8K040198 2
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): March 27, 1998
CHILDREN'S DISCOVERY CENTERS OF AMERICA, INC.
(Exact name of registrant as specified in its charter)
Delaware 0-14368 06-1097006
(State or Other Jurisdiction (Commission) (IRS Employer
of Incorporation) file Number) Identification No.)
851 Irwin Street, Suite 200, San Rafael, California 94901
(Address of principal executive offices) (zip code)
Registrant's Telephone Number, including Area Code: (415) 257-4200
Not Applicable
(Former name or former address, if changed since last report)
Item 5. Other Events
On March 27, 1998, Children's Discovery Centers of America, Inc.
(the "Company") executed an Agreement and Plan of Merger (the "Merger
Agreement") with Knowledge Beginnings, Inc., a Delaware corporation ("Knowledge
Beginnings"), and KBI Acquisition Corp., a Delaware corporation and a
wholly-owned subsidiary of Knowledge Beginnings ("Purchaser"), pursuant to
which, subject to the terms and conditions of the Merger Agreement, (i)
Purchaser will commence a tender offer (the "Offer") for all of the outstanding
shares of the common stock, par value $.01 per share, of the Company (the
"Common Stock") at a price of $12.25 per share in cash (net to the seller) and
(ii) following consummation of the Offer, Purchaser will merge with and into the
Company (the "Merger"), pursuant to which Merger each share of Common Stock will
be converted into the right to receive $12.25 per share in cash. Consummation of
the Offer and the closing of the Merger are subject to the satisfaction or
waiver of certain conditions, including, among others, the expiration or
termination of any applicable waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended. Consummation of the Offer is
also subject to the valid tender of at least a majority of the total number of
shares of Common Stock outstanding on a fully diluted basis. The closing of the
Merger is expected to occur as soon as practicable after the satisfaction of the
conditions thereto set forth in the Merger Agreement, including Stockholder
approval, if required. The description of the Merger Agreement contained herein
is qualified in its entirety by reference to the Merger Agreement, a copy of
which is attached hereto as Exhibit 2.1 and is incorporated herein by reference.
In connection with the execution and delivery of the Merger
Agreement, Proactive Partners, L.P., Lagunitas Partners, L.P., and Fremont
Proactive Partners, L.P., (collectively, the "Specified Stockholders"), which
own an aggregate of 1,363,700 shares of the Company's Common Stock, entered into
an Option and Support Agreement with Knowledge Beginnings, pursuant to which,
among other things, the Specified Stockholders have agreed to tender such Shares
of Common Stock and have granted to Knowledge Beginnings an option to purchase
such shares under certain circumstances for $12.25 per share. Pursuant to the
Option and Support Agreement, the Company also granted an option to Knowledge
Beginnings to purchase 1,342,155 previously unissued shares of the Company's
Common Stock (equal to 19.9% of the outstanding shares) under certain
circumstances for $10.125 per share. The description of the Option and Support
Agreement contained herein is qualified in its entirety by reference to the
Option and Support Agreement, a copy of which is attached hereto as Exhibit 2.2
and is incorporated herein by reference.
On March 30, 1998, the Company and Knowledge Beginnings issued a
press release relating to the execution of the Merger Agreement. A copy of the
press release is attached hereto as Exhibit 2.3 and is incorporated herein by
reference
Item 7. Financial Statements and Exhibits
(a) Financial statements of businesses acquired.
None.
(b) Pro forma financial information.
None.
(b) Exhibits.
2.1 Agreement and Plan of Merger, dated as of March 27,
1998, by and among Children's Discovery Centers of
America, Inc., a Delaware corporation (the "Company"),
Knowledge Beginnings, Inc., a Delaware Corporation
("Knowledge Beginnings"), and KBI Acquisitions, Corp., a
Delaware corporation and a wholly-owned subsidiary of
Knowledge Beginnings ("Purchaser").
2.2 Option and Support Agreement dated as of March 27, 1998,
among Children's Discovery Centers of America, Inc.,
Knowledge Beginnings, Inc., Proactive Partners, L.P.,
Lagunitas Partners, L.P., and Fremont Proactive Partners,
L.P.
2.3 Press Release dated, March 30, 1998.
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
2.1 Agreement and Plan of Merger, dated as of March 27,
1998, by and among Children's Discovery Centers of
America, Inc., a Delaware corporation (the "Company"),
Knowledge Beginnings, Inc., a Delaware Corporation
("Knowledge Beginnings"), and KBI Acquisitions, Corp., a
Delaware corporation and a wholly-owned subsidiary of
Knowledge Beginnings ("Purchaser").
2.2 Option and Support Agreement dated as of March 27, 1998,
among Children's Discovery Centers of America, Inc.,
Knowledge Beginnings, Inc., Proactive Partners, L.P.,
Lagunitas Partners, L.P., and Fremont Proactive
Partners, L.P.
2.3 Press Release dated, March 30, 1998.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
CHILDREN'S DISCOVERY CENTERS
OF AMERICA, INC.
Date: April 2, 1998 By:
Randall J. Truelove
Vice President
<PAGE>
EXHIBIT 2.1
33
8K040198
EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of March
27, 1998, is by and among Knowledge Beginnings, Inc., a Delaware corporation
("Parent"), KBI Acquisition Corp., a Delaware corporation and a wholly-owned
subsidiary of Parent ("Purchaser") and Children's Discovery Centers of America,
Inc., a Delaware corporation ("Company").
RECITALS
WHEREAS, the respective Boards of Directors of Parent, Purchaser and the
Company have each determined that it is in the best interests of their
respective stockholders for the Company to be acquired pursuant to the terms and
subject to the conditions of this Agreement.
WHEREAS, in furtherance of such acquisition it is proposed that Purchaser
will make a tender offer (the "Offer") to purchase all of the issued and
outstanding shares of common stock, par value $0.01 per share, of the Company
(the "Common Stock"), subject to the terms and conditions of this Agreement and
Annex I hereto, for $12.25 per share net to the tendering stockholder in cash,
without interest thereon. The Common Stock is sometimes hereinafter referred to
as the "Shares."
WHEREAS, to complete such acquisition, the respective Boards of Directors
of Parent, Purchaser and the Company have each duly approved the merger of
Purchaser and the Company (the "Merger") following consummation of the Offer, in
accordance with the terms of this Agreement and the General Corporation Law of
the State of Delaware (the "Delaware Law").
WHEREAS, Parent and the Company have also entered into an Option and
Support Agreement dated as of the date hereof, in the form attached as Exhibit A
hereto (the "Option Agreement"), providing for the grant by the Company to
Parent of an option to purchase, under certain circumstances, 19.9% of the
outstanding Shares at $10.125 per Share.
WHEREAS, Parent and Proactive Partners, L.P., Fremont Proactive Partners,
L.P. and Lagunitas Partners, L.P. have entered into the Option Agreement
providing for, among other things, the agreement of each such stockholder to
tender all Shares owned by it pursuant to the Offer and the grant by each such
stockholder to Parent of an option to purchase, under certain circumstances, all
Shares owned by such stockholder at $12.25 per Share.
WHEREAS, the Board of Directors of the Company unanimously (i) determined
that the Offer and the Merger is fair to, and in the best interests of, the
stockholders of the Company, (ii) approved and adopted this Agreement, the
Option Agreement and the transactions contemplated hereby and thereby, and (iii)
recommends acceptance of the Offer and approval and adoption by the stockholders
of the Company of this Agreement and the Merger.
<PAGE>
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, Parent, Purchaser and the Company
hereby agree as follows:
1. THE OFFER
1.1. The Offer
.
(a) Provided that nothing shall have occurred which would result in
a failure to satisfy any of the conditions set forth in Annex I hereto,
Purchaser shall, as soon as practicable after the date hereof, but in no event
later than the fifth business day after the date of this Agreement, commence
(within the meaning of Rule 14d-2(a) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) the Offer. Subject to the terms and conditions set
forth in this Agreement (including the right to terminate, extend or modify the
Offer), and subject to the other conditions set forth in Annex I hereto,
including, without limitation, a minimum of a majority of the Shares (determined
on a fully diluted basis) being validly tendered and not withdrawn prior to the
expiration or termination of the Offer (the "Minimum Condition"), Purchaser
shall use its reasonable efforts to consummate the Offer as soon as legally
permissible. As used herein "on a fully diluted basis" means, as of any date,
the number of Shares outstanding, together with Shares issuable upon exercise of
outstanding Company Options (as hereafter defined). Notwithstanding any
provision of this Agreement, Purchaser expressly reserves the right to modify
the terms of the Offer, including, without limitation, to extend the Offer
beyond the scheduled expiration date (including an extension of up to 20
business days beyond the initial scheduled expiration date whether or not the
conditions set forth in Annex I hereto have been satisfied); provided that the
Offer shall not, without the written consent of the Company, be amended to
decrease the price per Share or change the form of consideration payable in the
Offer, decrease the number of Shares sought, waive the Minimum Condition or
impose additional conditions to the Offer. The Company agrees that no Shares
held by the Company or any of its wholly-owned subsidiaries will be tendered
pursuant to the Offer.
(b) As soon as practicable on the date of commencement of the Offer,
Purchaser shall file with the Securities and Exchange Commission (the
"Commission") with respect to the Offer a Schedule 14D-1 (the "Schedule 14D-1")
which will contain an offer to purchase and forms of the related letter of
transmittal and summary advertisement (which documents, together with any
supplements or amendments thereto, are referred to herein collectively as the
"Offer Documents"). Each of Parent and Purchaser, on the one hand, and the
Company, on the other hand, agrees promptly to correct any information provided
by it for use in the Offer Documents if and to the extent that it shall have
become false or misleading in any material respect, and Parent and Purchaser
further agree to take all steps necessary to cause the Offer Documents as so
corrected to be filed with the Commission and to be disseminated to the
stockholders of the Company, in each case as and to the extent required by
applicable federal securities laws.
1.2. Company Action
.
(a) The Company approves and consents to the Offer, the Merger and
the Option Agreement and represents that the Board of Directors of the Company
has, by a vote of all directors at a meeting duly called and held, unanimously
(i) determined that each of the Offer and the Merger is fair to, and in the best
interests of, the stockholders of the Company, (ii) approved and adopted the
Option Agreement and this Agreement and the transactions contemplated hereby and
thereby, including the Offer and the Merger, (iii) recommended acceptance of the
Offer and approval and adoption of this Agreement and the Merger by the
stockholders of the Company, and (iv) taken all action necessary to render
Section 203 of the Delaware Law and other state takeover statutes inapplicable
to the Offer, the Merger and the Option Agreement. The Company further
represents that Advest, Inc. has rendered to the Board of Directors of the
Company its opinion that the consideration to be received by the stockholders of
the Company pursuant to the Offer and the Merger is fair to such stockholders
from a financial point of view.
(b) The Company agrees to promptly prepare, and after review by
Purchaser, file with the Commission on the same date the Offer Documents are
filed with the Commission and to mail to its stockholders a
Solicitation/Recommendation Statement on Schedule 14D-9 with respect to the
Offer (the "Schedule 14D-9") containing the recommendation described in Section
1.2(a) hereof and to disseminate the Schedule 14D-9 as required by Rule 14d-9
promulgated under the Exchange Act. The Company agrees to provide Parent and its
counsel with any comments that the Company or its counsel may receive from the
Commission or its staff with respect to the Schedule 14D-9 promptly after the
receipt of such comments and shall provide Parent and its counsel an opportunity
to participate, including by way of discussion with the Commission or its staff,
in the response of the Company to such comments. Each of the Company, on the one
hand, and Parent and Purchaser, on the other hand, agrees promptly to correct
any information provided by it for use in the Schedule 14D-9 if and to the
extent that it shall have become false or misleading in any material respect,
and the Company further agrees to take all steps necessary to cause the Schedule
14D-9 as so corrected to be filed with the Commission and to be disseminated to
the stockholders of the Company, in each case as and to the extent required by
applicable federal securities laws; provided, however, that subject to the
provisions of Article 8, such recommendation may be withdrawn, modified or
amended to the extent that the Board of Directors of the Company deems it
necessary to do so in the exercise of its fiduciary duty after being so advised
in writing by outside counsel.
(c) The Company will promptly furnish Purchaser with mailing labels
containing the names and addresses of the record holders of Shares and lists of
securities positions of Shares held in stock depositories, each as of a recent
date, and shall furnish Purchaser with such additional information, including
updated lists of stockholders, mailing labels and lists of securities positions,
and assistance as Purchaser or its agents or representatives may reasonably
request in connection with the Offer. The Company has been advised that each of
its directors intends to tender pursuant to the Offer all shares of Common Stock
owned of record or beneficially by him or her.
1.3. Directors
. Subject to compliance with applicable law, promptly upon the
acceptance for payment and payment by Purchaser for Shares purchased pursuant to
the Offer, and from time to time thereafter, the Company and its Board of
Directors shall, upon request of Parent, promptly take all actions necessary to
cause to be elected as directors of the Company a number of Parent's designees
which equals the product, rounded up to the next whole number, of the total
number of directors on the Board of Directors (giving effect to the directors
elected pursuant to this sentence) multiplied by the percentage that such number
of Shares so accepted for payment and paid for by Purchaser bears to the number
of Shares outstanding, and the Company shall, at such time, use its reasonable
best efforts to cause Parent's designees to be so elected, including by
accepting resignations of those incumbent directors designated by the Company or
increasing the size of the Board of Directors of the Company and causing
Parent's designees to be elected. Subject to applicable law, the Company shall
take all action necessary to effect any such election, including mailing to its
stockholders the information required by Section 14(f) of the Exchange Act and
Rule 14f-1 promulgated thereunder.
2. THE MERGER
2.1. The Merger
.
(a) At the Effective Date (as defined in Section 2.3), in accordance
with this Agreement and the Delaware Law, Purchaser shall be merged with and
into the Company, the separate corporate existence of Purchaser shall cease, and
the Company shall continue as the surviving corporation under the corporate name
it possesses immediately prior to the Effective Date. The Company hereinafter
sometimes is referred to as the "Surviving Corporation." At the Effective Date,
the separate corporate existence of Purchaser shall cease.
(b) If Parent so elects, the Merger may alternatively be structured
with Purchaser as the Surviving Corporation or so that any direct or indirect
subsidiary of Parent is merged with and into the Company or the Company is
merged with and into any such other subsidiary. In the event of such an
election, the parties agree to execute an appropriate amendment to this
Agreement in order to reflect such election. If Parent elects to structure the
Merger so that the Company is not the Surviving Corporation, the inaccuracy of
any representation or warranty of the Company which is premised on the
assumption that the Company shall be the Surviving Corporation, which
representation or warranty becomes inaccurate solely as a result of the Company
not being the Surviving Corporation, shall not be deemed to be a breach of such
representation or warranty.
<PAGE>
2.2. Effect of the Merger
. From and after the Effective Date, the Merger shall have the effects
set forth in Section 259 of the Delaware Law.
2.3. Consummation of the Merger
. As soon as is practicable after the satisfaction or waiver of the
conditions hereinafter set forth, the parties hereto will cause the Merger to be
consummated by filing with the Secretary of State of Delaware a certificate of
merger or a certificate of ownership and merger, as applicable, in such form as
required by, and executed in accordance with, the relevant provisions of the
Delaware Law. The Merger shall become effective upon the filing of such
certificate with the Secretary of State of Delaware in accordance with the
provisions and requirements of the Delaware Law (the time of such effectiveness
is hereinafter referred to as the "Effective Date").
2.4. Certificate of Incorporation; Bylaws; Directors and Officers
. The Certificate of Incorporation and Bylaws of Purchaser shall be the
Certificate of Incorporation and Bylaws of the Surviving Corporation, as in
effect immediately prior to the Effective Date, until thereafter amended as
provided therein and under the Delaware Law. The directors of Purchaser
immediately prior to the Effective Date will be the initial directors of the
Surviving Corporation, and the officers of the Company immediately prior to the
Effective Date will be the initial officers of the Surviving Corporation, in
each case until their successors are elected and qualified, or their earlier
death, resignation or removal.
2.5. Conversion of Securities
. At the Effective Date, by virtue of the Merger and without any action on
the part of Purchaser, the Company, the Surviving Corporation or the holder of
any of the following securities:
(a) Each Share issued and outstanding immediately prior to the
Effective Date (other than Shares to be canceled pursuant to Section 2.5(b)
hereof and Shares held by Dissenting Stockholders (as defined in Section 2.6))
shall be canceled and extinguished and be converted into and become a right to
receive $12.25 in cash, without interest (the "Merger Consideration").
(b) Each Share which is issued and outstanding immediately prior to
the Effective Date and owned by Purchaser, Parent or the Company or any direct
or indirect wholly-owned subsidiary of Purchaser, Parent or the Company, shall
be canceled and retired, and no payment shall be made with respect thereto.
