or any Company Subsidiary, a list of persons
authorized to sign on behalf of the Company or any Company Subsidiary with
respect to each such account and a list of persons with authorized access to
each such lockbox.
3.17 Intellectual Property.
(a) The Company and each Company Subsidiary own, free and
clear of all Liens, or are licensed or otherwise possess legally enforceable
rights to use, all Intellectual Property that is used or proposed to be used in
and material to its respective business ("Company Intellectual Property"). The
Company Intellectual Property constitutes all Intellectual Property necessary to
enable the Company and each Company Subsidiary to conduct its respective
business as currently conducted and as proposed to be conducted. The Company and
each Company Subsidiary has taken all commercially reasonable steps to protect
and preserve its rights in the Company Intellectual Property and the
confidentiality of all Company Intellectual Property.
(b) Section 3.17 of the Company Disclosure Schedule
lists, for the Company Intellectual Property owned by the Company or any Company
Subsidiary, all U.S. and foreign (i) patents and patent applications; (ii)
Trademark applications and registrations, and material unregistered Trademarks;
and (iii) copyright registrations and applications. To the knowledge of the
Company, all Company Intellectual Property rights are valid and subsisting and
are not the subject of any challenge and all applications that have been filed
with respect to Company Intellectual Property are still pending in good standing
and have not been abandoned.
(c) To the knowledge of the Company, the conduct of the
Company's and any Company Subsidiary's business as currently conducted or
proposed to be conducted does not infringe upon or conflict with any
Intellectual Property or other proprietary rights of any other person or entity.
Neither the Company nor any Company Subsidiary has received any notice or
otherwise has knowledge of any claim or threatened claim involving actual,
alleged, or potential infringement, misappropriation or unlawful use by the
Company or any Company Subsidiary of any Intellectual Property owned or used by
any other person or entity. To the knowledge of the Company, no other person or
entity is infringing, misappropriating or making any unlawful use of, and no
Intellectual Property owned or used by any other person or entity infringes or
conflicts with, any Company Intellectual Property.
(d) Except as set forth in Section 3.17 of the Company
Disclosure Schedule, neither the Company nor any Company Subsidiary (i) has
licensed any Company Intellectual Property to any person or entity on an
exclusive basis or is a party to or bound by any
23
<PAGE> 29
agreement limiting its ability to exploit fully any Company Intellectual
Property, other than licenses in the ordinary course of business, (ii) is
obligated to make any payment to any person or entity for the use of any Company
Intellectual Property, other than pursuant to licenses in the ordinary course of
business, or (iii) has developed jointly with any other person or entity any
Company Intellectual Property with respect to which such other person or entity
has any rights.
(e) To the Company's knowledge, all Date Data and
Date-Sensitive Systems are, or as a result of the Company's ongoing remediation
efforts will by September 30, 1999 be, Year 2000 Compliant in all material
respects. "Date Data" means any data of any type that includes date information
or which is otherwise derived from, dependent on or related to date information.
"Date-Sensitive System" means any Software, microcode or hardware system or
component, including any electronic or electronically controlled system or
component, that processes any Date Data and that is installed, in development or
on order by the Company or any Company Subsidiary for its internal use, or which
the Company or any Company Subsidiary sells, leases, licenses, assigns or
otherwise provides, or the provision or operation of which the Company or any
Company Subsidiary provides the benefit to its customers, vendors, suppliers,
affiliates or any other third party. "Year 2000 Compliant" means (i) with
respect to Date Data, that such data is in proper format and accurate for all
dates in the twentieth and twenty-first centuries, and (ii) with respect to
Date-Sensitive Systems, that each such system is able accurately to process date
data such that neither its performance nor its operation will be materially
adversely affected by the passage of any date, including, without limitation,
the advent of the year 2000 or the passage from the twentieth century into the
twenty-first century. The Company has obtained written representations or
assurances from each entity that (x) provides Date Data to the Company or any
Company Subsidiary, (y) processes in any way Date Data for the Company or any
Company Subsidiary, or (z) otherwise provides any material product or service to
the Company or any Company Subsidiary that is dependent on Year 2000 Compliant
Date Data or a Year 2000 Compliant Date-Sensitive System, that all of such
entity's Date Data and Date-Sensitive Systems that are used for, or on behalf
of, the Company or any Company Subsidiary are Year 2000 Compliant.
3.18 Consents. Except as may be required under The
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended ("HSR"), and
except as set forth in Section 3.18 of the Company Disclosure Schedule, no
consents, approvals or authorizations of, or filings with, any Governmental
Authority or any other person or entity are required in connection with the
execution, delivery or performance of this Agreement or the Stock Option
Agreement by the Company and the consummation of the transactions contemplated
hereby or thereby to be consummated by the Company, except where the failure to
obtain such consents, approvals, or authorizations, or make such filings, would
not prevent or delay consummation of the Transactions in any material respect,
or otherwise prevent the Company from performing its obligations under this
Agreement and the Stock Option Agreement, and would not have, individually or in
the aggregate, a Company Material Adverse Effect.
3.19 Foreign Person. The Company is not a foreign person
within the meaning of Section 1445(f)(3) of the Code.
3.20 Authority. The Company has the requisite corporate power
and authority to execute and deliver this Agreement and the Stock Option
Agreement, to perform its
24
<PAGE> 30
obligations hereunder and thereunder and to consummate the Transactions. The
execution, delivery and performance of this Agreement and the Stock Option
Agreement and the consummation by the Company of the Transactions have been duly
and validly authorized by the Company Board and no other corporate action on the
part of the Company is necessary to authorize this Agreement or the Stock Option
Agreement or to consummate the Transactions (other than, with respect to the
Merger, the approval of this Agreement by the holders of a majority of the
outstanding Shares in accordance with the DGCL). This Agreement and the Stock
Option Agreement have been duly and validly executed and delivered by the
Company and, assuming this Agreement and the Stock Option Agreement constitute
the valid and binding agreement of Parent and Sub, constitutes the valid and
binding agreements of the Company, enforceable against the Company in accordance
with their respective terms, except that the enforcement hereof and thereof may
be limited by (i) bankruptcy, insolvency, reorganization, moratorium or other
similar laws now or hereafter in effect relating to creditors' rights generally
and (ii) general principles of equity (regardless of whether enforceability is
considered in a proceeding in equity or at law).
3.21 Board Approvals Regarding Transactions. The Company
Board, at a meeting duly called and held, has (i) unanimously determined that
each of this Agreement, the Stock Option Agreement, the Offer and the Merger are
advisable and in the best interests of the stockholders of the Company, (ii)
approved this Agreement, the Stock Option Agreement, the Transactions and the
Stockholder Agreement, (iii) resolved to recommend that the stockholders of the
Company accept the Offer, tender their Shares to Sub pursuant to the Offer and
approve and adopt this Agreement, the Stock Option Agreement and the Merger, and
(iv) consented to the transfer to Sub of all such Shares, and none of the
aforesaid actions by the Company Board has been amended, rescinded or modified.
The action taken by the Company Board constitutes approval of the Merger, the
other Transactions, the Stock Option Agreement and the Stockholder Agreement by
the Company Board under the provisions of Section 203 of the DGCL such that
Section 203 of the DGCL does not apply to this Agreement, the Transactions, the
Stock Option Agreement or the Stockholder Agreement. No other state takeover
statute is applicable to the Merger, the other Transactions or the Stockholder
Agreement.
3.22 Vote Required. The affirmative vote of the holders of a
bare majority of the outstanding Shares is the only vote of the holders of any
class or series of the Company's capital stock necessary to approve the Merger.
No vote of any class or series of the Company's capital stock is necessary to
approve any of the Transactions other than the Merger.
3.23 Approvals; Antitakeover Provisions. The Company has taken
all action necessary to approve the Transactions under the DGCL (except for
shareholder approval and the filing of a Certificate of Merger), including, but
not limited to, all actions required to render the provisions of Section 203 of
the DGCL restricting business combinations with "interested stockholders"
inapplicable to the Transactions.
3.24 Brokers and Finders. Other than the fee payable by the
Company to CIBC World Markets Corp. ("CIBC World Markets"), no investment
banking, brokerage, finders, advisory or similar fee or commission is payable by
the Company or any Company Subsidiary to any investment banker, broker, finder,
advisor, consultant or intermediary, in connection with this Agreement, the
Stock Option Agreement or the Transactions. The Company has provided
25
<PAGE> 31
Parent true and correct copies of all agreements with CIBC World Markets as to
which the Company and/or any Company Subsidiary could have any liabilities.
3.25 Fairness Opinion. The Company Board has received the
opinion of CIBC World Markets dated September 8, 1999, to the effect that, as of
such date, and based upon the assumptions made, matters considered, and limits
of review set forth therein, the applicable Merger Consideration is fair to the
stockholders of the Company, other than to the Ultimate Parent, from a financial
point of view.
3.26 Compensation. Set forth in Section 3.26 of the Company
Disclosure Schedule is a list as of the date hereof of all material written
agreements, plans or arrangements by which the Company or any Company Subsidiary
is bound with regard to compensation, bonus, incentive, stock option, stock
purchase, severance pay or other benefits or perquisites, other than any
agreements, plans or arrangements listed in Section 3.11 of the Company
Disclosure Schedule or solely with respect to Worksite Employees, and (b) a list
as of the date hereof of all employees of the Company or any Company Subsidiary
(other than Worksite Employees) entitled to receive salary at an annual rate in
excess of $50,000 and their respective positions and annual salaries.
3.27 Full Disclosure. No representation or warranty by the
Company in this Agreement or in the Stock Option Agreement and no statement by
the Company contained in any exhibit, disclosure schedule, or certificate
contemplated by this Agreement or in the Stock Option Agreement contains or will
contain any untrue statement of material fact or omits or will omit to state any
material fact necessary, in light of the circumstances under which it was made,
in order to make the statements herein or therein not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT
AND SUB
Each of Parent and Sub represents and warrants, jointly and
severally, to the Company that:
4.1 Organization and Qualification. Each of Parent and Sub is
a corporation, duly organized, validly existing and in good standing under the
laws of its respective jurisdiction of organization. Each of Parent and Sub is
qualified and in good standing as a foreign corporation, in each jurisdiction
where the properties owned, leased or operated, or the business conducted, by it
require such qualification, except where the failure to so qualify or be in good
standing would not materially impair or delay the ability of Parent or Sub to
consummate the Transactions (a "Parent Material Adverse Effect").