(c) Each share of common stock, par value $0.01 per share, of
Purchaser issued and outstanding immediately prior to the Effective Date shall
be converted into and become one validly issued, fully paid and nonassessable
share of common stock, par value $0.01 per share, of the Surviving Corporation.
2.6. Dissenting Stock
. Notwithstanding anything in this Agreement to the contrary but only to
the extent required by the Delaware Law, Shares that are issued and outstanding
immediately prior to the Effective Date and are held by holders who comply with
all the provisions of the Delaware Law concerning the right of holders of common
stock to dissent from the Merger and require appraisal of their shares of Common
Stock ("Dissenting Stockholders") shall not be converted into the right to
receive the Merger Consideration but shall become the right to receive such
consideration as may be determined to be due such Dissenting Stockholders
pursuant to the Delaware Law; provided, however, that (i) if any Dissenting
Stockholder shall subsequently deliver a written withdrawal of his or her demand
for appraisal (with the written approval of the Surviving Corporation, if such
withdrawal is not tendered within 60 days after the Effective Date), or (ii) if
any Dissenting Stockholder fails to establish and perfect his or her entitlement
to appraisal rights as provided by applicable law, or (iii) if within 120 days
of the Effective Date neither any Dissenting Stockholder nor the Surviving
Corporation has filed a petition demanding a determination of the value of all
Shares outstanding at the Effective Date and held by Dissenting Stockholders in
accordance with applicable law, then such Dissenting Stockholder or
Stockholders, as the case may be, shall forfeit the right to appraisal of such
Shares and such Shares shall thereupon be deemed to have been converted into the
right to receive, as of the Effective Date, the Merger Consideration, without
interest. The Company shall give Parent and Purchaser (A) prompt notice of any
written demands for appraisal, withdrawals of demands for appraisal and any
other related instruments received by the Company, and (B) the opportunity to
direct all negotiations and proceedings with respect to demands for appraisal.
The Company will not voluntarily make any payment with respect to any demands
for appraisal and will not, except with the prior written consent of Parent,
settle or offer to settle any demand.
2.7. Company Stock Options and Related Matters
. Prior to the consummation of the Offer, the Board of Directors of the
Company shall cause each option issued under the Company's Employee Stock Option
Plan, the Non-Employee Director Stock Option Plan and options issued to
employees not under either of such plans (collectively, the "Company Options"),
to become exercisable immediately prior to the Effective Date, subject to the
consummation of the Merger. Prior to the consummation of the Offer, the Company
shall offer (the "Option Offer") to pay, subject to consummation of the Merger,
each holder of a Company Option an amount equal to (x) the aggregate Merger
Consideration into which the shares of Common Stock issuable upon exercise of
such Company Option would have been converted if such option had been exercised
immediately prior to the Effective Date, reduced by (y)(I) the aggregate
exercise price for the shares of Common Stock then issuable upon exercise of
such Company Option, (II) the amount of any withholding taxes which may be
required thereon and (III) the amount of all outstanding loans from the Company
to such holder, in return for the cancellation of such Company Option. The
Option Offer shall be accepted, if at all, irrevocably by the holders of the
Company Options prior to the consummation of the Offer. The Option Offer shall
provide that the holder of the Company Option shall agree not to exercise the
Company Option after accepting the Option Offer.
2.8. Exchange of Certificates
.
(a) Prior the Effective Date, Parent shall designate a bank or trust
company to act as exchange agent (the "Exchange Agent") in effecting the
exchange for the Merger Consideration of stock certificates (the "Certificates")
which, prior to the Effective Date, represented Shares entitled to payment
pursuant to Section 2.5. Upon the surrender for cancellation to the Exchange
Agent of such Certificates, together with a letter of transmittal, duly executed
and completed in accordance with the instructions thereon, and any other items
specified in the letter of transmittal, the Exchange Agent shall promptly pay to
the Person entitled thereto the Merger Consideration deliverable in respect
thereto and such Certificates shall be canceled. Until so surrendered and
exchanged, each such Certificate (other than Certificates representing Shares to
be canceled pursuant to Section 2.5(b) and Shares held by Dissenting
Stockholders) shall represent solely the right to receive the Merger
Consideration multiplied by the number of Shares represented by such
Certificate. If any cash is to be paid to a Person other than the Person in
which the Certificate representing Shares surrendered in exchange therefor is
registered, it shall be a condition to such payment that the Certificates so
surrendered shall be properly endorsed or accompanied by appropriate stock
powers and otherwise in proper form for transfer, that such transfer otherwise
be proper and that the Person requesting such payment shall pay to the Exchange
Agent any transfer or other taxes required by reason of the payment of such cash
to a Person other than that of the registered holder of the Certificate
surrendered, or such Person shall establish to the satisfaction of the Exchange
Agent that such tax has been paid or is not applicable. Notwithstanding anything
in this Agreement, neither the Exchange Agent nor any party hereto shall be
liable to a holder of Shares for any Merger Consideration delivered to a public
official pursuant to applicable abandoned property laws. In the event any
Certificate shall have been lost, stolen or destroyed, upon the making of an
affidavit of that fact by the Person claiming such Certificate to be lost,
stolen or destroyed, the Exchange Agent will issue in exchange for such lost,
stolen or destroyed Certificate the Merger Consideration deliverable in respect
thereof as determined in accordance with this Article 2, provided that, the
Person to whom the Merger Consideration is paid shall, as a condition precedent
to the payment thereof, give the Surviving Corporation a bond in such amount as
it may direct or otherwise indemnify the Surviving Corporation in a manner
satisfactory to it against any claim that may be made against the Surviving
Corporation with respect to the Certificate claimed to have been lost, stolen or
destroyed.
(b) Promptly following the date which is six months after the
Effective Date, the Exchange Agent shall return to the Surviving Corporation all
cash and property in its possession relating to the transactions described in
this Agreement, and the Exchange Agent's duties shall terminate. Thereafter,
each holder of a Certificate representing a Share may surrender such Certificate
to the Surviving Corporation and (subject to applicable abandoned property,
escheat and similar laws) receive in exchange therefor the Merger Consideration,
without any interest thereon, but shall have no greater rights against the
Surviving Corporation than may be accorded to general creditors of the Surviving
Corporation under applicable law.
(c) Promptly after the Effective Date, Parent shall cause the
Exchange Agent to mail or make available to each record holder of Certificates
which immediately prior to the Effective Date represented Shares (other than
Shares to be canceled pursuant to Section 2.5(b)) a letter of transmittal (which
shall specify that delivery shall be effected, and risk of loss and title to the
Certificate shall pass, only upon proper delivery of the Certificates to the
Exchange Agent) and instructions for use in surrendering such Certificates and
receiving the Merger Consideration therefor.
2.9. Payment
. Concurrently with or immediately prior to the Effective Date, Parent or
Purchaser shall deposit in trust with the Exchange Agent cash in United States
dollars in an aggregate amount equal to the product of (i) the number of Shares
outstanding immediately prior to the Effective Date (other than Shares to be
canceled pursuant to Section 2.5(b) or a Shares held by a Person known at the
time of such deposit to be a Dissenting Stockholder) and (ii) the Merger
Consideration (such amount being hereinafter referred to as the "Payment Fund").
The Payment Fund shall be invested by the Exchange Agent as directed by Parent
in direct obligations of the United States, obligations for which the full faith
and credit of the United States is pledged to provide for the payment of
principal and interest, commercial paper rated of the highest quality of Moody's
Investors Services, Inc. or Standard & Poor's Ratings Group or certificates of
deposit, bank repurchase agreements or bankers' acceptances of a commercial bank
having at least $500,000,000 in assets (collectively, "Permitted Investments")
or in money market funds which are invested in Permitted Investments, and any
net earnings with respect thereto shall be paid to Parent as and when requested
by Parent. The Exchange Agent shall, pursuant to irrevocable instructions, make
the payments referred to in Section 2.5(a) hereof out of the Payment Fund. The
Payment Fund shall not be used for any other purpose except as otherwise agreed
to by Parent.
2.10. No Further Rights of Transfers
. At and after the Effective Date, each holder of a Certificate shall
cease to have any rights as a stockholder of the Company, except for, in the
case of a holder of a Certificate (other than shares to be canceled pursuant to
Section 2.5(b) hereof and other than shares held by Dissenting Stockholders),
the right to surrender his or her Certificate in exchange for payment of the
Merger Consideration or, in the case of a Dissenting Stockholder, to perfect his
or her right to receive payment for his or her Shares pursuant to the Delaware
Law if such holder has validly perfected and not withdrawn his or her right to
receive payment for his or her Shares, and no transfer of Shares shall be made
on the stock transfer books of the Surviving Corporation. Certificates presented
to the Surviving Corporation after the Effective Date shall be canceled and
exchanged for cash as provided in this Article 2. At the close of business on
the day of the Effective Date, the stock ledger of the Company with respect to
Common Stock shall be closed.
2.11. Closing
. The closing of the Merger (the "Closing") shall take place at the
offices of Latham & Watkins, San Francisco, California, on the date on which the
Effective Date occurs, or at such other time and place as Parent and the Company
may mutually agree.
3. REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER
Each of Parent and Purchaser represents and warrants to the Company as
follows:
3.1. Organization and Qualification
. Each of Parent and Purchaser is a corporation duly organized, validly
existing and in good standing under the laws of Delaware and has the requisite
corporate power to carry on its respective business as now conducted.
3.2. Authority Relative to this Agreement
. Each of Parent and Purchaser has the requisite corporate power and
authority to enter into this Agreement, to perform its obligations hereunder and
to consummate the transactions contemplated hereunder. The execution and
delivery of this Agreement by Parent and Purchaser and the consummation by
Parent and Purchaser of the transactions contemplated hereby have been duly
authorized by the respective Boards of Directors of Parent and Purchaser and
Parent as the sole stockholder of Purchaser and no other corporate proceeding on
the part of Parent and Purchaser is necessary to authorize the execution,
delivery and performance of this Agreement and the transactions contemplated
hereby. This Agreement has been duly executed and delivered by Parent and
Purchaser and, assuming the due authorization, execution and delivery hereof by
the Company, constitutes a valid and binding obligation of each, enforceable
against each in accordance with its terms, except to the extent that its
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization or other laws affecting the enforcement of creditors' rights
generally or by general equitable principles, regardless of whether such
enforceability is considered in a proceeding in equity or at law.
3.3. Compliance
.
(a) Neither the execution and delivery of this Agreement by Parent
or Purchaser, nor the consummation by Parent or Purchaser of the transactions
contemplated hereby, nor compliance by Parent or Purchaser with any of the
provisions hereof will (i) conflict with or result in any breach of any
provision of its certificate of incorporation or bylaws, (ii) violate, conflict
with, or result in a breach of any provision of, or constitute a default (or an
event which, with notice or lapse of time or both, would constitute a default)
under, or result in the termination or cancellation of, or accelerate the
performance required by, or result in a right of termination or acceleration or
give rise to any obligation to make any payment, or require any consent, under
any of the terms, conditions or provisions of any material note, bond, mortgage,
indenture, deed of trust, license, lease, agreement or other instrument or
obligation to which Parent and Purchaser is a party, or to which any of them, or
any of their respective properties or assets may be subject; (iii) result in the
creation of any lien, security interest, charge or encumbrance upon any of the
properties or assets of Parent and Purchaser; or (iv) subject to compliance with
the statutes and regulations referred to in the next paragraph, violate any
judgment, ruling, order, writ, injunction, decree, statute, rule or regulation
applicable to Parent or Purchaser or any of their respective properties or
assets.
(b) Other than in connection with or in compliance with the
provisions of the Delaware Law, the Exchange Act, the "takeover" or "blue sky"
laws of various states, the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, and the rules and regulations thereunder (the
"Hart-Scott-Rodino Act"), and any required foreign regulatory approvals, no
notice or reports to, filing with, or registrations, authorization, consent or
approval of, any domestic or foreign public body or authority is required to be
obtained by Parent or Purchaser in connection with the execution and delivery of
this Agreement by Parent and Purchaser and the consummation by Parent or
Purchaser of the transactions contemplated by this Agreement.
3.4. Brokers
. No broker, finder or investment banker (other than Donaldson, Lufkin &
Jenrette) is entitled to any brokerage, finder's or other fee or commission in
connection with the transactions contemplated by this Agreement based upon
arrangements made by and on behalf of Parent or Purchaser.
3.5. Financial Capability
. As of the date hereof, Parent and/or Purchaser have unrestricted cash
and/or cash equivalents of at least $50,000,000 and will have unrestricted cash
and/or cash equivalents of at least $50,000,000 until consummation of the Offer.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Purchaser, except as set
forth on a Disclosure Schedule previously delivered to Parent (the "Disclosure
Schedule"), the following:
4.1. Organization and Qualification
. The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware and has the requisite
corporate power to carry on its business as it is now being conducted. The
Company is duly qualified as a foreign corporation to do business, and is in
good standing, in each jurisdiction where the character of its properties owned
or leased or the nature of its activities makes such qualification necessary,
except for failures to be so qualified or in good standing which would not have
a Material Adverse Effect on the Company and its subsidiaries taken as a whole.
Copies of the Certificate of Incorporation, as amended, and Bylaws, as amended,
of the Company heretofore delivered to Parent are accurate and complete as of
the date hereof.
4.2. Subsidiaries
. The only subsidiaries of the Company are those listed in the Disclosure
Schedule (the "Company Subsidiaries"). Except as set forth in such Disclosure
Schedule, the Company is, directly or indirectly, the record and beneficial
owner of all of the outstanding shares of capital stock of each of the Company
Subsidiaries and there are no irrevocable proxies with respect to such shares,
and no equity securities of any of the Company Subsidiaries are or may become
required to be issued by reason of any options, warrants, rights to subscribe
to, calls or commitments or rights of any character whatsoever relating to, or
securities or rights convertible into or exchangeable for, the issuance, sale
delivery or transfer of shares of any capital stock of any Company Subsidiary.
There are no contracts, commitments, understandings or arrangements by which any
the Company or any Company Subsidiary is bound to transfer shares or issue
additional shares of capital stock of a Company Subsidiary or options, warrants
or other rights to purchase or securities convertible into or exchangeable for
such shares. All of the shares of capital stock of each Company Subsidiary are
fully paid and nonassessable and are owned by the Company or a Company
Subsidiary free and clear of any claim, lien, encumbrance, restrictions or
agreement with respect thereto. Each Company Subsidiary is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation and has the requisite corporate power to carry on
its business as it is now being conducted. Each Company Subsidiary is duly
qualified as a foreign corporation to do business, and is in good standing, in
each jurisdiction where the character of its properties owned or leased or the
nature of its activities makes such qualification necessary, except for failures
to be so qualified or in good standing which would not have a Material Adverse
Effect on the Company and its subsidiaries taken as a whole. Copies of the
charter documents, bylaws and regulations of each Company Subsidiary, which have
been heretofore delivered to Parent, are accurate and complete.
4.3. Capitalization
. The authorized capital stock of the Company consists of 20,000,000
Shares and 5,000,000 shares of Special Stock, par value $0.01 per share (the
"Preferred Stock"). As of the date of this Agreement, (i) 6,744,499 Shares are
validly issued and outstanding, fully paid and nonassessable and no Shares are
held in the Company's treasury and (ii) no shares of Preferred Stock are issued
and outstanding. All outstanding Shares have been duly authorized and validly
issued, and are fully paid, nonassessable and free of preemptive rights. As of
the date of this Agreement, 928,565 Shares are issuable upon exercise of
outstanding Company Options. Except as contemplated by clauses (i) and (ii)
above, there are not now and at the Effective Date there will not be, any other
shares of capital stock, or other equity securities of the Company outstanding,
or any other outstanding options, warrants, rights to subscribe to (including
any preemptive rights), calls or commitments of any character whatsoever to
which the Company or any Company Subsidiaries is a party or may be bound,
requiring the issuance, transfer or sale of, shares of any capital stock or
other equity securities of the Company or securities or rights convertible into
or exchangeable for such shares or other equity securities. There are no
contracts, commitments, understandings or arrangements by which the Company is
or may become bound to issue additional shares of its capital stock or other
equity securities or options, warrants or rights to purchase or acquire any
additional shares of its capital stock or other equity securities or securities
convertible into or exchangeable for such shares or other equity securities.
There are no outstanding contracts, commitments, understandings or arrangements
of the Company to repurchase, redeem or otherwise acquire any Shares. The
Disclosure Schedule contains a complete and accurate list of all holders of
Company Options and the number of such Company Options and the terms of such
Company Options held by each such holder.