4.2 Authority. Each of Parent and Sub has the requisite
corporate power and authority to execute and deliver this Agreement and the
Stock Option Agreement and to consummate the transactions contemplated hereby
and thereby. The execution, delivery and performance of this Agreement and the
Stock Option Agreement and the consummation by Parent and Sub of the
Transactions have been duly and validly authorized by the Board of
26
<PAGE> 32
Directors of each of Parent and Sub and by Parent as the sole stockholder of
Sub, and no other corporate action on the part of Parent and Sub is necessary to
authorize this Agreement or the Stock Option Agreement or to consummate the
Transactions. This Agreement and the Stock Option Agreement have been duly and
validly executed and delivered by each of Parent and Sub and, assuming this
Agreement and the Stock Option Agreement constitute the valid and binding
agreements of the Company, constitute the valid and binding agreements of each
of Parent and Sub, enforceable against each of them in accordance with its
terms, except that the enforcement hereof or thereof may be limited by (a)
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect relating to creditors' rights generally and (b) general
principles of equity (regardless of whether enforceability is considered in a
proceeding at law or in equity).
4.3 Consents and Approvals; No Violation.
(a) Except as set forth in Section 4.3(a) of the
disclosure schedule delivered to the Company by Parent concurrently with the
execution hereof (the "Parent Disclosure Schedule"), neither the execution,
delivery and performance of this Agreement or the Stock Option Agreement by
Parent or Sub nor the consummation by Parent or Sub of the Transactions
contemplated hereby or thereby to be consummated by Parent or Sub will require
any consent, approval, authorization or permit of, or filing with or
notification to, any Governmental Entity, other than (A) in connection with the
applicable requirements of the HSR Act, (B) pursuant to the applicable
requirements of the Exchange Act, (C) the filing of the Certificate of Merger
pursuant to the DGCL and appropriate documents with the relevant authorities of
other states in which Parent or Sub is authorized to do business, or (D) as may
be required by any applicable state corporation, securities or "blue sky" laws
or state takeover laws. Parent will use its reasonable best efforts to obtain
and deliver to the Company executed counterpart copies of all consents referred
to in the preceding sentence prior to consummation of the Offer.
(b) Neither the execution, delivery and performance of
this Agreement or the Stock Option Agreement by Parent or Sub nor the
consummation by Parent or Sub of the Transactions will (i) conflict with or
result in any breach of any provision of the Certificate of Incorporation or the
By-Laws of either Parent or Sub; (ii) subject to obtaining the required third
party consents set forth in Section 4.3(a) of the Parent Disclosure Schedule,
result in a violation or breach of, or constitute (with or without due notice or
lapse of time or both) a default (or give rise to any right of termination,
cancellation or acceleration or Lien or other charge or encumbrance) under any
of the terms, conditions or provisions of any note, license, agreement or other
instrument or obligation to which Parent or Sub is a party or by which either of
them or any of their respective assets may be bound; or (iii) assuming the
consents, approvals, authorizations or permits and filings or notifications
referred to in Section 4.3(a) hereof are duly and timely obtained or made,
violate any order, writ, injunction, decree, statute, rule or regulation in
effect as of the date of this Agreement and applicable to Parent or Sub or any
of their respective assets, excluding from the foregoing clauses (ii) and (iii)
such violations, breaches or defaults (or rights of termination, cancellation or
acceleration or Liens or other charges or encumbrances) which would not,
individually or in the aggregate, have a Parent Material Adverse Effect.
27
<PAGE> 33
4.4 Interim Operations of Sub. Sub was formed solely for the
purpose of engaging in the Transactions and has not engaged in any business
activities or conducted any operations other than in connection with the
Transactions.
4.5 Financing. As of the date hereof and at the expiration of
the Offer and at the Effective Time, either Parent or Sub has and will have
available all the funds, or has written binding commitments from financial
institutions or other sources to obtain all the funds, necessary to purchase all
of the Shares pursuant to the Offer and the Merger and to pay all fees, expenses
and payments payable by Parent or Sub related to the Transactions.
4.6 Share Ownership. Except for shares owned by Affiliates of
FMR Corp. in the ordinary course of business, none of Parent, Sub nor any of
their respective "affiliates" or "associates" (as such terms are defined in Rule
12b-2 under the Exchange Act) beneficially owns any Shares.
4.7 Information in Proxy Statement and Schedule 14D-9. None of
the information supplied by Parent or Sub for inclusion or incorporation by
reference in the Proxy Statement or the Schedule 14D-9 will, at the date mailed
to stockholders and at the time of the Special Meeting, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading. If at any time
prior to the Effective Time any event with respect to Parent or Sub should occur
which is required to be described in a supplement to the Proxy Statement or the
Schedule 14D-9, such event shall be so described, and such supplement shall be
promptly filed with the SEC and, as required by law, disseminated to the
stockholders of the Company. With respect to information relating to Parent or
Sub, the Proxy Statement will comply in all material respects with the
provisions of the Exchange Act and the rules and regulations thereunder.
4.8 Brokers and Finders. Parent and Sub have not employed any
investment banker, broker, finder, advisor, consultant or intermediary in
connection with the Transactions which would be entitled to any investment
banking, brokerage, finder's, advisory or similar fee or commission in
connection with this Agreement, or the Stock Option Agreement or the
Transactions.
ARTICLE V
ADDITIONAL COVENANTS AND AGREEMENTS
5.1 Interim Operations of the Company. Except as set forth in
Section 5.1 of the Company Disclosure Schedule, during the period from the date
of this Agreement to the Effective Time or termination of this Agreement
pursuant to Section 7.1 hereof (unless Parent shall otherwise agree in writing
and except as expressly provided by this Agreement), the Company shall, and
shall cause each Company Subsidiary to, conduct its operations according to its
ordinary and usual course of business in substantially the same manner as
heretofore conducted and use its reasonable best efforts to preserve intact its
current business organization, keep available the services of its current
officers and subject to the prudent management of workforce needs, its employees
(including all Worksite Employees, except to the extent required
28
<PAGE> 34
by clients of the Company), preserve its relationships with customers, suppliers
and others having business dealings with it, consult with Parent concerning
important business matters affecting the Company and the Company's Subsidiaries
and periodically report to Parent concerning the status of the business,
operations and finances of the Company and the Company Subsidiaries. Without
limiting the generality of the foregoing, and except as expressly provided by
this Agreement or as set forth in Section 5.1 of the Company Disclosure
Schedule, the Company shall not and shall not permit any Company Subsidiary to,
without the prior written consent of Parent:
(i) directly or indirectly amend its Certificate of
Incorporation or By-Laws or similar organizational documents;
(ii) (A) declare, set aside or pay any dividend or
other distribution payable in cash, stock or property with respect to the
Company's capital stock or that of any Company Subsidiary, except that a wholly
owned Company Subsidiary may declare and pay a dividend or make an advance to
its parent or the Company, (B) redeem, purchase or otherwise acquire directly or
indirectly any shares of any class or series of the Company's capital stock or
that of any Company Subsidiary or any instrument or security which consists of
or includes a right to acquire such shares; (C) issue, sell, transfer, pledge,
dispose of or encumber any shares of any class or series of the Company's
capital stock or that of any Company Subsidiary or voting debt, or securities
convertible into or exchangeable for, or options, warrants, calls, commitments
or rights of any kind to acquire, any shares of any class or series of the
Company's capital stock or that of any Company Subsidiary or voting debt, other
than Shares issued upon the exercise of Options outstanding on the date hereof
in accordance with the Option Plans as in effect on the date hereof; or (D)
split, combine or reclassify the outstanding capital stock of the Company or of
any Company Subsidiary;
(iii) acquire or agree to acquire (A) by merging or
consolidating with, or by purchasing an equity interest in a substantial portion
of the assets of, or by any other manner, any business or any corporation,
partnership, joint venture, association or other business organization or
division thereof, or (B) any assets, except purchases of assets in the ordinary
course of business consistent with past practices and which individually do not
exceed $50,000 or in the aggregate do not exceed $100,000;
(iv) alter (through merger, liquidation,
reorganization, restructuring or in any other fashion), the corporate structures
or ownership of the Company or any Company Subsidiary;
(v) make any new capital expenditure or
expenditures which exceed the amounts budgeted therefor in the fiscal
year ending June 30, 2000 budget for the Company provided to Parent;
(vi) (A) amend, terminate or transfer any
Company Material Contract except in the ordinary course of business
consistent with past practice and provided that any such amendment,
termination or transfer does not have, individually or in the
aggregate, a Company Material Adverse Effect, (B) waive, release or
assign any material rights or claims, (C) enter into any contract that
would be a Company Material
29
<PAGE> 35
Contract pursuant to clauses (ii) through (viii) of Section 3.10, or
(D) enter into any agreement for the provision of professional employer
services except in the ordinary course of business consistent with past
practices;
(vii) transfer, lease, license, sell or
dispose of any of their respective assets other than dispositions in
the ordinary course of business and consistent with past practice;
provided that the fair market value of assets sold does not exceed
$50,000 in any single transaction or $100,000 in the aggregate;
(viii) mortgage, pledge or encumber any of
their respective assets;
(ix) enter into or amend any employment or
severance agreement or any other agreement or arrangement that provides
for payment upon a change of control with or grant any severance or
termination pay to any officer, director or employee (including
Worksite Employees, except to the extent required by clients of the
Company) of the Company or any Company Subsidiary;
(x) except, as required to comply with
applicable law or expressly provided in this Agreement, (A) adopt,
enter into, amend or increase the amount or accelerate the payment or
vesting of any benefit or award or amount payable, under any Benefit
Plan or other contract, agreement, commitment, arrangement, plan,
trust, fund or policy maintained by, contributed to or entered into by
the Company or any Company Subsidiary for the current or future benefit
or welfare of any director, officer or current or former employee,
except to the extent necessary to coordinate any such Benefit Plans
with the terms of this Agreement, (B) increase in any manner the
compensation or fringe benefits of, or pay any bonus to, any director,
officer or employee (other than Worksite Employees) or consultant of
the Company or any Company Subsidiary (other than normal recurring
increases in wages to employees who are not officers or directors or
Affiliates in the ordinary course of business consistent with past
practice), (C) pay any benefit not provided for under any Benefit Plan,
(D) grant any awards under any bonus, incentive, performance or other
compensation plan or arrangement or Benefit Plan (including the grant
of stock options, stock appreciation rights, stock based or stock
related awards, performance units or restricted stock, or the removal
of existing restrictions in any Benefit Plans or agreements or awards
made thereunder) or (E) take any action to fund or in any other way
secure the payment of compensation or benefits under any employee plan,
agreement, contract or arrangement or Benefit Plan;
(xi) (A) incur or assume any long-term
indebtedness for borrowed funds, or except in the ordinary course of
business, incur or assume any short-term indebtedness for borrowed
funds in amounts not consistent with past practice, provided, that the
aggregate of such short-term indebtedness and long-term indebtedness
outstanding does not exceed $3,300,000 at any given time, (B) modify
the terms of any indebtedness or other liability except as set forth in
Section 5.1 of the Company Disclosure Schedule, (C) assume, guarantee,
endorse or otherwise become liable or responsible (whether directly,
contingently or otherwise) for the obligations of any other person
(except for checks endorsed for collection in the ordinary course of
business) or
30
<PAGE> 36
(D) make any loans, advances or capital contributions to, or
investments in any other person (other than to wholly owned Company
Subsidiaries and other than (x) travel advances to employees in the
ordinary course of business consistent with past practices and (y)
publicly traded securities constituting less than 1.0% of the
outstanding equity of the issuing entity);
(xii) change any of the accounting methods
used by it unless required by changes in GAAP;
(xiii) make any material election relating
to Taxes, change any material election relating to Taxes already made,
adopt any material accounting method relating to Taxes, change any
material accounting method relating to Taxes unless required by changes
in GAAP, enter into any closing agreement relating to Taxes, settle any
claim or assessment relating to Taxes or consent to any claim or
assessment relating to Taxes or any waiver of the statute of
limitations for any such claim or assessment;
(xiv) pay, release, discharge or satisfy any
claims, liabilities or obligations (absolute, accrued, asserted or
unasserted, contingent or otherwise), other than the payment, release,
discharge or satisfaction of (A) any such claims, liabilities or
obligations, in the ordinary course of business and consistent with
past practice, and (B) claims, liabilities or obligations reflected or
reserved against in, or contemplated by, the consolidated financial
statements (or the notes thereto) of the Company and its consolidated
Company Subsidiaries filed with the SEC prior to the date hereof;
(xv) amend in any material respect, renew,
terminate or cause to be extended any lease, agreement or arrangement
relating to any of its leased properties or enter into any lease,
agreement or arrangement with respect to any real property;
(xvi) permit any insurance policy having the
Company or any Company Subsidiary as a beneficiary or a loss payable
payee to be cancelled or terminated unless comparable replacement
coverage is obtained, provided that written notice has been provided to
Parent and the premium therefor is reasonably acceptable to Parent;
(xvii) take, or agree or commit to take, any
action that would or is reasonably likely to result in any of the
conditions to the Offer set forth in Annex A or any of the conditions
to the consummation of the Merger set forth in Article VI hereof not
being satisfied, or would make any representation or warranty of the
Company contained herein inaccurate in any material respect at, or as
of any time prior to, the Effective Time, or that would materially
impair the ability of the Company, Parent, Sub or the holders of Shares
to consummate the Offer or the Merger in accordance with the terms
hereof or materially delay such consummation; and
(xviii) enter into an agreement, contract,
commitment or arrangement to do any of the foregoing, or to authorize,
recommend, propose or publicly announce an intention to do any of the
foregoing.
31
<PAGE> 37
5.2 Alternative Proposals. (a) Neither the Company nor any
Company Subsidiary or Affiliate shall (and neither the Company nor any Company
Subsidiary or Affiliate shall authorize or permit any of their respective
officers, directors, employees, representatives and agents, including, but not
limited to, investment bankers, attorneys and accountants, to), directly or
indirectly, solicit, initiate or encourage any inquiry, proposal or offer, or
participate in or initiate discussions or negotiations with, or provide any
information to, any person or group (other than Parent, any of its Affiliates or
representatives), concerning any proposal or offer for a merger, share exchange,
consolidation, recapitalization, asset acquisition or other business combination
or similar transaction involving the Company or any Company Subsidiary or any
proposal or offer to acquire an equity interest representing 20% or more of the
outstanding Common Stock or voting power in, or 20% or more of the fair market
value of the assets of, the Company or any Company Subsidiary other than the
Transactions (an "Alternative Proposal"), or otherwise cooperate in any way
with, or participate in, facilitate or actively encourage any effort or attempt
by, any person or group (other than Parent, any of its Affiliates or
representatives) to do or seek any of the foregoing, except that nothing
contained in this Section 5.2 or any other provision hereof shall prior to the
time of acceptance of Shares for payment pursuant to the Offer prohibit the
Company or the Company Board from (i) taking and disclosing to the Company's
stockholders a position with respect to a tender or exchange offer by a third
party pursuant to Rules 14d-9 and 14e-2 promulgated under the Exchange Act, or
(ii) making such disclosure to the Company's stockholders as, in the good faith
judgment of the Company Board, after receiving advice from outside counsel, is
required under Applicable Law, provided that the Company may not, except as
permitted by Section 5.2(b) hereof, withdraw or modify, or propose to withdraw
or modify, its position with respect to the Offer or the Merger or approve or
recommend, or propose to approve or recommend, any Alternative Proposal, or
enter into any letter of intent, agreement in principle or definitive agreement
with respect to any Alternative Proposal. Upon execution of this Agreement, the
Company will immediately cease any existing activities, discussions or
negotiations with any parties conducted heretofore with respect to any of the
foregoing. Notwithstanding the foregoing, prior to the time of acceptance of
Shares for payment pursuant to the Offer, the Company may, subject to providing
prior written notice to Parent of its decision to take such action, furnish
information concerning its business, properties or assets to any corporation,
partnership, person or other entity or group in response to a Superior Proposal
that is submitted by such entity or group, and may, subject to providing prior
written notice to Parent of its decision to take such action, negotiate and
participate in discussions and negotiations with such entity or group concerning
a Superior Proposal (as defined below) if (A) such entity or group has on an
unsolicited basis submitted a bona fide written proposal to the Company Board to
acquire more than a majority of the Shares then outstanding on a fully diluted
basis or all or substantially all of the assets of the Company, which the
Company Board determines in good faith, based on the written advice of the
Company's financial advisors, to be more favorable from a financial point of
view to the Company's stockholders than the Offer and the Merger, and which is
neither subject to the receipt of any necessary financing nor otherwise on terms
less favorable than the terms hereof and which in the opinion of the Company
Board, based on the written advice of the Company's financial advisors, such
entity or group has the financial capacity to consummate (a "Superior
Proposal"), (B) the Company Board believes in good faith, based on the advice of
its outside legal counsel, that such action is reasonably necessary in order for
the Company Board to comply with its fiduciary obligations to the Company's
stockholders under Applicable Law, (C) the Company furnishes such information to
32
<PAGE> 38
such entity or group pursuant to an appropriate confidentiality agreement on
terms no less favorable to the Company than the Confidentiality Agreement, and
(D) neither the Company nor any Company Subsidiary or Affiliate, nor any of
their respective officers, directors, employees, representatives or agents,
shall have violated any of the restrictions set forth in this Section 5.2.
The Company will immediately notify Parent of the existence of
any proposal, discussion, negotiation or inquiry received by the Company, and
the Company will immediately communicate to Parent the terms of any proposal,
discussion, negotiation or inquiry which it may receive (and will immediately
provide to Parent copies of any written materials received by the Company in
connection with such proposal, discussion, negotiation or inquiry) and the
identity of the party making such proposal or inquiry or engaging in such
discussion or negotiation. The Company will promptly provide to Parent any
non-public information concerning the Company provided to any other party which
was not previously provided to Parent.
(b) Except as set forth below in this subsection (b),
neither the Company Board nor any committee thereof shall (i) withdraw or
modify, or propose to withdraw or modify, in a manner adverse to Parent or Sub,
the approval or recommendation by the Company Board or any such committee of the
Offer, this Agreement or the Merger, (ii) approve or recommend or propose to
approve or recommend, any Alternative Proposal or (iii) cause the Company to
enter into any letter of intent, agreement in principle or definitive agreement
with respect to any Alternative Proposal. Notwithstanding the foregoing, prior
to the time of acceptance for payment of Shares pursuant to the Offer, the
Company Board may withdraw or modify its approval or recommendation of the
Offer, this Agreement or the Merger if (A) the Company has received a Superior
Proposal which is then pending and which the Company Board has determined to
recommend to the Company's stockholders, (B) the Company Board concludes, in
good faith, based on the advice of its outside legal counsel, that in light of
such Superior Proposal, the withdrawal or modification of such approval or
recommendation is reasonably necessary in order for the Company Board to comply
with its fiduciary obligations to the Company's stockholders under Applicable
Law, (C) the Company notifies Parent at least five business days prior to taking
any action with respect to such Superior Proposal or the withdrawal or
modification of its approval or recommendation, specifying the material terms
and conditions of such Superior Proposal, and identifying the person making such
Superior Proposal; and (D) the Company gives Parent at least five business days
after the Company gives notice to Parent pursuant to clause (C) to match or
better such Superior Proposal and Parent fails to or decides not to do so within
such five-day period.
5.3 Reasonable Best Efforts.
(a) Prior to the Closing, upon the terms and subject
to the conditions of this Agreement, Parent, Sub and the Company agree to use
their respective reasonable best efforts (x) to take, or cause to be taken, all
actions, and (y) to do, or cause to be done, all things necessary, proper or
advisable (subject to any Applicable Laws) to consummate and make effective the
Merger and the other Transactions as promptly as practicable including, but not
limited to (i) the preparation and filing of all forms, registrations and
notices required to be filed to consummate the Merger and the other Transactions
and the taking of such actions as are necessary to obtain any requisite
approvals, consents, orders, exemptions or waivers by any third party or
Governmental Entity, (ii) the preparation of any disclosure documents reasonably
33
<PAGE> 39
requested by Parent in order to facilitate financing of any of the Transactions
and (iii) the satisfaction of the other parties' conditions to Closing. In
addition, no party hereto shall take any action after the date hereof that would
reasonably be expected to delay materially the obtaining of, or result in not
obtaining, any permission, approval or consent from any Governmental Entity
necessary to be obtained prior to Closing. Notwithstanding the foregoing, or any
other covenant herein contained, in connection with the receipt of any necessary
approvals under the HSR Act, neither the Company nor any Company Subsidiary
shall be entitled to divest or hold separate or otherwise take or commit to take
any action that limits Parent's or Sub's freedom of action with respect to, or
their ability to retain, the Company or any Company Subsidiary or any material
portions thereof or any of the businesses, product lines, properties or assets
of the Company or any Company Subsidiary, without Parent's prior written
consent.