4.4. Company Investments
. Except for interest in the Company Subsidiaries and except as set forth
on the Disclosure Schedule, neither the Company nor any of the Company
Subsidiaries owns or has the right to acquire, directly or indirectly, any
interest or investment (whether equity, debt, loan or advance) in any Person,
other than investments of less than $100,000 in the aggregate.
4.5. Authority Relative to this Agreement
. The Company has the requisite corporate power and authority to execute
and deliver this Agreement and the Option Agreement, to perform its obligations
hereunder and thereunder and to consummate the transactions contemplated
hereunder and thereunder. The execution and delivery of this Agreement and the
Option Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby have been duly authorized by the
Board of Directors of the Company and no other corporate proceeding on the part
of the Company is necessary to authorize the execution, delivery and performance
of this Agreement or the Option Agreement and the transactions contemplated
hereby or thereby, including the acquisition of the Shares pursuant to the Offer
and the Merger, except for the approval of the Company's stockholders owning at
least a majority of the outstanding Shares of the Merger, if required, pursuant
to the Delaware Law as set forth in Section 6.2 of this Agreement. The Company
has taken all action necessary to render the prohibitions of Section 203 of the
Delaware Law to be inapplicable to the execution and delivery of this Agreement
and the Option Agreement, and the transactions contemplated hereby and thereby,
including the acquisition of the Shares pursuant to the Offer and the Merger. To
the knowledge of the Company, no other "fair price'" "merger moratorium,"
"control share acquisition" or other anti-takeover statute or similar statute or
regulation applies or purports to apply to the Merger, this Agreement the Option
Agreement or any of the transactions contemplated hereby or thereby. This
Agreement and the Option Agreement have been duly executed and delivered by the
Company and, assuming due authorization, execution and delivery by Parent and
Purchaser, each constitutes a valid and binding obligation of the Company,
enforceable against the Company in accordance with its respective terms, except
to the extent that enforceability may be limited by applicable bankruptcy,
insolvency, reorganization or other laws affecting the enforcement of creditors
rights generally or by general equitable principles, regardless of whether such
enforceability is considered in a proceeding in equity or at law.
<PAGE>
4.6. Compliance
.
(a) Neither the execution and delivery of this Agreement or the
Option Agreement by the Company, nor the consummation of the transactions
contemplated hereby (including the acquisition of the Shares pursuant to the
Offer and the Merger) or thereby, nor compliance by the Company with any of the
provisions hereof or thereof will (i) conflict with or result in any breach of
any provision of the certificate of incorporation, charter documents or bylaws
of the Company or any Company Subsidiary; (ii) violate, conflict with, or result
in a breach of any provision of, or constitute a default (or an event which,
with notice or lapse of time or both, would constitute a default) under, or
result in the termination of, or accelerate the performance required by, or
result in the loss of any material benefit under, or result in a right of
termination or acceleration under, any of the terms, conditions or provisions of
any note, bond, mortgage, indenture, deed of trust, license, lease, agreement or
other instrument or obligation to which the Company or any such Company
Subsidiary is a party, or to which any of them or any of their respective
properties or assets may be subject; (iii) result in the creation of any lien,
security interest, charge or encumbrance upon any of the properties or assets of
the Company or any Company Subsidiaries; or (iv) subject to compliance with the
statutes and regulations referred to in the next paragraph, violate any
judgment, ruling, order, writ, injunction, decree, statute, rule or regulation
applicable to the Company or any Company Subsidiary or any of their respective
properties or assets.
(b) Other than in connection with or in compliance with the
provisions of the Delaware Law, the Exchange Act, the "takeover" or "blue sky"
laws of various states, the Hart-Scott-Rodino Act, and any required foreign
regulatory approvals, no notice or report to, filing with, or authorization,
permits, registration, consent or approval of, any domestic or foreign public
body or authority is necessary for the execution and delivery of this Agreement
or the Option Agreement or the consummation by the Company of the transactions
contemplated by this Agreement or the Option Agreement.
4.7. Commission Filings
. The Company has filed with the Commission all reports, forms,
registration statements, definitive proxy statements and documents required to
be filed with the Commission since January 1, 1995 (the "SEC Reports"). The
Company has delivered to Parent a complete and correct copy of the SEC Reports
and any amendments thereto filed prior to the date hereof. As of their
respective dates, the SEC Reports (including all financial statements, exhibits
and schedules thereto and documents incorporated by reference therein) did not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements made,
in light of the circumstances under which they were made, not misleading. The
audited consolidated financial statements and unaudited consolidated interim
financial statements of the Company and the Company Subsidiaries (including the
consolidated financial statements for the year ended December 31, 1997) included
or incorporated by reference in the SEC Reports, and in the Company's Annual
Reports for the years ended December 31, 1994, 1995 and 1996 heretofore
delivered to Parent, have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis during the periods involved
(except as may be indicated in the notes thereto), and fairly present the
consolidated assets, liabilities and financial position of the Company and its
consolidated subsidiaries as of the dates thereof and the consolidated results
of their operations and changes in financial position for the periods then ended
(subject, in the case of any unaudited interim financial statements, to normal
year-end adjustments).
4.8. Absence of Undisclosed Liabilities
. Except as set forth on the Disclosure Schedule, neither the Company nor
any of its subsidiaries has any liabilities of any nature, whether absolute,
contingent or otherwise, and whether due or to become due (including, without
limitation, all tax liabilities) which would be required to be disclosed in
financial statements, including the footnotes thereto, prepared in accordance
with generally accepted accounting principles, and which are not adequately
reflected or reserved against in the Company's balance sheet as of December 31,
1997, including the footnotes thereto (the "Balance Sheet"), except such as have
arisen in the ordinary course of business since such date. Except as set forth
in the Disclosure Schedule, the Company has not engaged, and prior to the
Effective Date will not engage, in any hedging transactions or transactions in
derivative securities.
4.9. Litigation
.
(a) Except as set forth on the Disclosure Schedule, there are no
material actions, suits, proceedings, arbitration, meditation or investigations
pending or, to the knowledge of the Company, threatened against the Company or
any of its subsidiaries, nor is the Company or any Company Subsidiary subject to
any order, judgment, writ, injunction or decree of any court or governmental or
regulatory authority or body.
(b) Any losses, damages, liabilities, judgments, costs or expenses
arising out of those claims set forth on Section 4.9(b) of the Disclosure
Schedule will be covered by the Company's general liability insurance, subject
to the deductible of such policies.
4.10. Compliance with Law
. Each of the Company and its subsidiaries has not violated or failed to
comply in any material respect with any material statute, law, ordinance,
regulation, rule or order of any foreign, federal, state or local government or
any other governmental department or agency, or any judgment, decree or order of
any court, applicable to its business, operations, properties and assets. The
conduct of the Company's and its subsidiaries' business is in material
conformity with all material labor, energy, public utility, zoning, building
code, health, OSHA and environmental requirements and all other foreign,
federal, state and local governmental and regulatory requirements. Except as set
forth on the Disclosure Schedule, neither the Company nor any of its
subsidiaries has received any notice asserting a failure to comply with any such
statute, law, ordinance, regulation, rule, judgment, decree or order.
4.11. Changes
. Except as contemplated by this Agreement, or as set forth on the
Disclosure Schedule, since September 30, 1997, none of the following have
occurred:
(a) any change, event or condition (or any development involving a
prospective change, event or condition) shall have occurred or be threatened
which is, or is reasonably likely to have, a Material Adverse Effect on the
Company and its subsidiaries taken as a whole;
(b) any change in accounting methods, principles or practices by the
Company affecting its assets, liabilities or business;
(c) any revaluation by the Company or any of its subsidiaries of any
of their assets, including without limitation, writing off notes;
(d) any damage, destruction or loss having a Material Adverse Effect
on the Company and its subsidiaries taken as a whole;
(e) any cancellation of any material debts or waiver or release of
any material right or claim of the Company relating to its business activities
or properties;
(f) any declaration, setting aside or payment of dividends or
distributions in respect of the Shares or any redemption, purchase or other
acquisition of any of any securities of the Company or its subsidiaries;
(g) any issuance by the Company or any of its subsidiaries of, or
commitment of the Company or any of its subsidiaries to issue, any shares of
stock, options, warrants or other equity securities or obligations or securities
convertible into or exchangeable for shares of stock, options, warrants or other
equity securities, other than upon exercise of Company Options;
(h) negotiation or execution of any material arrangement, agreement
or understanding to which the Company or any of its subsidiaries is a party
which cannot be terminated by it on notice of 30 days or less without cost or
penalty;
(i) the making of any loan or payment, the entering into of any
arrangement, agreement or understanding or similar transaction with any Person
who is an officer, director or stockholder of the Company or any of its
subsidiaries, or who is an affiliate or associate of such a Person;
(j) any capital expenditures other than in the ordinary course of
business and consistent with past practice by the Company or any of its
subsidiaries in an aggregate amount that exceeds $100,000;
(k) any adoption of a plan of liquidation or resolutions providing
for the liquidation, dissolution, merger, consolidation or other reorganization
of the Company or any of its subsidiaries;
(l) any increase in salary, bonus, fringe benefit, severance,
retention bonus or incentive or other compensation payable or to become payable
to any officer, director, employee or other Person receiving compensation of any
nature from the Company or any of its subsidiaries; any increase in the number
of shares obtainable under, or the acceleration or creation of any rights of any
Person to benefits under, any Employee Plan (including, without limitation, the
acceleration of the vesting or exercisability of any stock options, the
acceleration of the vesting of any restricted stock, the acceleration of the
accrual or vesting of any benefits under any Pension Plan or the acceleration or
creation of any rights under any severance, parachute or change in control
agreement), or the entering into of any employment, consulting, severance or
other employee related agreement, arrangement or understanding with the Company
or any of its subsidiaries;
(m) any delay or failure to repay when due any material obligation
of the Company or any of its subsidiaries; or
(n) any agreement by the Company or any subsidiary to do any of the
things described in the preceding clauses (a) through (m) other than as
expressly provided for herein.
4.12. Taxes
.
(a) Filing of Tax Returns. The Company (including, for purposes of
this Section 4.12, each of its subsidiaries from time to time) has timely filed
with the proper taxing or other governmental authorities all returns (including,
without limitation, information returns, estimated Tax filing and other
Tax-related information) in respect of Taxes (as such term is defined in Section
4.12(f)) required to be filed through the date hereof. Such returns, filings and
information filed are complete, correct and accurate in all material respects.
The Company has delivered to Parent complete and accurate copies of all of the
Company's federal, state and local Tax returns filed for its taxable years ended
December 31, 1994, 1995 and 1996. The Company has not filed any federal, state
or local tax returns for its taxable year ended December 31, 1997, or has
delivered to Parent complete and accurate copies of all such returns that have
been filed for such taxable year.
(b) Payment of Taxes. All Taxes for which the Company shown as owing
on any Tax return for any period or portion thereof ending on or before the
Effective Date, shall have been paid, or an adequate reserve (in conformity with
generally accepted accounting principles applied on a consistent basis and the
Company's past custom and practice) has been established therefor, and the
Company has no material liability for Taxes in excess of the amounts so paid or
reserves so established. All Taxes that the Company has been required to collect
or withhold have been duly collected or withheld and, to the extent required
when due, have been or will be duly paid to the proper taxing or other
governmental authority.
(c) Audit History. Except as set forth in the Disclosure Schedule:
(i) No deficiencies for Taxes of the Company have been
claimed, proposed or assessed by any taxing or other governmental authority.
(ii) There are no pending or, to the best of the Company's
knowledge, threatened audits, investigations or claims for or relating to any
liability in respect of Taxes of the Company, and there are no matters under
discussion with any taxing or other governmental authority with respect to Taxes
of the Company.
(iii) All audits of federal, state and local returns for Taxes
by the relevant taxing or other governmental authority have been completed for
all periods.
(iv) The Company has not been notified that any taxing or
other governmental authority intends to audit a return for any other period.
(v) No extension of a statute of limitations relating to Taxes
is in effect with respect to the Company.
(d) Tax Elections. Except as set forth in the Disclosure Schedule:
(i) There are no material elections with respect to Taxes
affecting the Company.
(ii) The Company has not made an election, and is not
required, to treat any asset of the Company as owned by another person or as
tax-exempt bond financed property or tax-exempt use property within the meaning
of Section 168 of the Internal Revenue Code of 1986, as amended (the "Code") or
under any comparable state or local income Tax or other Tax provision.
(iii) The Company is not a party to or bound by any binding
tax sharing, tax indemnity or tax allocation agreement or other similar
arrangement with any other person or entity.
(iv) The Company has not filed a consent pursuant to the
collapsible corporation provisions of Section 341(f) of the Code (or any
corresponding provision of state or local law) or agreed to have Sections
341(f)(2) of the Code (or any corresponding provision of state or local law)
apply to any disposition of any asset owned by it.
(e) Additional Representations. Except as set forth in the
Disclosure Schedule:
(i) There are no liens for Taxes (other than for Taxes not yet
delinquent) upon the assets of the Company.
(ii) The Company has never been a member of an affiliated
group of corporations within the meaning of Section 1504 of the Code, nor has
the Company or any present or former subsidiary, or any predecessor or affiliate
of any of them, become liable (whether by contract, as transferee or successor,
by law or otherwise) for the Taxes of any other person or entity under Treasury
Regulation Section 1.1502-6 or any similar provision of state, local or foreign
law.
(iii) The Company has not made, requested or agreed to make,
nor is it required to make, any adjustment under Section 481(a) of the Code by
reason of a change in accounting method or otherwise for any taxable year.
(iv) The Company is not a party to any agreement, contract,
arrangement or plan that has resulted or would result, separately or in the
aggregate, in the payment of any amount as to which a deduction may be denied
under Section 162(m) of the Code.
(v) The Company is not a party to any joint venture,
partnership, or other arrangement or contract which could be treated as a
partnership for federal, state, local or foreign Tax purposes.
(vi) The Company has prepared and made available to Parent all
of the Company's books and working papers that clearly demonstrate the income
and activities of the Company for the last full reporting period ending prior to
the date hereof.
(vii) The Company has not been a "United States real property
holding corporation" within the meaning of Section 897(c)(2) of the Code during
the applicable period specified in Section 897(c)(1)(A)(ii).
(viii) The Company has properly requested, received and
retained all necessary exemption certificates and other documentation supporting
any claimed exemption or waiver of Taxes on sales or other transactions as to
which the Company would have been obligated to collect or withhold Taxes except
for any failure to do so which would not be expected to have a Material Adverse
Effect on the Company and its subsidiaries taken as a whole.
(ix) Assuming the effectiveness of and compliance with the
Excess Payment Agreement between Dr. Elanna S. Yalow and the Company dated March
27, 1998 and the provisions regarding reimbursement of excess parachute payments
in the Consulting Agreement between Richard A. Niglio and the Company dated
March 27, 1998, each in the form reviewed by Parent and Purchaser, there is no
agreement, plan or arrangement, including, but not limited to, any agreement or
bonus plan entered into by the Company or any of its subsidiaries in connection
with the Offer, the Merger or the other transactions contemplated by this
Agreement, covering any employee or former employee of the Company that,
individually or collectively, provides for the payment of any compensation,
benefit or other amount that is an "excess parachute payment" under Section 280G
of the Code; provided that the foregoing does not apply to any agreement, plan
or arrangement with regard to compensation, benefits or other payments which was
reached before or exists on the date of consummation of the Offer or the
Effective Date between Parent or Purchaser, or any representative or affiliate
of either of them (excluding the Company and its subsidiaries) and any employee
or former employee of the Company, or which is reached after the date of
consummation of the Offer or the Effective Date between Parent, Purchaser or the
Company, or any representative or affiliate of any of them, and any employee of
former employee of the Company.
(f) Definition of Taxes. For purposes of this Agreement, the term
"Taxes" shall mean all federal, state, local, foreign and other taxes,
assessments or other governmental charges, including, without limitation,
income, estimated income, gross receipts, profits, occupation, franchise,
capital stock, real or personal property, sales, use, value added, transfer,
license, commercial rent, payroll, employment or unemployment, social security,
disability, withholding, alternative or add-on minimum, customs, excise, stamp
or environmental taxes, and further including all interest, penalties and
additions in connection therewith for which the Company may be liable.
4.13. Title to Properties; Condition of Properties
.
(a) The Company and each of its subsidiaries has good, valid and
marketable title (in fee simple absolute in the case of real property) to all
properties and assets used in its business, except for leased properties and
assets; none of those owned properties is subject to any mortgage, deed of
trust, pledge, lien, claim, charge, equity, covenant, condition, restriction,
easement, right-of-way or encumbrance, except (i) liens, claims, charges and
encumbrances disclosed, or reserved against, in the Balance Sheet, (ii) liens
for current taxes not yet due and payable, and (iii) minor imperfections of
title not material (individually or in the aggregate) and not materially
detracting from the value, or the use (either actual or intended) the Company
and its subsidiaries make, of the property in question. All of the buildings,
fixtures, machinery and equipment owned or used by the Company and its
subsidiaries are in good operating condition and repair, and comply in all
material respects with applicable zoning, building, fire and safety codes.