(b) Prior to the Closing, subject to Applicable Law,
each party shall promptly consult with the other parties hereto with respect to,
provide any necessary information with respect to, and provide the other parties
(or their respective counsel) with copies of, all filings made by such party
with any Governmental Entity or any other information supplied by such party to
a Governmental Entity in connection with this Agreement, the Merger and the
other Transactions. Each party hereto shall promptly inform the other parties of
any communication from any Governmental Entity regarding any of the
Transactions. If any party hereto or Affiliate thereof receives a request for
additional information or documentary material from any such Governmental Entity
with respect to any of the Transactions, then such party shall endeavor in good
faith to make, or cause to be made, as soon as reasonably practicable and after
consultation with the other parties, an appropriate response in compliance with
such request. To the extent that transfers, amendments or modifications of
Permits (including Environmental Permits) are required as a result of the
execution of this Agreement or consummation of any of the Transactions, the
Company shall use its reasonable best efforts to effect such transfers,
amendments or modifications.
(c) The Company and Parent shall file, as soon as
practicable, notifications under the HSR Act and respond as promptly as
practicable to any inquiries received from the Federal Trade Commission and the
Antitrust Division of the Department of Justice for additional information or
documentation and respond as promptly as practicable to all inquiries and
requests received from any State Attorney General or other Governmental Entity
in connection with antitrust matters. Concurrently with the filing of
notifications under the HSR Act or as soon thereafter as practicable, the
Company and Parent shall each request early termination of the HSR Act waiting
period.
(d) Notwithstanding the foregoing, except as provided
in Section 7.1(b)(ii), nothing contained in this Agreement shall be deemed to
require the Company, Parent or Sub to commence any litigation against any entity
in order to facilitate the consummation of any of the Transactions or to defend
against any litigation brought by any Governmental Entity seeking to prevent the
consummation of any of the Transactions.
5.4 Access to Information. To the extent permitted by
applicable law, upon reasonable notice, the Company shall (and shall cause each
Company Subsidiary to), afford to the officers, employees, accountants, counsel,
financing sources and other representatives of Parent, access, during normal
business hours during the period prior to the Effective Time, to all
34
<PAGE> 40
its properties, books, contracts, commitments and records and, during such
period, the Company shall (and shall cause each Company Subsidiary to), furnish
promptly to Parent (a) a copy of each report, schedule, registration statement
and other document filed or received by it during such period pursuant to the
requirements of the federal securities laws and (b) all other information
concerning its business, properties and personnel as Parent may reasonably
request. Access shall include the right to conduct such management information
systems, risk management and environmental studies as Parent, in its discretion,
shall reasonably deem appropriate. After the time the persons designated by
Parent have been elected to, and shall constitute a majority of, the Company
Board pursuant to Section 1.3 hereof (the "Appointment Date"), the Company shall
provide Parent and such persons as Parent shall designate with such information,
at any time as Parent shall request. Until the Effective Time, unless otherwise
required by law or in order to comply with disclosure requirements applicable to
the Offer Documents or the Proxy Statement, Parent will hold any such
information which is nonpublic in confidence in accordance with the
Confidentiality Agreements, dated as of May 24, 1999 and May 26, 1999 (the
"Confidentiality Agreements"), entered into by and among the members of Parent
and the Company.
5.5 Publicity. The initial press release with respect to the
execution of this Agreement shall be a joint press release acceptable to Parent
and the Company. Thereafter, until the Appointment Date or the date the
Transactions are terminated or abandoned, neither the Company, Parent nor any of
their respective Affiliates shall issue or cause the publication of any press
release or other announcement with respect to the Merger, this Agreement or the
other Transactions without prior consultation with the other parties, except to
the extent required by law, the rules and regulations of any national securities
exchange or over-the-counter market or by any listing agreement with a national
securities exchange or over-the-counter market.
5.6 State Takeover Laws. Notwithstanding any other provision
in this Agreement, in no event shall the approval given by the Company Board
with respect to Section 203 of the DGCL be withdrawn, revoked or modified by the
Company Board. If any state takeover statute other than Section 203 of the DGCL
becomes or is deemed to become applicable to the Company, the Stockholder
Agreement, the Offer, the Share Purchase, the acquisition of Shares pursuant to
the Offer or the Merger, the Company shall take all action necessary to render
such statute inapplicable to all of the foregoing.
5.7 Directors' and Officers' Insurance and Indemnification.
(a) The Company shall, to the fullest extent
permitted under the applicable provisions of the DGCL, the terms of the
Company's Certificate of Incorporation or By-Laws and regardless of whether the
Merger becomes effective, indemnify and hold harmless, and, after the Effective
Time, the Surviving Corporation shall, to the fullest extent permitted under the
applicable provisions of the DGCL, indemnify and hold harmless, each present and
former director, officer or employee of the Company or any Company Subsidiary
(collectively, the "Company Indemnified Parties") against any costs or expenses
(including reasonable attorneys' fees), judgments, losses, claims, damages and
liabilities incurred in connection with, and amounts paid in settlement of, any
claim, action, suit, proceeding or investigation, whether civil, criminal,
administrative or investigative and wherever asserted, brought or filed, based
on the fact that such person is or was a director, officer or employee of the
Company or any
35
<PAGE> 41
Company Subsidiary and (x) arising out of or pertaining to the Transactions or
(y) otherwise with respect to any acts or omissions or alleged acts or omissions
occurring at or prior to the Effective Time, in each case for a period of six
years after the Effective Time. In the event of any such claim, action, suit,
proceeding or investigation (whether arising before or after the Effective
Time), (i) any counsel retained by the Company Indemnified Parties for any
period after the Effective Time must be reasonably satisfactory to the Surviving
Corporation, (ii) after the Effective Time, the Surviving Corporation shall pay
the reasonable fees and expenses of such counsel, promptly after statements
therefor are received, and (iii) the Surviving Corporation will cooperate in the
defense of any such matter; provided, however, that the Surviving Corporation
shall not be liable for any settlement effected without its written consent
(which consent shall not be unreasonably withheld or delayed); and provided,
further, that, in the event that any claim or claims for indemnification are
asserted or made within such six-year period, all rights to indemnification in
respect of any such claim or claims shall continue until the disposition of any
and all such claims. The Company Indemnified Parties as a group shall be
reimbursed for the costs of only one law firm to represent them with respect to
any single action unless there is, under applicable standards of professional
conduct, a conflict on any significant issue between the positions of any two or
more Company Indemnified Parties. The indemnity agreements of the Surviving
Corporation in this Section 5.7 (a) shall extend, on the same terms to, and
shall inure to the benefit of and shall be enforceable by, each person or entity
who controls, or in the past controlled, any present or former director, officer
or employee of the Company or any Company Subsidiary.
(b) At the Closing, the Surviving Corporation shall
purchase directors' and officers' liability tail insurance covering those
persons who are currently covered by the Company's directors' and officers'
liability insurance policy (a copy of which has been made available to Parent)
for a period of six years on terms (including the amounts of coverage and the
amounts of deductibles, if any) that are no less favorable to the covered
persons than the terms now applicable to them under the Company's current
policy; provided, however, that in no event shall the Surviving Corporation be
required to expend more than $125,000; and provided, further, that, if the
premium for such coverage exceeds such amount, the Surviving Corporation shall
purchase a policy with the greatest coverage available for such amount,
(c) This Section 5.7 shall survive the consummation
of the Merger at the Effective Time, and shall be binding on all successors and
assigns of the Surviving Corporation (including any transferee of all or
substantially all the assets of Parent or the Surviving Corporation).
5.8 Conduct of Business of Sub. During the period of time from
the date of this Agreement to the Effective Time, Sub shall not engage in any
activities of any nature except as provided in or contemplated by this
Agreement.
5.9 Transfer of Stockholder's Shares. The Company hereby
waives any rights the Company may have under any agreement or otherwise to
object to the transfer to Sub or Parent of any or all Shares held by Stockholder
and hereby covenants not to consent to the transfer of any Shares held by
Stockholder to any other person unless (i) the Company will have obtained the
specific, prior written consent of Parent with respect to any such transfer or
(ii) this Agreement will have been terminated pursuant to Article VII hereof.
36
<PAGE> 42
5.10 Notification of Certain Matters. The Company shall give
prompt notice to Parent of (i) the occurrence or non-occurrence of any event the
occurrence or non-occurrence of which would cause any representation or warranty
contained in this Agreement to be untrue or inaccurate in any material respect
at or prior to the Effective Time and (ii) any material failure of the Company
to comply with or satisfy any covenant, condition or agreement to be complied
with or satisfied by it hereunder, provided, however, that the delivery of any
notice pursuant to this Section 5.10 shall not limit or otherwise affect the
remedies available hereunder to the party receiving such notice.
5.11 Company Employees. The Surviving Corporation will (i)
continue to provide each person (other than Worksite Employees) employed by the
Company or any Company Subsidiary on the Closing Date and who continue to be
employed by the Company or any Company Subsidiary thereafter such benefits and
salary comparable in the aggregate to the benefits and salary previously paid or
provided by the Company or any Company Subsidiary, as applicable (other than
stock options or stock awards), as of the Closing Date for a period ending on
the first anniversary of the Effective Time and (ii) grant to each such person
credit for his/her years of service with the Company or any Company Subsidiary,
as applicable, for purposes of calculating such person's right to participate in
applicable benefit plans and programs and the level of such participation.
5.12 Guaranty. The Company shall as promptly as practicable
after the date hereof, and in any event prior to the purchase of any Shares
pursuant to the Offer, obtain (i) a guaranty from Ultimate Parent in form and
substance reasonably satisfactory to Parent, pursuant to which Ultimate Parent
shall guaranty to Parent the earnings before interest, taxes, depreciation and
amortization (EBITDA) projected to be received by the Company under the
Subscriber Services Agreement, dated as of July 1, 1999, by and between Ultimate
Parent and the Company, relating to Ultimate Parent's PROH Division (the "PROH
Contract"), which such EBITDA amounts are set forth in Schedule 5.12 and (ii) an
irrevocable letter of credit or surety bond from a reputable and financially
sound financial institution or insurance company, or such other security, in
each case in form and substance reasonably satisfactory to Parent securing the
EBITDA payable with respect to the guaranty described in clause (i) or with
respect to the PROH Contract, as the case may be, and the EBITDA set forth in
Schedule 5.12 projected to be received by the Company under the Subscriber
Services Agreement dated as of July 1, 1999 by and between Ultimate Parent and
the Company relating to Ultimate Parent's Support Services Division.
ARTICLE VI
CONDITIONS TO CONSUMMATION OF THE MERGER
6.1 Conditions to Each Party's Obligations to Effect the
Merger. The respective obligations of each party to effect the Merger are
subject to the satisfaction at or prior to the Effective Time of each of the
following conditions, any and all of which may be waived in whole or in part by
the Company, Parent or Sub, as the case may be, to the extent permitted by
Applicable Law:
37
<PAGE> 43
(a) Stockholder Approval. This Agreement shall have
been duly approved and adopted by the requisite vote of the stockholders of the
Company, if required by Applicable Law, in order to consummate the Merger.