(b) The Disclosure Schedule lists all leases (the "Leases") pursuant
to which the Company and its subsidiaries lease real property (the "Leased
Property"), including without limitation a general description of the Leased
Property, the terms, the applicable rent and any and all renewal options. All
such Leases are valid, binding and enforceable in accordance with their terms
and are in full force and effect and no event of default has occurred which
(whether with or without notice, lapse of time or both or the happening or
occurrence of any other event) would constitute a default thereunder on the part
of the Company or its subsidiaries. To the Company's knowledge, each Lease that
terminates within two years of the date hereof and which does not provide for a
renewal term, will be renewed.
(c) There are no pending, or to the knowledge of the Company,
threatened condemnation proceedings with respect to the Leased Property, or
pending or, or to the knowledge of the Company, threatened litigation or
administrative actions relating to the Leased Property.
(d) There are no subleases, licenses, options, rights, concessions
or other agreements or arrangements, written or oral, granting to any Person the
right to use or occupy the Leased Property or any portion thereof or interest
therein.
4.14. Contracts
.
(a) The Disclosure Schedule lists all Material Contracts. For
purposes of this Agreement, "Material Contracts" means all contracts of the
following types to which the Company or any of its subsidiaries is a party or by
which the Company or any of its subsidiaries or any of their respective
properties is bound as of the date hereof and will be bound following the
Closing, including real property leases, labor or employment-related agreements,
and contracts relating to intellectual property: (a) joint venture and limited
or general partnership agreements, shareholder agreements with respect to the
Company's subsidiaries, joint ventures or partnerships or other contracts
involving sharing of profits, losses, costs or liabilities, (b) mortgages,
indentures, loan or credit agreements, letters of credit, reimbursement
agreements, personal property leases, security agreements and other agreements
and instruments relating to the borrowing of money or extension of credit in any
case in excess of $100,000, (c) other contracts which are not cancelable by the
Company or any of its subsidiaries on notice of sixty (60) days or less and
which require payment by the Company after the date hereof of more than $100,000
in any one calendar year, (d) material license or royalty agreements, whether
the Company or any of its subsidiaries is the licensor or licensee thereunder,
(e) confidentiality and non-disclosure agreements (whether the Company or any of
its subsidiaries is the beneficiary or the obligated party thereunder), other
than such agreements entered into with consultants to the Company and its
subsidiaries, (f) contracts for the Company's or its subsidiaries'
employer-sponsored centers under which the employer-sponsor is to make a payment
after the date hereof of $100,000 or more in any one calendar year, (g)
contracts containing covenants limiting the freedom of the Company or its
subsidiaries or any of their respective officers to engage in any line of
business or compete with any Person that relates directly or indirectly to the
Company's business, (h) indemnification agreements with respect to any
acquisition or disposition of assets, securities or business, whether the
Company and its subsidiaries is the indemnitor or indemnitee, (i) contracts with
any Person known to be an affiliate of the Company (other than the Company and
its subsidiaries), and (j) any executory contract relating to any material
acquisitions or dispositions of assets, securities or businesses by the Company
or its subsidiaries. The Company and its subsidiaries have made available to
Parent a true and correct copy of each Material Contract. Except as set forth in
the Disclosure Schedule, (a) the Company and its subsidiaries are in compliance
in all material respects with their respective obligations under the Material
Contracts, (b) all of the Material Contracts are in full force and effect, are
valid and binding obligations of the Company and its subsidiaries and
enforceable in all material respects by the Company and its subsidiaries in
accordance with their terms except to the extent that such enforceability may be
limited by bankruptcy, reorganization, insolvency, fraudulent conveyance,
moratorium, receivership or similar laws affecting creditors' rights generally
and by general principles of equity (whether considered at law or in equity),
and (c) to the knowledge of the Company, the other party to a Material Contract
is in compliance with its material obligations thereunder.
(b) To the Company's knowledge, that certain agreement between the
Company and the Office of School Readiness, dated April 3, 1997, will be renewed
at the conclusion of the current agreement term.
4.15. Employee Benefit Plans
.
(a) The Disclosure Schedule lists every Employee Plan (as defined
below) that has been maintained (as defined below) by the Company or any of its
subsidiaries at any time during the three-year period ending on the Effective
Date.
(b) Each Employee Plan that has ever been maintained by the Company
or any of its subsidiaries and that has at any time been intended to qualify
under Section 401(a) or 501(c)(9) of the Code has received a favorable
determination or approval letter from the Internal Revenue Service ("IRS")
regarding its qualification under such section and has, in fact, been qualified
under the applicable section of the Code from the effective date of such
Employee Plan through and including the Effective Date (or, if earlier, the date
that all of such Employee Plan's assets were distributed). No event or omission
has occurred which would cause any such Employee Plan to lose its qualification
under the applicable Code section.
(c) Neither the Company nor any of its subsidiaries knows and has
reason to know, of any failure of any party to comply with any laws applicable
to the Employee Plan that have been maintained by the Company or any of its
subsidiaries. With respect to any Employee Plan ever maintained by the Company
or any of its subsidiaries, there has occurred no "prohibited transaction," as
defined in Section 406 of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA") or Section 4975 of the Code, or breach of any duty under
ERISA or other applicable law (including, without limitation, any health care
continuation requirements or any other tax law requirements, or conditions to
favorable tax treatment, applicable to such plan), which could result, directly
or indirectly, in any taxes, penalties or other liability to the Company, any of
its subsidiaries, Parent or Purchaser. No litigation, arbitration, or
governmental administrative proceeding (or investigation) or other proceeding
(other than those relating to routine claims for benefits) is pending or
threatened with respect to any such Employee Plan.
(d) Neither the Company, nor any of its subsidiaries or Affiliates
(as defined below) (i) has ever maintained any Employee Plan which has been
subject to Title IV of ERISA, Section 302 of ERISA or Section 412 of the Code
(including, but not limited to, any Multiemployer Plan (as defined below)), (ii)
has ever maintained any other Multiemployer Plan, or (iii) has ever provided
health care or any other non-pension benefits to any employees after their
employment is terminated (other than as required by part 6 of subtitle B of
title I of ERISA) or has ever promised to provide such post-termination
benefits.
(e) With respect to each Employee Plan maintained by the Company or
any of its subsidiaries within the three years preceding the Effective Date,
complete and correct copies of the following documents (if applicable to such
Employee Plan) have previously been delivered to Parent: (i) all documents
embodying or governing such Employee Plan, and any funding medium for the
Employee Plan (including, without limitation, trust agreements) as they may have
been amended; (ii) the most recent IRS determination or approval letter with
respect to such Employee Plan under Code Sections 401 or 501(c)(9), and any
applications for determination or approval subsequently filed with the IRS;
(iii) the three most recently filed IRS Forms 5500, with all applicable
schedules and accountants' opinions attached thereto; (iv) the summary plan
description for such Employee Plan (or other descriptions of such Employee Plan
provided to employees) and all modifications thereto; (v) any insurance policy
(including any fiduciary liability insurance policy) related to such Employee
Plan; (vi) any documents evidencing any loan to an Employee Plan that is a
leveraged employee stock ownership plan; and (vii) all other materials
reasonably necessary for Parent or Purchaser to perform any of its
responsibilities with respect to any Employee Plan subsequent to the Closing
(including, without limitation, health care continuation requirements).
(f) Each Employee Plan listed on the Disclosure Schedule may be
amended, terminated, modified or otherwise revised prospectively by the Company
or any of its subsidiaries, as applicable, including the elimination of any and
all future benefit accruals under any Employee Plan.
(g) For purposes of this section:
(i) "Employee Plan" means (A) all employee benefit plans
within the meaning of ERISA Section 3(3), including, but not limited to,
multiple employer welfare arrangements (within the meaning of ERISA Section
3(4)), plans to which more than one unaffiliated employer contributes and
employee benefit plans (such as foreign or excess benefit plans) which are not
subject to ERISA; and (B) all stock option plans, bonus or incentive award
plans, severance pay policies or agreements, deferred compensation agreements,
supplemental income arrangements, vacation plans, and all other employee benefit
plans, agreements, and arrangements not described in (A) above. In the case of
an Employee Plan funded through an organization described in Code Section
501(c)(9), each reference to such Employee Plan shall include a reference to
such organization.
(ii) An entity "maintains" an Employee Plan if such entity
sponsors, contributes to, or provides (or has promised to provide) benefits
under such Employee Plan, or has any obligation (by agreement or under
applicable law) to contribute to or provide benefits under such Employee Plan,
or if such Employee Plan provides benefits to or otherwise covers employees of
such entity, or their spouses, dependents, or beneficiaries.
(iii) For purposes of this Section 4.15, an entity is an
"Affiliate" of the Company or any of its subsidiaries if it would have ever been
considered a single employer with the Company or any of its subsidiaries,
respectively, under ERISA Section 4001(b) or part of the same "controlled group"
as the Company or any of its subsidiaries or any of their respective
subsidiaries for purposes of ERISA Section 302(d)(8)(C).
(iv) "Multiemployer Plan" means a (pension or non-pension)
employee benefit plan to which more than one employer contributes and which is
maintained pursuant to one or more collective bargaining agreements.
4.16. Compliance With Legislation Regulating Environmental Quality. All
plants, offices, manufacturing facilities, stores, warehouses, improvements,
administration buildings, and real property and related facilities of the
Company and its subsidiaries, whether currently or previously owned, operated or
leased by the Company and its subsidiaries (collectively, the "Facilities") are
and at all times have been maintained and operated in material compliance with
all applicable federal, state and local environmental protection, occupational,
health and safety or similar laws, ordinances, restrictions, orders, regulations
and licenses (collectively "Environmental Laws") including but not limited to
the Federal Water Pollution Control Act (33 U.S.C ss. 1251 et seq. ), Resource
Conservation & Recovery Act (42 U.S.C. ss. 6901 et seq.), Safe Drinking Water
Act (21 U.S.C. ss. 349, 42 U.S.C. ss. ss. 201, 300f), Toxic Substances Control
Act (15 U.S.C. ss. 2601 et seq.), Clean Air Act (42 U.S.C. ss. 7401 et seq.),
and Comprehensive Environmental Response, Compensation and Liability Act (42
U.S.C. ss. 9601 et seq.). No materials, substances, or products have been at any
time been placed, held, located, disposed of or released on, under, at, within,
or about the Facilities which may reasonably be expected to result in a
regulatory agency or other governmental entity requiring clean up, removal or
other remedial action by the Company or any of its subsidiaries under
Environmental Laws. No hazardous or toxic substance, waste or material
(collectively "Hazardous Materials") has at any time been used, stored, treated,
transported or handled by the Company or any of its subsidiaries or any of its
consultants, contractors or agents on, under, at, within, or about the
Facilities except Hazardous Materials that are used, stored, treated,
transported or handled on, under, at, within or about the Facilities in material
compliance with Environmental Laws. No litigation, administrative enforcement
actions, proceedings or notices of potential liability have been (x) received,
served or, to the knowledge of the Company, filed or threatened against the
Company or any of its subsidiaries or (y) to the knowledge of the Company,
received, served, filed or threatened against any predecessor business or
landowner or with respect to any Facility, in each case, relating to damage,
contribution, cost recovery, compensation, loss or injury resulting from any
Hazardous Materials or arising out of the use, generation, storage, treatment,
release, discharge, transportation, handling or disposal of Hazardous Materials
or resulting from a violation or alleged violation of Environmental Laws.
4.17. Labor Matters
. Except as set forth on the Disclosure Schedule, the Company and its
subsidiaries are not a party to any labor agreement with respect to its
employees with any labor organization, group or association. Except as set forth
on the Disclosure Schedule, the Company and its subsidiaries has not experienced
any attempt by organized labor or its representatives to make the Company or its
subsidiaries conform to demands of organized labor relating to its employees or
to enter into a binding agreement with organized labor that would cover the
employees of the Company and its subsidiaries. The Company and its subsidiaries
are in compliance in all material respects with all applicable laws respecting
employment practices, terms and conditions of employment and wages and hours and
is not engaged in any unfair labor practice. There is no unfair labor practice
charge or complaint against the Company or any of its subsidiaries pending
before the National Labor Relations Board or any other governmental agency, and
the Company has no knowledge of any facts or information which would give rise
thereto. There is no labor strike or labor disturbance pending or threatened
against the Company or any of its subsidiaries nor is any grievance currently
being asserted; and the Company and its subsidiaries have not experienced a work
stoppage or other labor difficulty.
4.18. Intellectual Property
.
(a) The Company (including, for purposes of this Section 4.18, each
of its subsidiaries from time to time) owns the Intellectual Property, as
defined below, used by the Company in its business including but not limited to
the patents, trademarks, copyrights, and trade secrets and confidential
information set forth in the Disclosure Schedule and as defined below
(collectively, the "Company's Intellectual Property"). The term "Intellectual
Property" shall mean patents, trademarks, copyrights, trade secrets and
confidential information, as defined below. The term "patents" shall mean
inventions, discoveries, applications for patent, issued patents, whether
domestic or foreign. The term "trademarks" shall mean marks, trademarks, service
marks, brand names, trade names, whether domestic or foreign, registered or
unregistered, including any registrations thereof and applications for
registrations. The term "copyrights" shall mean copyrights, domestic or foreign,
registrations thereof, and applications for registration. The terms "trade
secrets and confidential information" shall mean business, financial, customer,
and other information used by a company in its business which is not generally
known or used by competitors and which is recognized by law as being the type of
information which can be protected from unauthorized use or disclosure.
(b) Except as set forth in the Disclosure Schedule, the Company
owns, and has the right to use, the Company's Intellectual Property used in its
business as presently conducted, free and clear of any liens, licenses,
restrictions on use or alienation, encumbrances, or security interests. To the
extent the Company uses Intellectual Property, which it does not own, such
Intellectual Property is used under valid license and such Intellectual Property
and its license are identified and described in the Disclosure Schedule.
(c) Except as set forth on the Disclosure Schedule, the Company has
not been sued, charged, or threatened for having infringed the Intellectual
Property rights of any third party. Except as set forth in the Disclosure
Schedule, the Company is not aware of any conduct it has engaged in which could
in good faith be considered a violation of the Intellectual Property rights of a
third party. To the Company's knowledge, the Company has not engaged in and/or
is not engaging in any conduct which violates the Intellectual Property rights
of a third party.
(d) The Company is aware of no facts or information which would
adversely affect its ownership of and/or the validity of the Company's
Intellectual Property; and except as set forth in the Disclosure Schedule, there
have been no and there are no proceedings brought by third parties challenging
the Company's ownership and/or the validity of the Company's Intellectual
Property.
(e) Except as set forth in the Disclosure Schedule, the Company has
not sued, charged, or threatened any third party regarding the ownership of
and/or violation of the Company's Intellectual Property. Except as set forth in
the Disclosure Schedule, the Company is not aware of any conduct engaged in by a
third party which could in good faith be considered a violation of the Company's
Intellectual Property rights (excluding any Intellectual Property rights related
to the Company's trademarks)
4.19. Permits; Licenses
. The Company and each of its subsidiaries has, and at all times has had,
all material licenses, permits, authorizations, approvals and registrations
(collectively, "Permits") required under any statute, law, ordinance,
regulation, rule or order of any foreign, federal, state or local government or
any other governmental department or agency in the operation of the business and
owns or possesses such Permits free and clear of all encumbrances. Except as set
forth in the Disclosure Schedule, the Company and each of its subsidiaries is in
material compliance with all Permits and neither the Company nor any of its
subsidiaries is in default or received any notice of any claim of default with
respect to any such Permit. There are no proceedings, investigations or audits
pending, or to the Company's knowledge, threatened against the Company or any of
its subsidiaries by any governmental agency relating to any Permit. All such
Permits are renewable by their terms or in the ordinary course of business
without the need to comply with any special qualification procedures or to pay
any amounts other than routine filing fees and will not be adversely affected by
the completion of the Offer, the Merger or the transactions contemplated hereby.
Except as set forth on the Disclosure Schedule, no present or former
stockholder, director, officer or employee of the Company or any affiliate
thereof, or any other person, firm, corporation or other entity, owns or has any
proprietary, financial or other interest (direct or indirect) in any Permit
which the Company owns, possesses or uses.