(b) Stockholder's Stockholder Approval. The Required
Stockholder Approval (as defined in the Stockholder Agreement) shall have been
obtained.
(c) Injunction. There shall not be (i) in effect any
statute, rule, regulation, executive order, decree, ruling or injunction or
other order of any Governmental Entity directing that the Transactions
contemplated herein or in the Irrevocable Proxy not be consummated or otherwise
materially limiting or restricting ownership or the operation of the business of
the Surviving Corporation, or (ii) pending by any Governmental Entity any suit,
action or proceeding, the subject matter of which involves the Transactions,
which is reasonably likely to materially adversely affect Parent, Sub or the
Company.
(d) Governmental Filings and Consents. Subject to the
terms and provisions herein provided, all consents, orders and approvals
required of all Governmental Entities for the consummation of the Merger and the
other Transactions shall have been obtained and be in effect at the Effective
Time, other than non-material consents, orders or approvals, and the waiting
periods under the HSR Act shall have expired or been terminated.
(e) Consummation of the Offer. The purchase of Shares
pursuant to the Offer or the Share Purchase shall have occurred.
ARTICLE VII
TERMINATION
7.1 Termination. This Agreement may be terminated and the
Merger contemplated herein may be abandoned at any time prior to the Effective
Time, whether before or after stockholder approval thereof.
(a) By the mutual consent of Parent, Sub and the
Company.
(b) By either the Company or Parent:
(i) if the Effective Time shall not have
occurred on or prior to December 31, 1999; provided, however, that the
right to terminate this Agreement under this Section 7.1(b)(i) shall
not be available to any party whose failure to fulfill any obligation
under this Agreement has been the cause of, or resulted in, the failure
of Parent or Sub, as the case may be, to purchase shares of Company
Common Stock pursuant to the Offer on or prior to such date;
(ii) if any Governmental Entity shall have
issued an order, decree or ruling or taken any other action (which
order, decree, ruling or other action the parties hereto shall use
their respective reasonable best efforts to lift), in each case
permanently restraining, enjoining or otherwise prohibiting the
acceptance for payment
38
<PAGE> 44
of, or payment for, Shares pursuant to the Offer, the Merger or the
other Transactions and such order, decree, ruling or other action shall
have become final and non-appealable; or
(iii) if the Required Stockholder Approval
shall not have been obtained at the meeting of the stockholders of
Ultimate Parent to be held in accordance with the Stockholder
Agreement.
(c) By the Company:
(i) if Parent, Sub or any of their
Affiliates shall have failed to commence the Offer in accordance with
Section 1 hereof, provided, that the Company may not terminate this
Agreement pursuant to this Section 7.1(c)(i) if the Company is at
such time in material breach of its obligations under this Agreement;
(ii) if, prior to the purchase of Shares by
Sub pursuant to the Offer, the Company Board shall have withdrawn or
modified in a manner adverse to Parent or Sub its approval or
recommendation of the Offer, this Agreement or the Merger in order to
permit the Company to enter into a definitive agreement with respect to
a Superior Offer, which is then pending, provided the Company has
complied with all of the provisions of Section 5.2(b), including the
notice provisions therein; or
(iii) if Parent or Sub shall have breached
in any material respect any of their respective representations,
warranties, covenants or other agreements contained in this Agreement
or the Stock Option Agreement, which breach cannot be or has not been
cured within 30 days after the giving of written notice by the Company
to Parent or Sub, as applicable.
(d) By Parent or Sub:
(i) if, prior to the purchase of Shares by
Sub pursuant to the Offer, (A) the Company shall have notified or been
required by Section 5.2 hereof to notify Parent of its decision to
furnish information concerning its business, properties or assets to or
shall have negotiated or participated in negotiations or discussions
with a person or entity other than Parent, Sub or their Affiliates
concerning a Superior Proposal (B), the Company Board shall have
withdrawn, modified or changed in a manner adverse to Parent or Sub its
approval or recommendation of the Offer, this Agreement or the Merger
or shall have recommended an Alternative Proposal, (C) the Company
shall have executed a letter of intent, agreement in principle or
definitive agreement relating to an Alternative Proposal or similar
business combination with a person or entity other than Parent, Sub or
their Affiliates, or (D) the Ultimate Parent board of directors shall
have withdrawn, modified or changed in a manner adverse to Parent or
Sub its approval of the transactions contemplated by the Stockholder
Agreement or its approval or recommendation of the sale of its interest
in NCES as set forth in Ultimate Parent's Proxy Statement dated August
13, 1999;
(ii) if, prior to the purchase of Shares by
Sub pursuant to the Offer, the Company shall have breached any of its
representations, warranties, covenants or other agreements contained in
this Agreement or the Stock Option Agreement, which
39
<PAGE> 45
breach would give rise to the failure of the condition set forth in
paragraph (c) of Annex A hereto and cannot be or has not been cured
within 30 days after the giving of written notice by Parent or Sub to
the Company;
(iii) if Target Parent or Ultimate Parent
shall have breached any of its representations, warranties, covenants
or other agreements contained in the Stockholder Agreement, which
breach cannot be or has not been cured within 30 days of the giving of
written notice by Parent or Sub to Target Parent or Ultimate Parent, as
applicable;
(iv) if Ultimate Parent has not received all
consents and approvals from its lenders necessary to consummate the
Transactions on the terms and conditions set forth in this Agreement
and the Stockholder Agreement, including the unconditional release of
all Liens on the Shares held by Target Parent, and has not delivered
evidence of such consents and approvals (including release of such
Liens) to Parent;
(v) if the Company shall not have obtained
and delivered to Parent the guaranty and letter of credit or surety
bond or other security in accordance with Section 5.12 of this
Agreement;
(vi) if the Company and the Company
Subsidiaries shall incur or assume indebtedness in excess of the
amounts set forth in Section 5.1(xi) of this Agreement; or
(vii) if the Company shall not be removed as
a co-indemnitor with respect to the Liberty Bond (as defined in the
Stockholder Agreement) in accordance with Section 4.06 of the
Stockholder Agreement.
7.2 Effect of Termination. In the event of the termination of
this Agreement as provided in Section 7.1 hereof, written notice thereof shall
forthwith be given to the other party or parties specifying the provision hereof
pursuant to which such termination is made, and this Agreement shall forthwith
become null and void, and there shall be no liability on the part of Parent,
Sub, the Company or their respective directors, officers, employees,
representatives, agents, advisors or stockholders other than the obligations
pursuant to this Section 7.2, except that the agreements contained in Section
5.5 and the provisions of this Section 7.2 and Article VIII hereof shall survive
the termination hereof; provided, however, that if (w) the Company terminates
this Agreement pursuant to Section 7.1(c)(ii) hereof; (x) the Company enters
into an agreement which accepts or implements a Superior Proposal; or (y) Parent
or Sub terminate this Agreement pursuant to Sections 7.1(d)(i)(B), 7.1(d)(i)(C),
7.1(d)(i)(D), 7.1(d)(iii), 7.1(d)(iv) or 7.1(d)(vii) hereof, then within one
business day following such termination the Company shall pay to Parent by wire
transfer of immediately available funds a fee equal to $4,500,000; provided
further that if Parent or Sub terminate this Agreement pursuant to Sections
7.1(d)(i)(A), 7.1 (d)(ii), 7.1(d)(v) or 7.1(d)(vi) hereof or the Company,
Parent or Sub terminate this Agreement pursuant to Section 7.1(b)(iii) hereof,
the Company shall pay to Parent all of Parent's and Sub's reasonable
out-of-pocket expenses and fees (including without limitation fees and expenses
payable to counsel, accountants, experts and consultants, banks, investment
40
<PAGE> 46
banking firms and other financial institutions and their respective agents and
counsel) actually incurred by Parent and Sub in connection with the transactions
contemplated by this Agreement, the Offer, the Merger and the Stockholder
Agreement promptly upon receipt of a reasonably itemized statement therefor;
provided further that if the Company, Parent or Sub terminate this Agreement
pursuant to Section 7.1(b)(iii) or 7.1(d)(v), but within one year after the date
of such termination, the Company shall have executed a letter of intent,
agreement in principle or definitive agreement relating to an Alternative
Proposal or similar business combination with a person or entity other than
Parent, Sub or their Affiliates, then within one business day following the
execution of such letter or agreement, the Company shall pay to Parent by wire
transfer of immediately available funds a fee equal to the difference between
$4,500,000, less the amount actually paid by the Company to Parent pursuant to
the immediately preceding proviso of this Section 7.2. Nothing contained in this
Section 7.2 shall relieve any party from liability for fraud or for willful
breach of this Agreement.
ARTICLE VIII
MISCELLANEOUS AND GENERAL
8.1 Payment of Expenses and Other Payments. Whether or not the
Merger shall be consummated, each party hereto shall pay its own expenses
incident to preparing for, entering into and carrying out this Agreement and the
consummation of the Transactions, except as otherwise provided in Section 7.2
hereof.
8.2 Survival of Representations and Warranties; Survival of
Confidentiality Agreement. The representations and warranties made herein shall
not survive beyond the earlier of termination of this Agreement or the Effective
Time. This Section 8.2 shall not limit any covenant or agreement of the parties
hereto which by its terms contemplates performance after the Effective Time. In
the event of the termination of this Agreement for any reason whatsoever, the
Confidentiality Agreements shall remain in full force and effect, provided,
however, that if this Agreement is terminated by the Company pursuant to Section
7.1(c)(ii) hereof, the first two sentences of paragraph 5 and all of paragraph 6
of the Confidentiality Agreements shall be of no force or effect.
8.3 Modification or Amendment. Subject to the applicable
provisions of the DGCL, at any time prior to the Effective Time, the parties
hereto may modify or amend this Agreement, by written agreement executed and
delivered by duly authorized officers of the respective parties; provided,
however, that after approval of this Agreement by the stockholders of the
Company, no amendment shall be made which reduces or changes the consideration
payable in the Merger or adversely affects the rights of the Company's
stockholders hereunder without the approval of such stockholders.
8.4 Waiver of Conditions. Except as otherwise provided in this
Agreement, any failure of any of the parties to comply with any obligation,
covenant, agreement or condition herein may be waived by the party or parties
entitled to the benefits thereof only by a written instrument signed by the
party granting such waiver, but such waiver or failure to insist upon strict
compliance with such obligation, covenant, agreement or condition shall not
operate as a waiver of, or estoppel with respect to, any subsequent or other
failure.
41
<PAGE> 47
8.5 Counterparts. This Agreement may be executed in two or
more counterparts, all of which shall be considered one and the same agreement
and shall become effective when two or more counterparts have been signed by
each of the parties and delivered to the other parties, it being understood that
all parties need not sign the same counterpart.