4.20. Insurance
. The Disclosure Schedule sets forth a complete and accurate list, as of
the date hereof, of the material policies of insurance maintained by the Company
and its subsidiaries with respect to the products, properties, assets,
operations and business of the Company and its subsidiaries since 1995. All
insurance coverage applicable to the Company and its subsidiaries is in full
force and effect, insures the Company and its subsidiaries in sufficient amounts
(consistent with industry standards) against all risks usually insured against
by Persons operating similar businesses or properties of similar size in the
localities where such businesses or properties are located, provides coverage as
may be required by all regulations which the Company and its subsidiaries is
subject and has been issued by insurers of recognized responsibility. There is
no default under any such coverage nor has there been any failure to give notice
or present any claim under any such coverage in a due and timely fashion. There
are no outstanding unpaid premiums except in the ordinary course of business and
no notice of cancellation or nonrenewal or any such coverage has been received.
Except as set forth on the Disclosure Schedule, there are no provisions in such
insurance policies for retroactive or retrospective premium adjustments. There
are no facts upon which an insurer might be justified in reducing coverage or
increasing premiums on existing policies or binders. There are no outstanding
unpaid claims under any such policies or binders.
4.21. Schools
. The Disclosure Schedule lists all of the schools (the "Schools")
operated by the Company and its subsidiaries as of the date of this Agreement.
Each of the Schools has received all required approvals of governmental
authorities required in connection with the operation thereof and has been
operated and maintained in all material respects in accordance with all
applicable regulations. Except as set forth on Disclosure Schedule 4.9, there
are no material actions, suits or proceedings pending or, to the knowledge of
the Company, threatened against any of the Schools or any employees thereof.
4.22. Opinion of Financial Advisor
. The Board of Directors of the Company has received the opinion of
Advest, Inc., dated on or before the date of this Agreement, to the effect that
the consideration to be received pursuant to the Offer and the Merger by the
Company's stockholders is fair to such stockholders from a financial point of
view.
4.23. Brokers
. No broker, finder or investment banker (other than McGettigan, Wick &
Co., Inc. and Advest, Inc.) is entitled to any brokerage, finder's or other fee
or commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by and on behalf of the Company or any of its
subsidiaries. The Company has heretofore furnished to Parent a complete and
correct copy of all agreements between the Company and Advest, Inc. pursuant to
which such firm would be entitled to any payment relating to the transactions
contemplated hereby.
4.24. Settlement of Fair Labor Standards Act Violations
. The Company has reached an agreement with the United States Department
of Labor (the "Labor Department") regarding alleged violations of the Fair Labor
Standards Act (the "FLSA") at five of the Company's schools in Connecticut, the
terms of which are set forth in that certain letter dated May 6, 1997 from Baker
& Daniels to the Labor Department. The Company and its subsidiaries are in
material compliance with the FLSA. There are no additional proceedings,
investigations or audits pending or, to the Company's knowledge, threatened
against the Company or any of its subsidiaries by any governmental agency
relating to the FLSA, and the Company and its subsidiaries have not received any
notices with respect to any such audits, investigations or proceedings
4.25. Accounting and Legal Fees
. As of the date of this Agreement, the Company has incurred fees less
than $66,750 and $41,000 payable to the Company's accountants and attorneys,
respectively, in connection with the Offer, the Merger and the other
transactions contemplated by this Agreement. The Disclosure Schedule sets forth
a complete and accurate budget of the costs, fees and expenses, including,
without limitation, fees and expenses of attorneys, accountants, and other
representatives and advisors (excluding financial advisors), costs of preparing,
printing and mailing materials to stockholders, filing fees and other
out-of-pocket costs the Company expects to incur from the date hereof in
connection with the Offer, the Merger and the other transactions contemplated by
this Agreement.
5. CONDUCT OF BUSINESS PENDING THE MERGER
The Company covenants and agrees that, prior to the Effective Date, unless
Parent shall otherwise agree in writing or except as otherwise expressly
contemplated by this Agreement:
5.1. Ordinary Course of Business
. The business of the Company and its subsidiaries shall be conducted only
in, and the Company and its subsidiaries shall not take any action except in,
the ordinary course of business and consistent with past practices.
5.2. Preservation of Organization
. The Company shall use its reasonable best efforts to maintain and
preserve its business organization, present relationships with customers,
suppliers and others having business dealings with the Company and its
subsidiaries, assets, employees, regulatory licenses and approvals and
advantageous business relationships. Neither the Company nor any of its
subsidiaries shall, directly or indirectly, amend or propose to amend its
charter, regulations or bylaws or similar organizational documents.
5.3. Capitalization Changes
. Neither the Company nor any of its subsidiaries shall directly or
indirectly (i) issue, sell, transfer, pledge, dispose of or encumber, or
authorize, propose or agree to the issuance, sale, pledge, transfer, disposition
or encumbrance of, any capital stock of the Company (except for shares issuable
upon exercise of Company Options outstanding on the date hereof) or any of its
subsidiaries; (ii) issue, sell, pledge, transfer or dispose of, or authorize,
propose or agree to the issuance, sale, pledge, transfer or disposition of any
options, warrants or rights of any kind to acquire any shares of or any
securities convertible into or exchangeable for any shares of, any capital stock
of any class or any other equity securities of the Company or any of its
subsidiaries; (iii) authorize, recommend or propose any change in its
capitalization; or (iv) adopt a plan of complete or partial liquidation,
dissolution, merger, consolidation, restructuring, recapitalization or other
reorganization of the Company or any of its subsidiaries (other than the
Merger).
5.4. Sale of Assets
. Neither the Company nor any of its subsidiaries shall directly or
indirectly (i) except in the ordinary course of business and consistent with
past practices, sell, pledge, transfer, lease, sell and leaseback, assign,
license, dispose of or encumber any assets of the Company or of any of its
subsidiaries (including without limitation, any indebtedness owed to them or any
claims held by them) or (ii) whether or not in the ordinary course of business,
sell, pledge, transfer, lease, sell and leaseback, assign, license, dispose of
or encumber any material assets of the Company or any of its subsidiaries.
5.5. Dividends and Repurchases
. Neither the Company nor any of its subsidiaries shall directly or
indirectly (i) split, combine or reclassify any shares of its capital stock or
declare, set aside or pay any dividend or distribution, payable in cash, stock,
property or otherwise with respect to any of its capital stock other than,
dividends and distributions by a subsidiary of the Company to the Company or to
any other subsidiary all of the capital stock of which (other than directors'
qualifying shares) is owned directly or indirectly by the Company, or (ii)
redeem, purchase or otherwise acquire or offer or agree to redeem, purchase or
otherwise acquire any capital stock of the Company or any of its subsidiaries.
5.6. Acquisitions; Investments
. Neither the Company nor any of its subsidiaries shall, directly or
indirectly, except in the ordinary course of business and consistent with past
practices, acquire (by merger, consolidation or acquisition of stock or assets)
any corporation, partnership or other business organization or division thereof
or make any investment either by purchase of stock or securities, contributions
to capital, loans, advances, property transfer or purchase of any amount of
property or assets, in any other individual or entity (other than subsidiaries
of the Company).
5.7. Indebtedness
. Neither the Company nor any of its subsidiaries shall, directly or
indirectly, incur any indebtedness for borrowed money, issue any debt securities
or enter into any capitalized leases or assume, guarantee, endorse, secure or
otherwise as an accommodation become responsible for, the obligations of any
other Person (other than the Company and its subsidiaries).
5.8. Severance and Termination Pay
. Neither the Company nor any of its subsidiaries shall take any action
with respect to the grant of any severance or termination pay (otherwise than
pursuant to policies or written agreements of the Company in effect on the date
hereof) or with respect to any increase of benefits payable under its severance
or termination pay policies or written agreements in effect on the date hereof.
5.9. Employee Benefits
. Neither the Company nor any of its subsidiaries shall adopt, enter into
or amend any bonus, profit sharing, compensation, stock option, pension,
retirement, deferred compensation, employment, severance, retention or stay or
other employee benefit plan, agreement, trust, fund or other arrangement for the
benefit or welfare of any director, officer or employee or increase in any
manner the compensation or fringe benefits of any director, officer or employee
or pay any benefit not required by any plan, arrangement or agreement in effect
on the date hereof.
5.10. Tax Election; Accounting
. Neither the Company nor any of its subsidiaries shall make any tax
election or settle or compromise any federal, state, local or foreign income tax
liability. Each of the Company and its subsidiaries shall maintain its books of
account and records in its usual, regular and ordinary manner, consistent with
its past practices, and except as may be required as a result of a change in law
or in generally accepted accounting principles shall not make any change in any
accounting principle or accounting practice.
5.11. Subsequent Financials
. The Company shall deliver to Parent all of the Company's monthly and
quarterly, if any, financial statements for periods and dates subsequent to the
date hereof, as soon as the same are available to the Company.
5.12. Representations and Warranties
. The Company and its subsidiaries will not take any action or omit to
take any action, which action or omission would reasonably be expect to result
in a breach or inaccuracy of any of the representations and warranties set forth
in this Agreement in any material respect at, or as of any time prior to, the
Effective Date.
5.13. Contracts
. The Company and its subsidiaries will not enter into any contract or
agreement other than in the ordinary course of business. The Company and its
subsidiaries will not amend, terminate or modify any Material Contract and will
not enter into any contract or agreement which would have been a Material
Contract if entered into prior to the date of this Agreement.
5.14. Affiliates
. Without Parent's written consent, the Company and its subsidiaries will
not enter into, amend, modify or terminate any contract or agreement with, or
make any payment other than pursuant to a written agreement existing on the date
hereof to, any affiliate (other than the Company or any of its subsidiaries) of
the Company or its subsidiaries; including releasing Shares under pledge
agreements.
<PAGE>
5.15. Litigation
. The Company and its subsidiaries will not settle or compromise any
pending or threatened suit, action or claim for an amount in excess of $25,000
per suit, action or claim or which relates to the transactions contemplated
hereby.
5.16. Capital Expenditures
. The Company and its subsidiaries will not authorize or make any
expenditure for capital or acquisitions which are not specifically provided for
in the Company's capital budget (a true and correct copy of which has been
delivered to Parent and is set forth in the Disclosure Schedule).
5.17. Transaction Expenses
. The Company and its subsidiaries will not incur costs, fees and expenses
in connection with the Offer, the Merger and the other transactions contemplated
by this Agreement, in excess of (i) $1,000,000 for the costs, fees and expenses
of financial advisors, including, without limitation, McGettigan, Wick & Co.,
Inc. and Advest, Inc. and (ii) those costs, fees and expenses reasonable and
necessary, including, without limitation, fees and expenses of attorneys,
accountants, and other representatives and advisors (excluding financial
advisors), costs of preparing, printing and mailing materials to stockholders,
filing fees and other out-of-pocket costs, which shall be evidenced by detailed
invoices submitted to the Company and which shall be payable by the Company in
accordance with its standard accounts payable practices.
5.18. Commitments
. The Company and its subsidiaries will not offer or propose to take or
agree or commit to take any of the foregoing referred to in this Article 5.
6. ADDITIONAL AGREEMENTS
6.1. Proxy Statement
. If a meeting of the Company's stockholders (or written consent in place
of a meeting) is required by Delaware Law to approve this Agreement and the
Merger, then promptly after consummation of the Offer, the Company shall prepare
and shall file with the Commission as promptly as practicable a preliminary
proxy statement, together with a form of proxy, with respect to the meeting (or
written consent in place thereof) of the Company's stockholders at which the
stockholders of the Company will be asked to vote upon and approve this
Agreement and the Merger. As promptly as practicable after such filing, subject
to compliance with the rules and regulations of the Commission, the Company
shall prepare and file a definitive Proxy Statement and form of proxy with
respect to such meeting (or written consent in place thereof) (the "Proxy
Statement") and shall use all reasonable efforts to have the Proxy Statement
cleared by the Commission as promptly as practicable, and promptly thereafter
shall mail the Proxy Statement to stockholders of the Company. The term "Proxy
Statement" shall mean such proxy or information statement at the time it
initially is mailed to the Company's stockholders and all amendments or
supplements thereto, if any, similarly filed and mailed. The information
provided and to be provided by Parent, Purchaser and the Company, respectively,
for use in the Proxy Statement shall, on the date the Proxy Statement is first
mailed to the Company's stockholders and on the date of the Special Meeting (as
defined in Section 6.2) shall be true and correct in all material respects and
shall not omit to state any material fact necessary in order to make such
information not misleading, and Parent, Purchaser and the Company each agree to
correct any information provided by it for use in the Proxy Statement which
shall have become false or misleading in any material respect. The Proxy
Statement shall comply as to form in all material respects with all applicable
requirements of federal securities laws.
6.2. Meeting of Stockholders of the Company; Voting and Disposition of
the Shares
. If a meeting of the Company's stockholders (or written consent in lieu
thereof) is required by Delaware Law to approve this Agreement and the Merger,
then as promptly as practicable after consummation of the Offer the Company
shall take all action necessary, in accordance with the Delaware Law and its
Certificate of Incorporation and Bylaws, to convene a meeting of (or obtain the
written consents from) its stockholders (the "Special Meeting") to consider and
vote upon this Agreement and the Merger. The Proxy Statement shall contain the
recommendation of the Board of Directors that the stockholders of the Company
vote to adopt and approve this Agreement and the Merger and the Company shall
use its reasonable efforts to solicit from stockholders of the Company proxies
in favor of such adoption and approval (and Purchaser shall vote all Shares
purchased by it in favor of such adoption and approval) and to take all other
action necessary or, in the reasonable judgment of Parent, helpful to secure the
vote or consent of stockholders required by the Delaware Law to effect the
Merger.
6.3. Stock Options
. The Company and its subsidiaries shall take such action as may be
necessary to make the Option Offer to each holder of a Company Option as
described in Section 2.7 and shall use its best efforts to obtain acceptances of
the Option Offer from all such holders.
6.4. Additional Agreements
.
(a) Subject to the terms and conditions herein provided, each of the
parties hereto agrees to use all reasonable best efforts to take, or cause to be
taken, all actions and to do, or cause to be done, all things necessary, proper
or advisable to consummate and make effective as promptly as practicable the
transactions contemplated by the Offer, this Agreement, and to cooperate with
each other in connection with the foregoing, including using reasonable best
efforts (A) to obtain all necessary waivers, consents and approvals from other
parties to material loan agreements, leases, licenses and other contracts;
provided that without the consent of Parent, the Company shall not make any
economic or monetary concession, or pay any amounts, to obtain such waivers,
consents and approvals, (B) to obtain all necessary consents, approvals and
authorizations as are required to be obtained under any federal, state or
foreign law or regulations, (C) to defend all lawsuits or other legal
proceedings challenging this Agreement, or the consummation of the transactions
contemplated hereby, (D) to lift or rescind any injunction or restraining order
or other order adversely affecting the ability of the parties to consummate the
transactions contemplated hereby, (E) to effect all necessary registrations and
filings, including, but not limited to, filings under the Hart-Scott-Rodino Act,
and submissions of information requested by governmental authorities; and (F) to
fulfill all conditions to the Offer and the Merger; provided, however, that
nothing in this Section 6.4 will require any party hereto to waive any condition
contained in Annex I or this Agreement. The Company and Parent will file, or
cause to be filed, as promptly as possible, but in no event later than ten days
after the date hereof, with the United States Federal Trade Commission and the
Antitrust Division of the United States Department of Justice pursuant to the
Hart-Scott-Rodino Act the notification required by the Hart-Scott-Rodino Act,
including all requested documents, materials and information therefor, and
request early termination of the waiting period under the Hart-Scott-Rodino Act.
Each of the Company and Parent shall furnish the other such necessary
information and reasonable assistance as the other may request in connection
with its preparation of any filing or submission which is necessary under the
Hart-Scott-Rodino Act. The Company shall file as soon as possible, but no later
than five days after the date hereof, an initial application for a license to
operate from the State Board of Private Academic Schools, the Commonwealth of
Pennsylvania. The Company and Parent shall each keep the other apprised of the
status of any inquiries or requests for additional information made by any
governmental authority and shall comply promptly with such inquiry or request.
(b) Notwithstanding anything in this Agreement to the contrary, the
Company shall use its commercially reasonable efforts to obtain all necessary
waivers, consents and approvals necessary under those agreements listed on
Section 4.6 of the Disclosure Schedule.
6.5. No Solicitation of Transactions
. The Company agrees that, prior to the Effective Date, it shall not
authorize or permit any of its subsidiaries or any of its or its subsidiaries'
directors, officers, employees, agents or representatives to, directly or
indirectly, solicit, initiate, facilitate or encourage any inquiries or the
making of any proposal with respect to any tender offer, exchange offer, merger,
consolidation, sale of assets, sales or capital stock or other business
combination involving the Company or its subsidiaries or the acquisition of 20%
or more of the assets or capital stock of the Company and its subsidiaries taken
as a whole (an "Acquisition Transaction"), or negotiate, explore or otherwise
communicate in any way with, or provide or furnish any information to, any
Person (other than Parent or the Purchaser) with respect to any Acquisition
Transaction or enter into any agreement, arrangement or understanding requiring
it to abandon, terminate or fail to consummate the Offer or the Merger or any
other transaction contemplated by this Agreement; provided that the Company may,
in response to an unsolicited written binding offer with respect to an
Acquisition Transaction from a Person with sufficient financial resources
available to it to consummate such transaction which contains no financing
condition (i) furnish or disclose non-public information to such third party,
and (ii) negotiate, explore or otherwise communicate with such third party, in
each case only if the Board of Directors of the Company determines in good
faith, (A) after consultation with its outside counsel and financial advisors,
that the Acquisition Transaction would, upon consummation thereof, result in a
transaction which is more favorable to the Company's stockholders from a
financial point of view than the Offer and the Merger and that such transaction
is likely to be consummated, and (B) after advice of outside counsel, that
failing to take such action would constitute a breach of the Company's Board of
Directors' fiduciary duties. The Company shall immediately advise Parent in
writing of the receipt by the Company, any of its subsidiaries or any of their
respective officers, directors, employees, agents or representatives of any
request for information, inquiries, indications of interest, offers or proposals
relating to an Acquisition Transaction and any actions taken pursuant to this
Section 6.5, which notice shall include the identity of the Person making such
request, inquiry, indication of interest, offer or proposal and the terms, if
any, of such Acquisition Transaction. The Company and its subsidiaries and their
respective directors, officers, employees, agents and representatives will upon
the execution of this Agreement, cease any discussion or negotiations with, and
shall cease to provide any information to or otherwise cooperate or encourage,
any Person with respect to an Acquisition Transaction.
6.6. Notification of Certain Matters
. The Company shall give prompt notice to Parent, and Parent shall give
prompt notice to the Company, of (i) the occurrence, or failure to occur, of any
event which occurrence or failure would be likely to cause either (x) any
representation or warranty contained in this Agreement, the Disclosure Schedule
or any written certificate or schedule delivered pursuant hereto to be untrue or
inaccurate in any respect at any time from the date hereof to the Effective
Date, or (y) any condition set forth in Annex I or this Agreement to be
unsatisfied in any material respect at any time from the date hereof to the
Effective Date, and (ii) any material failure of the Company, or Parent or any
of its affiliates, as the case may be, or of any officer, director, employee or
agent thereof, to comply with or satisfy any covenant, condition or agreement to
be complied with or satisfied by it under this Agreement; provided, however,
that no such notification shall affect the representations or warranties of the
parties or the conditions to the obligations to the parties hereunder.
6.7. Access to Information
. The Company shall, and shall cause its subsidiaries, officers,
directors, employees and agents to, afford the officers, employees and agents
(including, without limitation, lawyers and investment bankers) of Parent and
its affiliates complete access at all reasonable times to, from the date hereof
to the Effective Date, its officers, employees, agents, properties, books,
records and contracts, and shall furnish to Parent and its affiliates all
financial, operating and other data and information as Parent or its affiliates,
through their respective officers, employees or agents, may reasonably request.
Subject to the requirements of law, Parent and its affiliates shall, and shall
use its reasonable efforts to cause their officers, employees and agents, to
hold in confidence all such nonpublic information until such time as such
information is otherwise publicly available, and, if this Agreement is
terminated, Parent and its affiliates will, and will use its reasonable efforts
to cause their officers, employees and agents, to deliver to the Company all
documents, work papers and other material (including copies, extracts and
summaries thereof) obtained by or on behalf of any of them directly or
indirectly from the Company as a result of this Agreement or in connection
herewith, whether so obtained before or after the execution hereof. No
investigation pursuant to this Section 6.7 shall affect any representations or
warranties of the parties herein or the conditions to the obligations of the
parties hereto.
6.8. Takeover Laws
. The Company shall, upon the request of Parent, take all reasonable steps
to assist in any challenge by Parent or Purchaser to the validity or
applicability to the transactions contemplated by this Agreement and the Option
Agreement, including the Offer and the Merger, of any state takeover law.
6.9. Employment Agreements; Noncompete Agreements ; Releases and
Excess Payment Agreement
. The Company shall use commercially reasonable efforts to obtain prior to
consummation of the Offer employment or consulting agreements and noncompete
agreements, in form and substance satisfactory to Parent, from Richard Niglio,
Elanna Yalow, Randall Truelove, Frank Devine and Jane Delaney (the "Named
Officers") and releases, in form and substance satisfactory to Parent, from each
Named Officer and McGettigan, Wick & Co., Inc. The Company shall use
commercially reasonable efforts to obtain prior to consummation of the Offer a
resignation from each director, other than Elanna Yalow, which resignation shall
be effective immediately after consummation of the Offer. The Company shall use
commercially reasonable efforts to obtain prior to consummation of the Offer a
fully executed copy of the Excess Payment Agreement between the Company and
Elanna Yalow.
6.10. Other Agreements
.
(a) Prior to consummation of the Offer, the Company shall obtain a
written agreement from KidActive LLC (d/b/a Girl Tech) in the form attached
hereto as Schedule 6.10(a). The Company shall use commercially reasonable
efforts to obtain a demand promissory note from Janese Swanson in favor of the
Company in the amount of $56,500 with interest at a rate of 10% per annum in
lieu of her personal guaranty referred to in the second to last paragraph
Schedule 6.10(a).
(b) The Company shall use commercially reasonable efforts to obtain
prior to the consummation of the Offer from Frontier Insurance the letter
attached as hereto as Schedule 6.10(b).
(c) The Company shall use commercially reasonable efforts to obtain
prior to the consummation of the Offer the insurance coverage set forth in
Schedule 6.10(c) from J&H Marsh & McLeanan.
<PAGE>
6.11. Indemnification and Insurance
.
(a) For a period of six years after the Effective Date, the
Surviving Corporation shall indemnify, defend and hold harmless the officers and
directors of the Company as of the date hereof against all losses, claims,
damages, expenses or liabilities arising out of actions or omissions or alleged
actions or omissions occurring at or prior to the Effective Date to the same
extent and on the same terms and conditions (including with respect to
advancement of expenses) provided for in the Company's Certificate of
Incorporation and Bylaws in effect at the date hereof (to the extent consistent
with applicable law).
(b) From and after the Effective Date until the sixth anniversary
thereof, the Surviving Corporation shall maintain in effect the current policies
of directors' and officers' liability insurance maintained by the Company
(provided that the Parent or the Surviving Corporation may substitute therefor
policies of at least the same coverage and amounts containing terms and
conditions which are no less advantageous) with respect to claims arising from
facts or events which occurred before the Effective Date; provided, however,
that the Surviving Corporation shall not be obligated to make annual premium
payments for such insurance to the extent such premiums exceed 150% of the
premiums paid as of the date hereof by the Company for such insurance.
7. CONDITIONS
7.1. Conditions to Obligation of Each Party to Effect the Merger
. The respective obligations of each party to effect the Merger shall be
subject to the fulfillment at or prior to the Effective Date of the following
conditions:
(a) The Purchaser (or a subsidiary or an affiliate of Parent) shall
have accepted for payment and paid for Shares pursuant to the Offer in
accordance with the terms thereof;
(b) To the extent required by the Delaware Law, this Agreement and
the Merger shall have been approved and adopted by the requisite vote or consent
of the stockholders of the Company; and
(c) No permanent injunction or other order, decree or ruling issued
by a court of competent jurisdiction in the United States or by a domestic
governmental, regulatory or administrative agency or commission nor any statute,
rule, regulation or executive order promulgated or enacted by any domestic
governmental authority shall be in effect, which would make the acquisition or
holding by Parent, its subsidiaries or affiliates of the shares of common stock
of the Surviving Corporation illegal or otherwise prevent the consummation of
the Merger; provided, however, that the parties shall have used all reasonable
efforts to prevent such event.
<PAGE>
7.2. Additional Conditions to the Obligations of Purchaser
. The obligations of Parent and Purchaser to effect the Merger are
also subject to the following conditions:
(a) Parent, Purchaser and the Company shall have obtained such
licenses, permits, consents, waivers, approvals, authorizations, qualifications,
orders actions and non-actions from all third parties, including governmental
authorities and agencies, as are necessary for consummation of the Merger and
the consummation of the Merger will not result in the loss of any Permit of the
Company or any of its subsidiaries;
(b) The Company shall not have breached or failed to perform in any
material respect any of its obligations in this Agreement or failed to comply in
any material respect with any of its agreements or covenants in this Agreement;
(c) Each of the representations and warranties of the Company set
forth in this Agreement that are subject to, or qualified by, any materiality
qualification shall be true and correct any each such representations and
warranties that is not so qualified shall be true and correct in all material
respect, in each case at the date of this Agreement and as of the Effective
Date, except as to each such representation or warranty which speaks as of a
specific date which must be true and correct in the foregoing respects as of
such date;
(d) No event, condition or change (or any development involving a
prospective event, condition or change) shall have occurred or be threatened
which has had or is reasonably likely to have a Material Adverse Effect on the
Company and its subsidiaries taken as a whole; and
(e) There shall not have occurred (i) any general suspension of, or
limitation on prices for, trading in securities on any United States stock
exchange, (ii) the declaration of a banking moratorium or any suspension of
payments in respect of banks in the United States, (iii) the commencement of a
war, armed hostilities or other international or national calamity materially
affecting the United States, (iv) any limitation by any governmental authority
or any other event which is reasonably likely to affect the extension of credit
by banks or other lending institutions, or (v) in the case of any of the
foregoing existing at the date of this Agreement, any material acceleration or
worsening thereof.
8. TERMINATION, AMENDMENT AND WAIVER
8.1. Termination
. This Agreement may be terminated at any time prior to the Effective
Date, whether prior to or after approval by the stockholders of the Company:
(a) By mutual written consent duly authorized by the Boards of
Directors of Parent and the Company; or
(b) By the Company, by providing notice to Parent:
(i) If Purchaser or any of its or Parent's subsidiaries or
affiliates shall have (A) failed to commence the Offer within the time period
specified in Section 1.1; (B) terminated the Offer; or (C) failed to pay for
Shares pursuant to the Offer within 120 days after the commencement of the
Offer, provided, however, that such failure to commence, or termination or
failure to pay for Shares does not arise from, is not in connection with, or
related to a breach of a representation or warranty of the Company or the
Company's failure to perform in any material respect any of its obligations
under this Agreement;
(ii) If, prior to the purchase of any Shares pursuant to the
Offer, Purchaser or Parent fails to perform in any material respect any of its
obligations under this Agreement or comply in any material respects with its
agreements and covenants under this Agreement and such failure shall not have
been cured within ten days following notice from the Company to Parent of notice
of such failure and the Company's intent to terminate pursuant to this
provision;
(iii) At any time prior to the purchase of any Shares pursuant
to the Offer, to allow the Company to enter into an agreement in respect of an
Acquisition Transaction if the Board of Directors of the Company determines in
good faith, after advice of outside counsel, that such Acquisition Transaction
is reasonably capable of being completed on the terms proposed and would, if
consummated result in a transaction more favorable to the stockholders of the
Company than the transactions contemplated by this Agreement and that such
action is necessary in order to fulfill its fiduciary duty to stockholders;
provided that such Board of Directors is then in receipt of a written opinion
from its financial advisor that such Acquisition Transaction would, if
consummated, result in a transaction more favorable to the Company's
stockholders from a financial point of view than the transaction contemplated by
the Offer, the Merger and this Agreement; provided, further, that prior to any
such termination, the Company notifies Parent promptly of its intention to
terminate this Agreement and enter into an agreement with respect to an
Acquisition Transaction, which notice shall include the terms of such
Acquisition Transaction and shall be given at least 48 hours prior to the
termination of this Agreement; provided, further, that such termination shall
not be effective until the Company pays Parent the fee described in Section
8.2(b) hereof; or
(iv) If any court of competent jurisdiction in the United
States or a domestic governmental, regulatory or administrative agency or
commission shall have issued a nonappealable final order, decree or ruling or
taken any other action having the effect of permanently restraining, enjoining
or otherwise prohibiting the purchase of the Shares pursuant to the Offer or the
Merger; provided that the Company shall have used its reasonable best efforts to
remove or lift such order, decree or ruling.
(c) By Parent, by providing notice to the Company:
(i) If Purchaser or any of its or Parent's subsidiaries or
affiliates shall have (A) failed to commence the Offer within the time period
specified in Section 1.1; (B) terminated the Offer; or (C) failed to pay for
Shares pursuant to the Offer within 120 days after the commencement of the
Offer; provided, however, that such failure to commence, or termination or
failure to pay for Shares does not arise from, is not in connection with, or
related to a breach of a representation or warranty of Parent or Purchaser or
their failure to perform in any pertinent aspect any of its obligations under
this Agreement;
(ii) If (i) the Board of Directors of the Company or any
committee thereof shall have withdrawn or modified (including by amendment of
the Schedule 14D-9) in any manner adverse to Parent or the Purchaser its
approval or recommendation of the Offer, the Merger or this Agreement, or
approved or recommended any Acquisition Transaction, or Parent requests in
writing that the Board of Directors of the Company reconfirm its recommendation
of the Offer, the Merger and this Agreement to the Company's stockholders and
the Board of Directors of the Company fails to do so within 5 days after its
receipt of Parent's request, (ii) any Person shall have entered into an
agreement, an agreement in principle or letter of intent with the Company or any
of its subsidiaries with respect to an Acquisition Transaction, or (iii) the
Board of Directors of the Company or any committee thereof shall have resolved
to take any of the foregoing actions;
(iii) If the Company fails to perform in any material respect
any of its obligations under this Agreement or comply in any material respects
with its agreements and covenants under this Agreement and such failure shall
not have been cured within ten days following notice from Parent to the Company
of notice of such failure and Parent's intent to terminate pursuant to this
provision; or
(iv) If any court of competent jurisdiction in the United
States or a domestic governmental, regulatory or administrative agency or
commission shall have issued a nonappealable final order, decree or ruling or
taken any other action having the effect of permanently restraining, enjoining
or otherwise prohibiting the purchase of the Shares pursuant to the Offer or the
Merger; provided that Parent and Purchaser shall have used its reasonable best
efforts to remove or lift such order, decree or ruling.
8.2. Effect of Termination
.
(a) In the event of the termination of this Agreement as provided in
Section 8.1, except as otherwise provided in Section 8.1, this Agreement shall
forthwith become void upon receipt of notice of termination, and there shall be
no liability on the part of Parent, Purchaser or the Company (or any of their
respective directors, officers, employees, stockholders, affiliates, agents or
advisors), except as set forth in this Section 8.2; provided that nothing shall
relieve any party from liability for any breach of any agreement, covenant,
representation or warranty contained in this Agreement; and provided further
that the provisions of Article 9 and Sections 6.7 (solely with respect to the
confidentiality provisions thereof) and 8.2 hereof and the Option Agreement
shall remain in full force and effect and shall survive any termination of this
Agreement. Upon termination of this Agreement, Purchaser shall terminate the
Offer, if still pending, without purchasing any Shares pursuant to the Offer.
(b) If:
(i) Parent shall have terminated this Agreement pursuant to
Section 8.1(c)(ii) hereof;
(ii) the Company shall have terminated this Agreement pursuant
to Section 8.1(b)(iii) hereof; or
(iii) this Agreement is terminated for any other reason (other
than pursuant to Section 8.1(b)(ii)) and during the period commencing on the
date hereof and ending on, and including, the date which is nine months after
the date this Agreement is terminated an Alternative Transaction is consummated;
then in any such case the Company shall pay Parent $4,000,000. As
used herein "Alternative Transaction" means either (a) a transaction pursuant to
which any Person other than Parent, Purchaser or their affiliates (a "Third
Party") acquires beneficial ownership of more than 25% of the outstanding shares
of Common Stock or other equity securities, whether from the Company, its
stockholders or pursuant to a tender or exchange offer or otherwise, (b) a
merger or other business combination involving the Company pursuant to which any
Third Party acquires beneficial ownership of more than 25% of the outstanding
common stock or other equity securities of the Company or the entity surviving
such merger or business combination, or (c) any other transaction, or series of
transactions, pursuant to which any Third Party acquires control of assets of
the Company or any of its subsidiaries having a fair market value equal to more
than 25% of the fair market value of all the assets of the Company and its
subsidiaries, taken as a whole, immediately prior to such transaction.