8.6 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware without giving
effect to the principles of conflicts of law thereof.
8.7 Notices. Any notice, request, instruction or other
document to be given hereunder by any party to the other parties shall be in
writing and delivered personally or sent by registered or certified mail,
postage prepaid, or by facsimile transmission (with a confirming copy sent by
overnight courier), as follows:
(a) If to the Company, to
NovaCare Employee Services, Inc.
2621 Van Buren Avenue
Norristown, Pennsylvania 19403
Telephone no.: (610) 650-4813
Facsimile no.: (610) 650-4706
Attention: President
with copies to:
Haythe & Curley
237 Park Avenue
20th Floor
New York, New York 10017
Telephone no.: (212) 880-6000
Facsimile no.: (212) 682-0200
Attention: Andrew J. Beck, Esq.
(b) If to Parent or Sub, to
Plato Holdings, Inc.
c/o Patricof & Co. Ventures, Inc.
455 South Gulph Road, Suite 410
King of Prussia, Pennsylvania 19406
Telephone no.: (610) 265-0286
Facsimile no.: (610) 265-4959
Attention: Gregory M. Case
42
<PAGE> 48
with copies to:
Blank Rome Comisky & McCauley LLP
One Logan Square
Philadelphia, Pennsylvania 19103
Telephone no.: (215) 569-5544
Facsimile no.: (215) 569-5628
Attention: Arthur H. Miller, Esq.
Skadden, Arps, Slate, Meagher & Flom LLP
One Beacon Street
Boston, Massachusetts 02108
Telephone no.: (617) 573-4800
Facsimile no.: (617) 573-4822
Attention: Louis A. Goodman, Esq.
Skadden, Arps, Slate, Meagher & Flom LLP
1440 New York Avenue, N.W.
Washington, DC. 20005
Telephone no.: (202) 371-7000
Facsimile no.: (202) 393-5760
Attention: Marcia R. Nirenstein, Esq.
or to such other persons or addresses as may be designated in writing by the
party to receive such notice.
8.8 Entire Agreement, Assignment. This Agreement and the
Confidentiality Agreements(a) constitute the entire agreement among the parties
with respect to the subject matter hereof and supersede all other prior
agreements and understandings, both written and oral, among the parties or any
of them with respect to the subject matter hereof and (b) shall not be assigned
by operation of law or otherwise without the prior written consent of the other
parties; except that Parent and Sub may assign, in its sole discretion, any or
all of its rights, interests and obligations hereunder to Parent or to any
direct or indirect wholly owned subsidiary of Parent or to any other entity
owned by the same members of Parent. Subject to the preceding sentence, this
Agreement will be binding upon, inure to the benefit of and be enforceable by
the parties and their respective permitted successors and assigns.
8.9 Parties in Interest. Nothing in this Agreement, express or
implied, other than the right to receive the consideration payable in the Merger
pursuant to Article II hereof and as provided in Section 5.7 hereof, is intended
to or shall confer upon any other person any rights, benefits or remedies of any
nature whatsoever under or by reason of this Agreement.
8.10 Obligation of Parent. Whenever this Agreement requires
Sub to take any action, such requirement shall be deemed to include an
undertaking on the part of Parent to cause Sub to take such action and a
guarantee of the performance thereof.
8.11 Validity. If any term, provision, covenant or restriction
of this Agreement is held by a court of competent jurisdiction or other
authority to be invalid, void, unenforceable
43
<PAGE> 49
or against its regulatory policy, the remainder of the terms, provisions,
covenants and restrictions of this Agreement shall remain in full force and
effect and shall in no way be affected, impaired or invalidated so long as the
economic or legal substance of the transactions contemplated hereby is not
affected in any manner materially adverse to any party.
8.12 Captions. The Article, Section and paragraph captions
herein are for convenience of reference only, do not constitute part of this
Agreement and shall not be deemed to limit or otherwise affect any of the
provisions hereof.
8.13 Specific Performance. Each of the parties hereto
acknowledges and agrees that in the event of any breach of this Agreement, each
non-breaching party would be irreparably and immediately harmed and could not be
made whole by monetary damages. It is accordingly agreed that the parties hereto
(a) will waive, in any action for specific performance, the defense of adequacy
of a remedy at law and (b) shall be entitled, in addition to any other remedy to
which they may be entitled at law or in equity, to compel specific performance
of this Agreement in any action instituted in a court of competent jurisdiction.
8.14 "Knowledge" of the Company. For purposes of this
Agreement, unless otherwise expressly provided where the term is used,
"knowledge" of the Company will be deemed to mean (i) the actual knowledge of
any director or executive officer of the Company or any Company Subsidiary and
(ii) the knowledge that any such director or executive officer would have had if
he or she, in connection with the confirmation of the accuracy of the
representations and warranties of the Company in this Agreement, had made due
inquiry of the officers, employees, advisors, and agents of the Company or any
Company Subsidiary who are primarily responsible for the subject matter of such
representations and warranties.
8.15 Confidentiality. During the period from the date of this
Agreement to the Effective Date, the Company shall, and shall cause each Company
Subsidiary to, maintain the confidentiality of all confidential information
given to them by Parent or Sub or any Affiliate of Parent or Sub, in connection
with this Agreement, in the same manner that the recipient of the information
maintains the confidentiality of its own confidential information. If this
Agreement is terminated in accordance with Article VII, the Company shall, and
shall cause each Company Subsidiary to, promptly return all such confidential
information and materials, and the provisions of the foregoing sentence shall
survive such termination indefinitely. The Company acknowledges that any breach
of this Section 8.15 may cause irreparable injury to Parent or Sub for which
money damages could not adequately compensate. If there is such a breach, the
aggrieved parties shall be entitled, in addition to all other rights or remedies
it may have at law or in equity, to have an injunction issued by any competent
court enjoining and restraining the breaching parties from continuing such
breach. The existence of any claim or cause of action which any of the breaching
parties may have against the aggrieved parties shall not constitute a defense or
bar to the enforcement of this Section 8.15.
44
<PAGE> 50
ARTICLE IX
DEFINITIONS
9.1 Certain Definitions. The following terms when used herein
shall have the meanings assigned to them below (certain other terms are defined
elsewhere herein):
"Actions" shall have the meaning set forth in Section 3.14
hereof.
"Affiliate" means a person or entity who directly, or
indirectly through one or more intermediaries, controls, or is controlled by, or
is under common control with, another person.
"Applicable Law" shall mean the collective reference to any
law, rule, regulation, ordinance, writ, judgment, injunction, decree,
determination, award or other order of any Governmental Authority, in each case
excluding any and all Environmental Laws.
"Benefit Plan" shall have the meaning set forth in Section
3.11 hereof.
"Code" shall mean the Internal Revenue Code of 1986, as
amended.
"Company Common Stock" shall have the meaning set forth in the
recitals hereof.
"Company Material Adverse Effect" shall mean a material
adverse effect or any development that, insofar as can be reasonably foreseen,
is likely to have a material adverse effect on the assets, properties,
businesses, results of operations or financial condition of the Company and the
Company Subsidiaries, taken as a whole, and in any case after application of the
proceeds of any insurance or indemnity under any contract or agreement to which
the Company, Parent or Sub (or any Affiliate thereof) is a party; provided that
the term "Company Material Adverse Effect" as used herein shall not include any
effect attributable to changes in the economy generally.
"Company Material Contracts" shall have the meaning set forth
in Section 3.10 hereof.
"Confidentiality Agreement" shall have the meaning set forth
in Section 5.4 hereof.
"Control" (including the terms "controlling", "controlled by"
and "under common control with") means the possession, directly or indirectly,
of the power to direct or cause the direction of the management and policies of
the person, whether through stock ownership, voting rights, governing boards or
otherwise.
"Environmental Laws" shall have the meaning set forth in
Section 3.15(c) hereof.
"Environmental Permits" shall have the meaning set forth in
Section 3.15(c) hereof.
45
<PAGE> 51
"ERISA" shall have the meaning set forth in Section 3.11(a)
hereof.
"GAAP" shall have the meaning set forth in Section 3.4(b)
hereof.
"Governmental Authority" or "Governmental Entity" shall mean
the collective reference to any court, tribunal, government, or governmental
agency, authority or instrumentality, domestic or foreign.
"Intellectual Property" shall mean trademarks, service marks,
trade names, Internet domain names, designs, logos, slogans, and general
intangibles of like nature, together with all goodwill, registrations and
applications related to the foregoing (collectively, "Trademarks"); patents and
industrial design registrations or applications (including any continuations,
divisionals, continuations-in-part, renewals, reissues, and applications for any
of the foregoing); software; "mask works" (as defined under 17 USC Section901)
and any registrations and applications for "mask works"; technology, trade
secrets and other confidential information, know-how, proprietary processes,
formulae, algorithms, models, and methodologies (collectively, "Trade Secrets").
"Lien" shall mean any mortgage, pledge, encumbrance, charge or
other security interest of any kind or nature whatsoever.
"Permits" shall have the meaning set forth in Section 3.15(b)
hereof.
"Permitted Liens" shall mean:
(a) Liens for Taxes not yet due or which are being
contested in good faith by appropriate proceedings, provided that adequate
reserves with respect to contested Taxes are maintained on the books of the
Company;
(b) pledges or deposits made in the ordinary course
of business in connection with workers' compensation, unemployment insurance and
other social security legislation;
(c) easements, rights-of-way, restrictions and other
similar encumbrances previously incurred in the ordinary course of business
which, in respect of properties or assets of the Company or any Company
Subsidiary, are not material, and which, in the case of such encumbrances on the
assets or properties of the Company or any Company Subsidiary, do not materially
detract from the value of any such properties or assets or materially interfere
with any present use of such properties or assets;
(d) carriers', warehousemen's, mechanics',
materialmen's, repairmen's or other like Liens arising in the ordinary course of
business which are not overdue for a period of more than 90 days or which are
being contested in good faith by appropriate proceedings;
(e) deposits to secure the performance of bids,
contracts (other than for borrowed money), leases, statutory obligations, surety
and appeal bonds, performance bonds and other obligations of a like nature
incurred in the ordinary course of business;
46
<PAGE> 52
(f) statutory and contractual Liens on the property
of the Company or any Company Subsidiary in favor of landlords securing leases;
and
(g) Liens in existence on the date of this Agreement
listed in Section 3.9 to the Company Disclosure Schedule.
"Shares" shall have the meaning set forth in the
recitals hereof.
"Taxes" shall have the meaning set forth in Section
3.7 hereof.
"Tax Returns" shall have the meaning set forth in
Section 3.7 hereof.