Notwithstanding the foregoing, if and to the extent that Parent has purchased
shares of the Common Stock from the Company ("Option Shares") pursuant to the
Option Agreement or elected to exercise the Option Agreement for cash rather
than the Company Shares prior to the payment of the $4,000,000 fee provided for
herein (the "Fee Payment Date") the sum of, (i) the amount payable to Parent
under this Section 8.2(b), plus (ii) the net cash amount received by Parent
prior to the Fee Payment Date pursuant to Section 6(e) of the Option Agreement,
plus (iii)(x) the amount received by Parent prior to the Fee Payment Date
pursuant to the sale of Option Shares (or any other securities into which such
Option Shares are converted or exchanged), less (y) Parent's purchase price for
such Shares. less (iv) any amounts paid or Company Shares (valued at the closing
sales price of the Common Stock on NASDAQ on the day of delivery) delivered to
the Company pursuant to Section 8 of the Option Agreement or pursuant to any
other reimbursement obligations, including without limitation, pursuant to
Section 16 of the Exchange Act, shall not exceed $5,000,000. The amounts owed by
the Company to Parent pursuant to this Section 8.2(b) shall be paid to the
Company (i) immediately prior to the termination of this Agreement in the case
of payment pursuant to Section 8.2(b)(ii), (ii) within two business days of the
termination of this Agreement in the case of payment pursuant to Section
8.2(b)(i), and (iii) immediately prior to the later to occur of termination of
this Agreement and the consummation of an Alternative Transaction, in the case
of payment pursuant to Section 8.2(b)(iii). The Company acknowledges that the
agreements contained in this Section 8.2 are an integral part of the
transactions contemplated in this Agreement, and that, without these agreements,
Parent would not enter into this Agreement; accordingly, if the Company fails to
promptly pay the amount due pursuant to this Section 8.2, the Company shall pay
to Parent its costs and expenses (including attorneys' fees) incurred in
connection with collecting such amount, together with interest, from the date
when such amount was due, on the amount of the fee at the rate of 10% per annum.
(c) In addition, upon the termination of this Agreement for any
reason, the Company shall (provided that Parent and Purchaser are not then in
material breach of their respective obligations hereunder) reimburse Parent and
Purchaser for the reasonable costs, expenses and fees incurred by them and their
subsidiaries and affiliates (including, without limitation, out-of-pocket fees
and expenses payable to all banks and other financial institutions and
investment bankers and reasonable allocations of corporate overhead and salary
and payroll expenses of their employees) or on their behalf in connection with
their due diligence investigation of the Company, this Agreement, the Offer, the
Merger and the consummation of all the transactions contemplated by this
Agreement; provided, however, that the Company shall not be obligated to
reimburse the Parent or Purchaser for any costs, fees and expenses of its
financial advisors (including, without limitation, Donaldson, Lufkin & Jenrette)
in excess of $250,000.
(d) Upon termination of this Agreement pursuant to Section
8.1(b)(ii), Parent shall (provided that the Company is not then in material
breach of its obligations hereunder) reimburse the Company for the reasonable
costs, expenses and fees incurred by it and its subsidiaries or on their behalf
in connection with this Agreement or the Offer and in accordance with Section
5.17 hereof; provided, however, that Parent shall not be obligated to reimburse
the Company for any costs, expenses or fees of its financial advisors
(including, without limitation, McGettigan, Wick & Co., Inc. and Advest, Inc.)
in excess of $250,000. The parties hereto acknowledge that the costs, fees and
expenses reimbursable by Parent pursuant to this Section 8.2(d) will be less
than the costs, fees and expenses reimbursable by the Company pursuant to
Section 8.2(c).
9. GENERAL PROVISIONS
9.1. Amendment; Modification; Wavier; Consents
. Subject to applicable law, this Agreement may be amended, modified or
supplemented only by written agreement of the Company, Parent and Purchaser at
any time prior to the Effective Date with respect to any of the terms contained
herein. Any failure of the Company, Parent or Purchaser to comply with any
obligation, covenant, agreement or condition herein may be waived by the
Company, Purchaser or Parent, respectively, only by a written instrument signed
by the party granting such waiver, but such waiver or failure to insist upon
strict compliance with such obligation, covenant, agreement or condition shall
not operate as a waiver of, or estoppel with respect to, any subsequent or other
failure. Whenever this Agreement requires or permits consent by or on behalf of
any party hereto, such consent shall be given in writing in a manner consistent
with the requirements for a waiver of compliance as set forth in this Section
9.1.
9.2. Public Statements
. Before issuing any press release or otherwise making any public
statements with respect to this Agreement, the Offer or the Merger, Parent and
the Company shall agree upon its form and substance and shall not issue any such
press release or make any such public statement prior to such agreement.
9.3. Notices
. All notices and other communications hereunder shall be in writing and
shall be delivered personally, by next-day courier or mailed by registered or
certified mail (return receipt requested), first class postage prepaid, or
telecopied with confirmation of receipt to the parties at the addresses
specified below (or at such other addresses as shall be specified by the parties
by like notice; provided, however, that notices of a change of address shall be
effective only upon receipt thereof). Any such notice shall be effective upon
receipt, if personally delivered or telecopied, one day after delivery to a
courier for next-day delivery, or three days after mailing, if deposited in the
U.S. mail, first class postage prepaid.
(a) If to Parent or Purchaser:
Knowledge Beginnings, Inc.
844 Moraga Drive
Los Angeles, California 90049
Telecopy: (310) 440-3669
Attention: Ron Packard
with a copy to:
Latham & Watkins
75 Willow Road
Menlo Park, California 94025
Telecopy: (650) 463-2600
Attention: Peter F. Kerman, Esq.
(b) If to the Company:
Children's Discovery Centers of America, Inc.
851 Irwin Street
San Rafael, California 94901
Telecopy: (415) 459-1374
Attention: Richard A. Niglio
with a copy to:
Farella, Braun & Martel LLP
Thirtieth Floor, Russ Building
235 Montgomery Street
San Francisco, California 94104
Telecopy: (415) 954-4480
Attention: Bruce Maximov, Esq.
9.4. Definitions
. As used herein, the following terms have the following meanings:
(a) "Affiliate" or "affiliate" with respect to a Person, shall mean
any other Person that directly or indirectly controls, is controlled by, or is
under common control with, the first Person.
(b) "Material Adverse Effect" shall mean a material adverse effect
on the assets, liabilities, condition (financial or otherwise), results of
operations, business, operations or prospects of the Company and its
subsidiaries taken as a whole or on the ability of the Company, Parent or
Purchaser to consummate the transactions contemplated by this Agreement.
(c) "Person" shall mean and include an individual, a partnership, a
limited liability company, a joint venture, a corporation, a trust, an
unincorporated organization, a group or other legal entity and a government or a
department or agency thereof.
(d) "Subsidiary" or "subsidiary" shall mean with respect to any
Person any corporation more than 50 percent of whose outstanding voting
securities, or any partnership, joint venture or other entity more than 50
percent of whose total equity interest, is directly or indirectly owned by such
Person.
9.5. Interpretation; Severability
. For purposes of this Agreement, the Company shall not be deemed to be an
affiliate or subsidiary of Purchaser or Parent. The headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. In case any one or more of the
provisions contained in this Agreement should be invalid, illegal or
unenforceable in any respect against a party hereto, the validity, legality and
enforceability of the remaining provisions contained herein shall not in any way
be affected or impaired thereby and such invalidity, illegality or
unenforceability shall only apply as to such party in the specific jurisdiction
where such judgment shall be made.
9.6. Representations and Warranties
. The respective representations and warranties of the Company, Purchaser
and Parent contained herein or in any certificates or other documents delivered
prior to or as of the Effective Date shall not be deemed waived or otherwise
affected by any investigation made by any party thereto and shall expire with,
and be terminated and extinguished upon, consummation of the Merger, and
thereafter neither the Company, Parent nor Purchaser nor any officer, director
or principal thereof shall be under any liability whatsoever with respect to any
such representation or warranty. This Section 9.6 shall have no effect upon any
other obligation of the parties hereto, whether to be performed before or after
the consummation of the Offer or the Merger.
9.7. Miscellaneous
. This Agreement (including the Disclosure Schedule and Annex I: referred
to herein) (i) along with the Option Agreement, constitutes the entire agreement
and supersedes all other prior agreements and undertakings, both written and
oral, among the parties, or any of them, with respect to the subject matter
hereof; (ii) is not intended to confer upon any other Person any rights or
remedies hereunder; (iii) shall be governed in all respects, including validity,
interpretation and effect, by the internal laws of the State of Delaware,
without giving effect to the principles of conflict of laws thereof; and (iv)
shall inure to the benefit of and be binding upon the parties hereto and their
respective successors and assigns. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, and all of which
together shall constitute a single agreement.
IN WITNESS WHEREOF, each of Parent, Purchaser and the Company have caused
this Agreement to be executed as of the date first written above by their
respective officers thereunder duly authorized.
KNOWLEDGE BEGINNINGS, INC.
Name:
Title:
KBI ACQUISITION CORP.
Name:
Title:
CHILDREN'S DISCOVERY CENTERS OF AMERICA,
INC.
Name:
Title:
Annex I
Certain Conditions of the Offer. Notwithstanding any other provisions of
the Offer or the Agreement and Plan of Merger by and among Knowledge Beginnings,
Inc., KBI Acquisition Corp. and Children's Discovery Centers of America, Inc.,
dated as of March 27, 1998 (the "Merger Agreement"), Purchaser shall not be
required to accept for payment or, subject to any applicable rules and
regulations of the Commission, including Rule 14e-1(c) under the Exchange Act
(relating to the Purchaser's obligation to pay for or return tendered Shares (as
defined in the Merger Agreement) after the termination or withdrawal of the
Offer), pay for any Shares tendered pursuant to the Offer, and may terminate,
withdraw or amend the Offer and may postpone the acceptance of, and payment for
the Shares, unless there shall have been validly tendered and not withdrawn
prior to the expiration of the Offer such number of Shares which would
constitute a majority of the outstanding shares, determined on a fully diluted
basis, of the Company Common Stock (the "Minimum Condition"). "On a fully
diluted basis" means, as of any date, the number of Shares outstanding, together
with Shares issuable upon exercise of outstanding Company Options. Furthermore,
notwithstanding any other term of the Offer or the Merger Agreement, the
Purchaser shall not be required to accept for payment or, subject as aforesaid,
to pay for any Shares tendered pursuant to the Offer, and may terminate,
withdraw or amend the Offer and may postpone the acceptance of, and payment for
the Shares if, at any time on or after the date of the Merger Agreement and
before the time for payment for any of the Shares (whether or not any Shares
shall have theretofore been accepted for payment or paid for pursuant to the
Offer), any of the following conditions exists:
(a) There shall be instituted or pending any action or proceeding before
any domestic or foreign court, legislative body or governmental agency or other
regulatory or administrative agency or commission (i) challenging the
acquisition in whole or in part of the Shares by Parent or Purchaser, seeking to
restrain or prohibit the making or consummation of the Offer or the Merger or
seeking to obtain any material damages or otherwise, directly or indirectly,
relating to the transaction contemplated by the Offer or the Merger Agreement,
(ii) seeking to prohibit or restrict the ownership or operation by Parent,
Purchaser or the Company (or any of their respective affiliates or subsidiaries)
of any material portion of the Parent's or Purchaser's or the Company's business
or assets, or to compel the Company, Parent or Purchaser (or any of their
respective affiliates or subsidiaries) to dispose of or hold separate all or any
of the Shares or all or any material portion of the Company's, Parent's or
Purchaser's (or any of their respective affiliates or subsidiaries) business or
assets as a result of the Offer, the Merger or any of the other transactions
contemplated by the Merger Agreement, (iii) seeking to prohibit or materially
delay or make illegal the purchase of, or payment for, some or all of the Shares
pursuant to the Offer or Merger, (iv) seeking to impose material limitations on
the ability of Parent or Purchaser (or any of their respective affiliates or
subsidiaries) to acquire or to hold or to exercise full rights of ownership of
the Shares, including, without limitation, the right to vote the Shares on all
matters properly presented to the stockholders of the Company, (v) seeking to
impose any limitations on the ability of Parent or Purchaser (or any of their
respective affiliates or subsidiaries) effectively to control in any material
respect any material portion of the business and operations of the Company and
its subsidiaries, or (vi) which may result in a material limitation on the
benefits expected to be derived by Parent and Purchaser as a result of the
Offer, including without limitation, any limitation on the ability to consummate
the Merger; or
(b) Any statute, rule, regulation or order shall be enacted, promulgated,
entered, enforced or deemed applicable to the Offer or the Merger, or any other
action shall have been taken, proposed or threatened, by any domestic or foreign
government or governmental authority or by any court, domestic or foreign, which
is reasonably likely to result, directly or indirectly, in any of the
consequences referred to in Subsection (i) through (vi) of subsection (a) above;
or
(c) Parent, Purchaser or the Company and its subsidiaries shall not have
obtained any license, permit, waiver, consent, approval, authorization,
qualification, order, action or non-action from any third party, including any
governmental authority or agency, which is necessary to consummate the Offer and
the Merger, including, without limitation, the termination or expiration of the
waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976
and the passage of 30 days after the filing of an initial application for a
license to operate from the State Board of Private Academic Schools, the
Commonwealth of Pennsylvania, or the consummation of the Offer and the Merger
will result in the loss of any Permit (as defined in the Merger Agreement) of
the Company or any of its subsidiaries; or
(d) Any event, condition or change (or any development involving a
prospective event, condition or change) shall have occurred or be threatened
which has had or is reasonably likely to have a Material Adverse Effect (as
defined in the Merger Agreement) on the Company and its subsidiaries taken as a
whole; or
(e) There shall have occurred (i) any general suspension of, or limitation
on prices for, trading in securities on any United States stock exchange, (ii)
the declaration of a banking moratorium or any suspension of payments in respect
of banks in the United States, (iii) the commencement of a war, armed
hostilities or other international or national calamity materially affecting the
United States, (iv) any limitation by any governmental authority or any other
event which is reasonably likely to affect the extension of credit by banks or
other lending institutions, or (v) in the case of any of the foregoing existing
at the time of the commencement of the Offer, any material acceleration or
worsening thereof; or
(f) (i) the Board of Directors of the Company or any committee thereof
shall have withdrawn or modified (including by amendment of the Company's
Schedule 14D-9) in a manner adverse to Parent or the Purchaser its approval or
recommendation of the Offer, the Merger or the Merger Agreement, or approved or
recommended any Acquisition Transaction (as defined in the Merger Agreement), or
Parent requests in writing that the Board of Directors of the Company reconfirm
its recommendation of the Offer, the Merger and the Merger Agreement and the
Board of Directors of the Company fails to do so within 5 days after its receipt
of Parent's request, (ii) any corporation, partnership, person or other entity
or group shall have entered into an agreement, an agreement in principle or
letter of intent with the Company or any of its subsidiaries with respect to an
Acquisition Transaction, or (iii) the Board of Directors of the Company or any
committee thereof shall have resolved to take any of the foregoing actions; or
(g) The Company shall have breached or failed to perform in any material
respect any of its obligations in the Merger Agreement or failed to comply in
any material respect with any of its agreements or covenants in the Merger
Agreement; or
(h) Any of the representations and warranties of the Company set forth in
the Merger Agreement that are subject to, or qualified by, any materiality
qualification shall not be true and correct or any such representations and
warranties that are not so qualified shall not be true and correct in any
material respect, in each case at the date of the Merger Agreement and at the
time of such determination except as to any such representation or warranty
which speaks as of a specific date which must be untrue or incorrect in the
foregoing respects as of such specific date; or
(i) The Merger Agreement shall have been terminated by the Company, Parent
or Purchaser pursuant to its terms; or
(j) The affirmative vote of the holders of more than a majority of the
outstanding Shares is required to consummate the Merger, Purchaser is not
entitled to vote its shares of the Company Common Stock for the Merger, or the
affirmative vote of the holders of any securities of the Company other than the
Shares is required to consummate the Merger; or
(k) The holders of all Company Options (as defined in the Merger
Agreement) shall not have irrevocably agreed to cancel such Company Options in
return for the payment set forth in Section 2.7; or
(l) Parent shall not have received the noncompete agreements, employment
and consulting agreements, releases, excess payment agreement and resignations
from the Persons contemplated by Section 6.9 of the Merger Agreement; or
(m) The Company shall not have obtained the insurance contemplated by
Section 6.10(c) of the Merger Agreement;
which, in the reasonable judgment of Purchaser, in any such case and regardless
of the circumstances giving rise to any such condition, makes it inadvisable to
proceed with the Offer or with such acceptance for payment or payment.
The foregoing conditions (including those set forth in the opening
paragraph above) are for the sole benefit of Purchaser and may be asserted or
waived by the Purchaser in whole or in part at any time and from time to time in
its sole discretion. The failure by Purchaser at any time to exercise any of the
foregoing rights shall not be deemed a waiver of any such right, and each right
shall be deemed a continuing right which may be asserted at any time and from
time to time. Any determination by Purchaser concerning the events described in
this Annex I shall be final and binding upon all parties.