47
<PAGE> 53
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective duly authorized officers as of the
date first above written.
PLATO HOLDINGS, INC.
By: /s/ Gregory M. Case
------------------------------------
Name: Gregory M. Case
Title: President
NEW PLATO ACQUISITION, INC.
By: /s/ Gregory M. Case
------------------------------------
Name: Gregory M. Case
Title: President
NOVACARE EMPLOYEE SERVICES, INC.
By: /s/ Loren J. Hulber
------------------------------------
Name: Loren J. Hulber
Title: President and CEO
<PAGE> 54
ANNEX A
CONDITIONS TO THE OFFER
The capitalized terms used in this Annex A shall have the
meanings ascribed to them in the Agreement and Plan of Merger to which it is
attached, except that the term "Merger Agreement" shall be deemed to refer to
such Agreement and Plan of Merger.
Notwithstanding any other provisions of the Offer, and in
addition to (and not in limitation of) Sub's rights to extend and amend the
Offer as provided in the Merger Agreement, Sub shall not be required to accept
for payment or, subject to any applicable rules and regulations of the SEC,
including Rule 14e-1(c) under the Exchange Act (relating to Sub's obligation to
pay for or return tendered Shares promptly after termination or withdrawal of
the Offer), pay for, and may delay the acceptance for payment of or, subject to
the restriction referred to above, the payment for, any tendered Shares, and may
terminate the Offer if in the reasonable judgment of Sub (i) any applicable
waiting period under the HSR Act has not expired or terminated prior to the
expiration of the Offer, (ii) the Minimum Condition has not been satisfied,
(iii) the Required Stockholder Approval (as defined in the Stockholder
Agreement) shall not have been obtained, or (iv) at any time on or after the
date hereof, and before the time of payment for any Shares (whether or not any
Shares have theretofore been accepted for payment pursuant to the Offer)
pursuant to the Offer any of the following events shall occur:
(a) there shall be pending or threatened by any
Governmental Authority, or the Company, Parent or Sub shall have received notice
from an attorney representing a party of such party's intent to commence any
suit, action or proceeding which (i) seeks to prohibit or delay the making or
consummation of the Offer or the Merger, (ii) seeks to challenge, prohibit,
delay or make illegal or materially more costly the acquisition by Parent or Sub
of any Shares pursuant to the Offer, the Stockholder Agreement, the Stock Option
Agreement or the acceptance for payment, payment for or purchase of Shares
pursuant to, or consummation of, the Offer or the Merger or seeks to make
illegal the transactions contemplated by the Stockholder Agreement or the Stock
Option Agreement or otherwise directly or indirectly to restrain, prohibit or
delay the transactions contemplated by the Stockholder Agreement or the Stock
Option Agreement, (iii) seeks to require divestiture by Parent or any of its
subsidiaries or Affiliates of any Shares or impose limitations on the ability of
Parent or any of its subsidiaries or Affiliates to exercise full rights of
ownership of the Shares purchased by it, including the right to vote on all
matters, (iv) seeks to impose limitations on the ability of Parent or any of its
subsidiaries or Affiliates effectively to acquire, hold or operate, or to
require Parent, Sub or the Company or any of their respective subsidiaries or
Affiliates to dispose of or hold separate, any material portion of the business
or assets of Parent, Sub or the Company or any of their respective subsidiaries,
or (v) would reasonably be expected to have a Company Material Adverse Effect;
(b) there shall be any statute, rule, regulation,
judgment, order or injunction promulgated, entered, enforced, enacted, issued or
made applicable, in each case after the date of the Merger Agreement, to the
Offer or the Merger or any other action shall be taken by any Governmental
Entity that is reasonably likely, directly or indirectly, to result in any of
the consequences referred to in clauses (i) through (v) of paragraph (a) above;
<PAGE> 55
(c) the representations and warranties of the Company
set forth in the Merger Agreement or the Stock Option Agreement (without giving
effect to any qualification regarding materiality) shall not be true and
accurate as of the date of this Agreement and as of the date of consummation of
the Offer as though made on or as of such date except those representations and
warranties that address matters only as of a particular date or only with
respect to a specified period of time which need only be true and accurate as of
such date or with respect to such period, all of which failures to be true and
accurate in the aggregate has had or would reasonably be expected to have a
Company Material Adverse Effect; or the Company shall have breached or failed in
any material respect to perform or comply with any material obligation,
agreement or covenant required by the Merger Agreement or the Stock Option
Agreement to be performed or complied with by it;
(d) the Merger Agreement shall have been terminated
in accordance with its terms;
(e) the Company shall have entered into a definitive
agreement, letter of intent or agreement in principle with any person with
respect to an Alternative Proposal;
(f) the Company shall have notified or been required
by Section 5.2 hereof to notify Parent of its decision to furnish information
concerning its business, properties or assets to or shall have negotiated or
participated in negotiations or discussions with a person or entity other than
Parent, Sub or their Affiliates concerning a Superior Proposal, withdrawn, or
modified or changed in a manner adverse to Parent or Sub (including by amendment
of the Schedule 14D-9) its recommendation of the Offer, the Merger Agreement, or
the Merger, or recommended an Alternative Proposal, or shall have resolved to do
any of the foregoing;
(g) there shall have occurred (1) any general
suspension of trading in, or limitation on prices for, securities on the New
York Stock Exchange, the American Stock Exchange or in the Nasdaq National
Market System, for a period in excess of three hours (excluding suspensions or
limitations resulting solely from physical damage or interference with such
exchanges not related to market conditions), (2) a declaration of a banking
moratorium or any suspension of payments in respect of banks in the United
States (whether or not mandatory), (3) any limitation or proposed limitation
(whether or not mandatory) by any United States Governmental Authority or agency
on the extension of credit by financial institutions, (4) any decline in the Dow
Jones Industrial Average or the Standard & Poor's 500 Index in excess of 25%
measured from the close of business on the date of this Agreement or (5) in the
case of any of the situations in clauses (1) through (4) inclusive, existing at
the time of the commencement of the Offer, a material acceleration or worsening
thereof;
(h) the Company, Target Parent or Ultimate Parent pursuant to
or within the meaning of Title 11, U.S. Code or any similar federal or state law
for the relief of debtors ("Bankruptcy Law"): (1) commences a voluntary case,
(2) consents to the entry of an order for relief against it in an involuntary
case, (3) consents to the appointment of a receiver, trustee, assignee,
liquidator or similar official under any Bankruptcy Law (a "Custodian") of it or
for all or substantially all of its property, (4) makes a general assignment for
the benefit of its creditors, or (5) generally is not paying its debts as they
become due;
2
<PAGE> 56
(i) a court of competent jurisdiction enters an order
or decree under the Bankruptcy Law that; (1) is for relief against the Company
in an involuntary case, (2) appoints a Custodian of the Company, Target Parent
or Ultimate Parent or for all or substantially all of the property of the
Company, Target Parent or Ultimate Parent, or (3) orders the liquidation of the
Company, Target Parent or Ultimate Parent, and the order or decree remains
unstayed and in effect for 60 days;
(j) there shall have occurred any change, condition,
event or development that has or is reasonably likely to have, individually or
in the aggregate, a Company Material Adverse Effect;
(k) either Target Parent or Ultimate Parent shall be
in breach of the Stockholder Agreement;
(l) the Company shall not have obtained the consents
of holders of outstanding Options to purchase Shares to cancel such Options in
accordance with Section 2.1(d) of the Merger Agreement;
(m) the Company shall not have delivered to Parent
and Sub an opinion from a reputable firm to the effect that Ultimate Parent and
the Company are solvent as of the time any Shares are accepted for payment;
(n) Ultimate Parent shall not have obtained all
consents of, and approvals to, the Transactions from its lenders in accordance
with Section 4.04 of the Stockholder Agreement and delivered evidence of such
consents and approvals to Parent and Sub;
(o) the Company shall not have obtained and delivered
to Parent the guaranty and letter of credit or surety bond or other security in
accordance with Section 5.12 of the Merger Agreement;
(p) if the Company and the Company Subsidiaries shall
have incurred or assumed indebtedness in excess of the amounts set forth in
Section 5.1(xi) of the Merger Agreement; or
(q) the Company shall not have been removed as
co-indemnitor with respect to the Liberty Bond in accordance with Section 4.06
of the Stockholder Agreement.
which in the reasonable judgment of Parent or Sub, in any such case, and
regardless of the circumstances giving rise to such condition, makes it
inadvisable to proceed with the Offer and/or with such acceptance for payment or
payments.
The foregoing conditions are for the sole benefit of Sub and
Parent and may be waived by Parent or Sub, in whole or in part at any time and
from time to time in the sole discretion of Parent or Sub. The failure by Parent
or Sub at any time to exercise any of the foregoing rights shall not be deemed a
waiver of any such right and each such right shall be deemed an ongoing right
which may be asserted at any time and from time to time. Any
3
<PAGE> 57
determination by Parent or Sub concerning any condition or event described in
this Annex A shall be final and binding upon all parties.
4
<PAGE> 1
EXHIBIT 2(b)
<PAGE> 2
SHORT FORM MERGER OPTION AGREEMENT
SHORT FORM MERGER OPTION AGREEMENT, dated as of September 8,
1999 (the "Agreement"), among Plato Holdings, Inc., a Delaware corporation
("Parent"), New Plato Acquisition, Inc., a Delaware corporation ("Sub"), and
Nova Care Employee Services, Inc., a Delaware corporation (the "Company").
Capitalized terms used and not defined in this Agreement shall have the meaning
ascribed to them in the Agreement and Plan of Merger, dated as of the date
hereof, (the "Merger Agreement") by and among Parent, Sub and the Company.
WHEREAS, concurrently with the execution of this Agreement,
Parent, Sub and the Company are entering into the Merger Agreement, providing
for the making of a tender offer (the "Offer") to purchase all of the issued and
outstanding shares of the Company's common stock, par value $0.01 per share (the
"Shares"), at a price per Share equal to the Offer Price and, following the
completion of the Offer, the merger (the "Merger") of Sub and the Company,
whereby each Share not purchased pursuant to the Offer (other than Shares owned
by Parent, Sub or any other wholly owned subsidiary of Parent, Shares held in
the treasury of the Company and Dissenting Shares) will be converted into the
right to receive in cash the Offer Price in accordance with the terms of the
Merger Agreement; and
WHEREAS, the Company desires to induce Parent and Sub to enter
into the Merger Agreement and to facilitate the prompt completion of the Merger
following the purchase of Shares pursuant to the Offer.
NOW, THEREFORE, in consideration of the foregoing and the
respective representations, warranties, covenants and agreements set forth in
this Agreement, the parties hereto hereby agree as follows:
1. Grant of Option. The Company hereby grants to Sub an
irrevocable option (the "Option") to purchase up to that number of newly issued
Shares (the "Option Shares") equal to the number of Shares, that when added to
the number of Shares owned by Sub and its affiliates immediately following
consummation of the Offer, shall constitute 90% of the Shares then outstanding
on a fully diluted basis (giving effect to the issuance of the Option Shares)
for a consideration per Option Share equal to the Offer Price; provided,
however, that the number of Option Shares shall not exceed that number equal to
19.9% of the Shares outstanding on the date of this Agreement.
2. Exercise of the Option. The Option may be exercised by Sub
at any time after the acceptance for payment by Sub of Shares pursuant to the
Offer in accordance with the terms of the Merger Agreement. In the event Sub
wishes to exercise the Option, Sub shall give written notice (the "Notice") of
its exercise of the Option and specifying the number of Shares owned by Sub and
its affiliates immediately following consummation of the Offer and a place and a
time (which shall not be less than three business days from the date of the
Notice) for the closing of such purchase. The Company shall, within two business
days after receipt of the Notice, deliver written notice to Sub specifying the
number of Option Shares.
3. Payment and Delivery of Certificates. At the closing
hereunder: (i) the Company will deliver to Sub a certificate or certificates
representing the number of Option
<PAGE> 3
3
Shares so purchased and (ii) Sub will make payment to the Company of the
aggregate price for the Option Shares being purchased, as stated in the Notice,
by check or wire transfer in an amount equal to the product of (x) the Offer
Price and (y) the total number of Option Shares delivered at the closing. The
Company shall pay all expenses, and any and all United States Federal, state and
local taxes and other charges, that may be payable in connection with the
preparation, issuance and delivery of stock certificates under this Section 3.
4. Representations and Warranties of the Company. The Company
hereby represents and warrants to Parent and Sub as follows:
4.1. The Company has all requisite corporate power
and authority to enter into and perform all of its obligations under this
Agreement. The execution and delivery of this Agreement and the consummation by
the Company of the transactions contemplated hereby have been duly authorized by
all necessary corporate action on the part of the Company. This Agreement has
been duly executed and delivered by the Company.
4.2. The Company has taken all necessary corporate
action to authorize and reserve for issuance, and at all times prior to the
termination of this Agreement shall have reserved, all of the Option Shares
issuable pursuant to this Agreement.
4.3. The Shares to be issued upon exercise of the
Option, upon their issuance and delivery in accordance with this Agreement as
provided herein, will be duly authorized, validly issued, fully paid and
non-assessable, will be delivered free and clear of all security interests,
liens, claims, pledges, options, rights of first refusal, agreements,
limitations on Sub's voting rights, charges, adverse rights and other
encumbrances of any nature whatsoever (other than this Agreement) and will not
be subject to any preemptive rights. Upon the delivery to Sub by the Company of
a certificate or certificates evidencing the Option Shares, Sub will receive
good, valid and marketable title to the Option Shares.
5. Representations and Warranties of Parent and Sub. Each of
Parent and Sub hereby represents and warrants to the Company that (i) it has all
requisite power and authority to enter into and perform all of its obligations
under this Agreement; (ii) the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary action on the part of Parent and Sub; (iii) this Agreement has
been duly executed and delivered by Parent and Sub and, assuming the due and
valid authorization, execution and delivery by the Company, constitutes a valid
and binding obligation of Parent and Sub, enforceable against each of Parent and
Sub in accordance with its terms, except as such enforceability may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting creditors' rights generally, and by general equitable
principles; and (iv) if and when Sub exercises the Option, it will be acquiring
the Option Shares pursuant to this Agreement for its own account and not with a
view to any public distribution thereof.
6. Adjustment Upon Changes in Capitalization. In the event of
any change in the number of issued and outstanding Shares by reason of any stock
dividend, subdivision, merger, recapitalization, combination, conversion or
exchange of shares, or any other change in the corporate or capital structure of
the Company (including, without limitation, the declaration
<PAGE> 4
4
or payment of any extraordinary dividend of cash or securities) which would have
the effect of diluting or otherwise adversely affecting Sub's rights and
privileges under this Agreement, the number and kind of the Option Shares and
the consideration payable in respect of the Option Shares shall be appropriately
and equitably adjusted to restore to Sub its rights and privileges under this
Agreement.
7. Termination. This Agreement will terminate upon the earlier
to occur of (i) termination of the Merger Agreement in accordance with its terms
and (ii) the Effective Time of the Merger.
8. Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties, except that Sub may assign, in its sole
discretion, any or all of its rights, interests and obligations hereunder to
Parent or to any direct or indirect wholly owned Subsidiary of Parent or to any
other entity owned by, or controlling, controlled by or under common control
with the same equityholders of Parent. Subject to the preceding sentence, this
Agreement will be binding upon, inure to the benefit of and be enforceable by
the parties and their respective successors and permitted assigns.
9. Notices. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given (and shall be
deemed to have been duly received if so given) if personally delivered or sent
by registered or certified mail, postage prepaid, or telecopy addressed to the
respective parties at their addresses specified in Section 8.7 of the Merger
Agreement.
10. Specific Performance. Each of the parties hereto
acknowledges and agrees that in the event of any breach by the Company of this
Agreement, Parent and Sub would be irreparably and immediately harmed and could
not be made whole by monetary damages. It is accordingly agreed that the Company
will waive, in any action for specific performance, the defense of adequacy of a
remedy at law, and Parent and Sub shall be entitled, in addition to any other
remedy to which they may be entitled at law or in equity, to compel specific
performance of this Agreement in any action instituted in a court of competent
jurisdiction.
11. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, without regard
to the conflict of laws provisions thereof.
12. Amendment. This Agreement may not be amended except by an
instrument in writing signed by the parties hereto.
13. Waiver. Any party hereto may (i) extend the time for or
waive compliance with the performance of any obligation or other act of any
other party hereto or (ii) waive any inaccuracy in the representations and
warranties contained herein or in any document delivered pursuant hereto. Any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed by the party or parties to be bound thereby. The failure of any
party to this Agreement to assert any of its rights under this Agreement or
otherwise shall not constitute a waiver of those rights.
<PAGE> 5
5
14. Fees and Expenses. Except as otherwise provided herein or
in Section 8.1 of the Merger Agreement, all costs, fees and expenses incurred in
connection with this Agreement shall be paid by the party incurring such
expenses.
15. Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void, unenforceable or against its regulatory
policy, the remainder of the terms, provisions, covenants and restrictions of
this Agreement shall remain in full force and effect and shall in no way be
affected, impaired or invalidated.
16. Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same agreement.
<PAGE> 6
6
IN WITNESS WHEREOF, this Agreement has been executed by duly
authorized officers of each of the parties hereto all as of the date first above
written.
PLATO HOLDINGS, INC.
By /s/ Gregory M. Case
-------------------------------------
Name: Gregory M. Case
Title: President
NEW PLATO ACQUISITION, INC.
By /s/ Gregory M. Case
-------------------------------------
Name: Gregory M. Case
Title: President
NOVACARE EMPLOYEE SERVICES, INC.
By /s/ Loren J. Hulber
-------------------------------------
Name: Loren J. Hulber
Title: President and CEO
<PAGE> 1
EXHIBIT 99
<PAGE> 2
NOVACARE EMPLOYEE SERVICES ANNOUNCES SALE OF COMPANY
September 9, 1999 10:32 AM
NORRISTOWN, Pa., Sept. 9/PRNewswire/-- NovaCare Employee Services, Inc. NCES,
a premier national employee services company, or professional employer
organization (PEO), announced today a definitive agreement to sell the company
to an investment group comprising Patricof & Co. Ventures, Inc., Fidelity
Ventures Limited and AFLAC Incorporated (the Investors). Under the terms of the
agreement, a new private company established by the Investors will acquire all
the stock of NovaCare Employee Services at a price of $2.50 per share of common
stock.
The purchase will be effected through a cash tender offer to NovaCare Employee
Services stockholders and subsequent merger of NovaCare Employee Services into a
new private company managed by the Investors. The tender offer will commence on
or about September 15, 1999. NovaCare Employee Services has 30,273,782 fully
diluted shares of common stock outstanding.
"After several months of careful review of our strategic alternatives, we are
pleased with this transaction, which partners NovaCare Employee Services with
three firms with extensive understanding of the PEO industry and the resources
and synergies to support our future growth," said Loren J. Hulber, president and
chief executive officer.
Following the merger, Loren J. Hulber will be elected Chairman of the Board and
Craig P. Coy will be elected Chief Executive Officer. Mr. Coy has been Chief
Executive Officer of HR Logic, Inc., a portfolio company jointly owned by
Patricof & Co. Ventures, Inc. and Fidelity Ventures Limited, headquartered in
Newton, Massachusetts. Operations of NovaCare Employee Services will remain
intact and the company will, over a six month period, change its name to
NovaSource, Inc.
NovaCare, Inc., NOV holder of approximately 64% of NovaCare Employee Services'
outstanding common stock, also executed a definitive agreement, subject to
certain conditions, to tender its shares in the tender offer at the price of
$2.50 per share.
The tender offer is subject to the approval of the NovaCare, Inc. stockholders
and the satisfaction of customary closing conditions. The tender offer is
expected to close during October 1999. NovaCare Employee Services' previously
announced agreement to acquire Unified Management Corporation has terminated and
that transaction will not occur.
NovaCare Employee Services engaged CIBC World Markets to render a fairness
opinion on this transaction.
NovaCare Employee Services, Inc. is a premier national professional employer
organization. The company is an employee services company that provides small-
to medium-sized businesses with comprehensive, fully integrated outsourcing
solutions to human resource needs, including payroll management, risk
management, benefits procurement and management, unemployment insurance services
and human resource consulting services. As of June 30, 1999, NovaCare Employee
Services had 4,084 clients with more than 54,300 worksite employees under
contract located in 46 states.
<PAGE> 3
Cautionary Statement
Except for historical information, matters discussed above including, but not
limited to, statements concerning future growth, are forward-looking statements
that are based on management's estimates, assumptions and projections. Important
factors that could cause results to differ materially from those expected by
management include management retention and development, management's success in
integrating acquired businesses, in developing and introducing new products and
lines of business and in entering new geographic markets, maintaining material
customer contracts, material changes in the economics of the contracts with
NovaCare, Inc., the ability of the company, its customers and its suppliers to
complete assessment, testing and remediation of Year 2000 issues, adverse
Internal Revenue Service rulings and state regulations with respect to the
employer status of employee services businesses and the company's ability to
implement the employee services business model.
SOURCE NovaCare Employee Services, Inc.
2