<PAGE>
ii
i
TABLE OF CONTENTS
Page
1. THE OFFER.................................................................2
1.1. THE OFFER.........................................................2
1.2. COMPANY ACTION....................................................3
1.3. DIRECTORS.........................................................4
2. THE MERGER................................................................4
2.1. THE MERGER........................................................4
2.2. EFFECT OF THE MERGER..............................................5
2.3. CONSUMMATION OF THE MERGER........................................5
2.4. CERTIFICATE OF INCORPORATION; BYLAWS; DIRECTORS AND
OFFICERS.........................................................5
2.5. CONVERSION OF SECURITIES..........................................5
2.6. DISSENTING STOCK..................................................6
2.7. COMPANY STOCK OPTIONS AND RELATED MATTERS.........................6
2.8. EXCHANGE OF CERTIFICATES..........................................7
2.9. PAYMENT...........................................................8
2.10. NO FURTHER RIGHTS OF TRANSFERS...................................9
2.11. CLOSING..........................................................9
3. REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER...................9
3.1. ORGANIZATION AND QUALIFICATION....................................9
3.2. AUTHORITY RELATIVE TO THIS AGREEMENT..............................9
3.3. COMPLIANCE.......................................................10
3.4. BROKERS..........................................................11
3.5. FINANCIAL CAPABILITY.............................................11
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY............................11
4.1. ORGANIZATION AND QUALIFICATION...................................11
4.2. SUBSIDIARIES.....................................................11
4.3. CAPITALIZATION...................................................12
4.4. COMPANY INVESTMENTS..............................................13
4.5. AUTHORITY RELATIVE TO THIS AGREEMENT.............................13
4.6. COMPLIANCE.......................................................13
4.7. COMMISSION FILINGS...............................................14
4.8. ABSENCE OF UNDISCLOSED LIABILITIES...............................15
4.9. LITIGATION.......................................................15
4.10. COMPLIANCE WITH LAW.............................................15
4.11. CHANGES.........................................................16
4.12. TAXES...........................................................17
4.13. TITLE TO PROPERTIES; CONDITION OF PROPERTIES....................20
4.14. CONTRACTS.......................................................21
4.15. EMPLOYEE BENEFIT PLANS..........................................22
4.16. COMPLIANCE WITH LEGISLATION REGULATING ENVIRONMENTAL
QUALITY.........................................................24
4.17. LABOR MATTERS...................................................25
4.18. INTELLECTUAL PROPERTY...........................................26
4.19. PERMITS; LICENSES...............................................27
4.20. INSURANCE.......................................................27
4.21. SCHOOLS.........................................................28
4.22. OPINION OF FINANCIAL ADVISOR....................................28
4.23. BROKERS.........................................................28
4.24. SETTLEMENT OF FAIR LABOR STANDARDS ACT VIOLATIONS...............28
4.25. ACCOUNTING AND LEGAL FEES.......................................29
5. CONDUCT OF BUSINESS PENDING THE MERGER...................................29
5.1. ORDINARY COURSE OF BUSINESS......................................29
5.2. PRESERVATION OF ORGANIZATION.....................................29
5.3. CAPITALIZATION CHANGES...........................................29
5.4. SALE OF ASSETS...................................................30
5.5. DIVIDENDS AND REPURCHASES........................................30
5.6. ACQUISITIONS; INVESTMENTS........................................30
5.7. INDEBTEDNESS.....................................................30
5.8. SEVERANCE AND TERMINATION PAY....................................31
5.9. EMPLOYEE BENEFITS................................................31
5.10. TAX ELECTION; ACCOUNTING........................................31
5.11. SUBSEQUENT FINANCIALS...........................................31
5.12. REPRESENTATIONS AND WARRANTIES..................................31
5.13. CONTRACTS.......................................................31
5.14. AFFILIATES......................................................31
5.15. LITIGATION......................................................31
5.16. CAPITAL EXPENDITURES............................................31
5.17. TRANSACTION EXPENSES............................................31
5.18. COMMITMENTS.....................................................31
6. ADDITIONAL AGREEMENTS....................................................31
6.1. PROXY STATEMENT..................................................31
6.2. MEETING OF STOCKHOLDERS OF THE COMPANY; VOTING AND
DISPOSITION OF THE SHARES.......................................31
6.3. STOCK OPTIONS....................................................31
6.4. ADDITIONAL AGREEMENTS............................................31
6.5. NO SOLICITATION OF TRANSACTIONS..................................31
6.6. NOTIFICATION OF CERTAIN MATTERS..................................31
6.7. ACCESS TO INFORMATION............................................31
6.8. TAKEOVER LAWS....................................................31
6.9. EMPLOYMENT AGREEMENTS; NONCOMPETE AGREEMENTS ; RELEASES
AND EXCESS PAYMENT AGREEMENT....................................31
6.10. OTHER AGREEMENTS................................................31
6.11. INDEMNIFICATION AND INSURANCE...................................31
7. CONDITIONS...............................................................31
7.1. CONDITIONS TO OBLIGATION OF EACH PARTY TO EFFECT THE
MERGER..........................................................31
7.2. ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF PURCHASER............31
8. TERMINATION, AMENDMENT AND WAIVER........................................31
8.1. TERMINATION......................................................31
8.2. EFFECT OF TERMINATION............................................31
9. GENERAL PROVISIONS.......................................................31
9.1. AMENDMENT; MODIFICATION; WAVIER; CONSENTS........................31
9.2. PUBLIC STATEMENTS................................................31
9.3. NOTICES..........................................................31
9.4. DEFINITIONS......................................................31
9.5. INTERPRETATION; SEVERABILITY.....................................31
9.6. REPRESENTATIONS AND WARRANTIES...................................31
9.7. MISCELLANEOUS....................................................31
<PAGE>
EXHIBIT 2.2
OPTION AND SUPPORT AGREEMENT
OPTION AND SUPPORT AGREEMENT dated as of March 27, 1998 (this "Agreement")
by and among Knowledge Beginnings, Inc., a Delaware corporation ("Parent"),
Children's Discovery Centers of America, Inc., a Delaware corporation (the
"Company"), and the other parties signatory hereto (each a "Stockholder").
RECITALS
A. Concurrently herewith, Parent, KBI Acquisition Corp., a Delaware
corporation and wholly-owned subsidiary of Parent ("Purchaser"), and the Company
are entering into an Agreement and Plan of Merger of even date herewith (as such
agreement may be amended from time to time, the "Merger Agreement"; terms used
but not defined herein which are defined in the Merger Agreement shall have the
meanings set forth in the Merger Agreement) pursuant to which (and subject to
the terms and conditions specified therein) Purchaser will be merged with and
into the Company (the "Merger"), whereby each share of common stock, par value
$.01 per share, of the Company ("Common Stock") issued and outstanding
immediately prior to the effective time of the Merger will be converted into the
right to receive $12.25 in cash, other than (i) shares of Common Stock owned,
directly or indirectly, by the Company, Parent or Purchaser or any of their
wholly-owned subsidiaries and (ii) any shares of Common Stock owned by
Dissenting Stockholders.
B. In furtherance of the Merger, Parent and the Company desire that as
soon as practicable (and no later than five business days) after the execution
and delivery of the Merger Agreement, Purchaser commence a cash tender offer to
purchase all outstanding shares of Common Stock, including all of the Shares (as
defined in Section 1(a) below) on the terms and subject to the conditions set
forth in the Merger Agreement.
C. As a condition and inducement to its willingness to enter into the
Merger Agreement, Parent has required that the Company grant to Parent an option
to purchase 1,342,155 shares of Common Stock, upon the terms and subject to the
conditions hereof.
D. As a condition to Parent's entering into the Merger Agreement, Parent
has required that each Stockholder enter into, and each such Stockholder has
agreed to enter into, this Agreement with Parent providing, among other things,
for such Stockholder's agreement to tender pursuant to the Offer all shares of
Common Stock owned by it and to support the Merger and the grant by each such
Stockholder to Parent of an option to purchase such Stockholder's shares of
Common Stock, in each case upon the terms and subject to the conditions hereof.
<PAGE>
AGREEMENT
To implement the foregoing and in consideration of the mutual agreements
contained herein and in the Merger Agreement, the parties hereby agree as
follows:
1. Representations and Warranties of Stockholders. Each Stockholder
severally and not jointly hereby represents and warrants to Parent as follows:
(a) Ownership of Shares.
(i) Such Stockholder is the record holder or beneficial owner
(as defined in Section 14(j) hereof) of the number of shares of Common Stock as
is set forth opposite such Stockholder's name on Schedule I hereto (as to each
Stockholder, such shares shall constitute the "Existing Shares," and together
with any shares of Common Stock acquired of record or beneficially by such
Stockholder in any capacity after the date hereof and prior to the termination
hereof, whether upon exercise of options, warrants or rights, conversion of
convertible securities, purchase, exchange, dividend, distribution or otherwise,
shall constitute the "Shares").
(ii) On the date hereof, the Existing Shares constitute all of
the shares of Common Stock owned of record or beneficially by such Stockholder,
and such Stockholder does not own or have the right to acquire any options,
warrants, convertible or exchangeable securities or other rights to acquire any
shares of Common Stock.
(iii) Such Stockholder has sole power of disposition, sole
voting power, sole power to issue instructions with respect to the matters set
forth in Sections 5, 10 and 11 hereof and sole power to demand dissenter's or
appraisal rights, in each case with respect to all of the Existing Shares, with
no restrictions on such rights, subject to applicable federal securities laws
and the terms of this Agreement.
(iv) Such Stockholder will have sole power of disposition,
sole voting power, sole power to issue instructions with respect to the matters
set forth in Sections 5, 10 and 11 hereof and sole power to demand dissenter's
or appraisal rights, in each case with respect to all Shares other than Existing
Shares, if any, which become beneficially owned by such Stockholder with no
restrictions on such rights, subject to applicable federal securities laws and
the terms of this Agreement.
(b) Organization. Such Stockholder has been duly organized and is
validly existing and in good standing under the laws of the jurisdiction of its
formation.
(c) Power; Binding Agreement. Such Stockholder has the
organizational power and authority to enter into and perform all of such
Stockholder's obligations under this Agreement. This Agreement has been duly and
validly authorized, executed and delivered by such Stockholder and constitutes a
valid and binding agreement of such Stockholder, enforceable against such
Stockholder in accordance with its terms, subject to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors' rights and to general equity
principles.
(d) No Conflicts. (A) No filing with, and no permit, authorization,
consent or approval of, any state or federal public body or authority by such
Stockholder is necessary for the execution of this Agreement by such Stockholder
and the consummation by such Stockholder of the transactions contemplated hereby
and (B) neither the execution and delivery of this Agreement by such Stockholder
nor the consummation by such Stockholder of the transactions contemplated hereby
nor compliance by such Stockholder with any of the provisions hereof shall (x)
conflict with or result in any breach of any partnership agreement or other
organizational documents applicable to such Stockholder, (y) result in a
violation or breach of, or constitute (with or without notice or lapse of time
or both) a default (or give rise to any third party right of termination,
cancellation, material modification or acceleration) under any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, license,
contract, commitment, arrangement, understanding, agreement or other instrument
or obligation of any kind to which such Stockholder is a party or by which such
Stockholder or any of such Stockholder's properties or assets may be bound or
(z) violate any order, writ, injunction, decree, judgment, statute, rule or
regulation applicable to such Stockholder.
(e) Encumbrances. Such Stockholder's Shares and the certificates
representing such Shares are now and at all times during the term hereof will be
held by such Stockholder, or by a nominee or custodian for the benefit of such
Stockholder, free and clear of all liens, claims, security interests, proxies,
voting trusts or agreements, understandings or arrangements or any other
encumbrances whatsoever, except for any such encumbrances arising hereunder. The
transfer by such Stockholder of its Shares in the Offer or hereunder shall pass
to and unconditionally vest in Purchaser good and valid title to all Shares,
free and clear of all claims, liens, restrictions, security interests, pledges,
limitations and encumbrances whatsoever.
(f) Fees. Except as set forth in the Merger Agreement, no broker,
investment banker, financial adviser or other Person is entitled to any
broker's, finder's, financial advisor's or other similar fee or commission in
connection with the transactions contemplated hereby based upon arrangements
made by or on behalf of such Stockholder in its capacity as such.
(g) Reliance. Such Stockholder understands and acknowledges that
Parent and Purchaser are entering into the Merger Agreement and commencing the
Offer in reliance upon such Stockholder's execution and delivery of this
Agreement.
2. Representations and Warranties of Parent to the Company and the
Stockholders. Parent hereby represents and warrants to the Company and each
Stockholder as follows:
(a) Organization. Parent is a corporation duly incorporated, validly
existing and in good standing under the laws of the jurisdiction of its
formation.
(b) Power; Binding Agreement. Parent has the corporate power and
authority to enter into and perform all of Parent's obligations under this
Agreement. This Agreement has been duly and validly authorized, executed and
delivered by Parent and constitutes a valid and binding agreement of Parent,
enforceable against Parent in accordance with its terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar laws of
general applicability relating to or affecting creditors' rights and to general
equity principles.
(c) No Conflicts. (A) Other than in connection with or in compliance
with the provisions of the Hart-Scott-Rodino Antitrust Improvement Act of 1976,
as amended, and the rules and regulations thereunder (the "Hart-Scott-Rodino
Act"), the Securities Act of 1933, as amended, and the rules and regulations
thereunder (the "Securities Act"), the Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder (the "Exchange Act"), the blue
sky laws of any State or the rules and regulations of NASDAQ, no filing with,
and no permit, authorization, consent or approval of, any state or federal
public body or authority by Parent is necessary for the execution of this
Agreement by Parent and the consummation by Parent of the transactions
contemplated hereby and (B) neither the execution and delivery of this Agreement
by Parent nor the consummation by Parent of the transactions contemplated hereby
nor compliance by Parent with any of the provisions hereof shall (x) conflict
with or result in any breach of the certificate of incorporation or bylaws of
Parent, (y) result in a violation or breach of, or constitute (with or without
notice or lapse of time or both) a default (or give rise to any third party
right of termination, cancellation, material modification or acceleration) under
any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, license, contract, commitment, arrangement, understanding, agreement
or other instrument or obligation of any kind to which Parent is a party or by
which Parent or any of Parent's properties or assets may be bound or (z) violate
any order, writ, injunction, decree, judgment, statute, rule or regulation
applicable to Parent.
3. Representations and Warranties of Parent to the Company. Parent hereby
represents and warrants to the Company that if and when Parent exercises the
Company Option, it will be acquiring the Company Shares issuable upon the
exercise thereof for its own account and not with a view to distribution or
resale in any manner which would be in violation of the Securities Act.
4. Representations and Warranties of the Company to Parent. The Company
hereby represents and warrants to Parent as follows:
(a) The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware and has the
requisite corporate power and authority to enter into and perform this
Agreement.
(b) The execution and delivery of this Agreement by the Company and
the consummation by it of the transactions contemplated hereby have been duly
authorized by the Board of Directors of the Company, which constitutes the only
corporate actions necessary to authorize the execution and delivery of this
Agreement and consummation of the transactions contemplated hereby. This
Agreement has been duly executed and delivered by a duly authorized officer of
the Company and constitutes a valid and binding obligation of the Company,
enforceable in accordance with its terms, subject to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors' rights and to general equity
principles.
(c) The Company has taken all necessary corporate action to
authorize and reserve the Company Shares issuable upon exercise of the Company
Option and the Company Shares, when issued and delivered by the Company upon
exercise of the Company Option in accordance with the terms hereof, will be duly
authorized, validly issued, fully paid and non-assessable and free of preemptive
rights and other encumbrances, liens and restrictions, except those imposed by
federal securities laws.
(d) Except as otherwise required by the Hart-Scott-Rodino Act and
other than any filings required under the blue sky laws of any states or by
NASDAQ, the execution and delivery of this Agreement by the Company and the
issuance of Company Shares upon exercise of the Company Option do not require
the consent, waiver, approval or authorization of or any filing with any Person
or public authority.
(e) (A) Other than in connection with or in compliance with the
provisions of the Hart-Scott-Rodino Act, the Securities Act, the Exchange Act,
the blue sky laws of any State or the rules and regulations of NASDAQ, no filing
with, and no permit, authorization, consent or approval of, any state or federal
public body or authority by the Company is necessary for the execution of this
Agreement by the Company and the consummation by the Company of the transactions
contemplated hereby and (B) neither the execution and delivery of this Agreement
by the Company nor the consummation by the Company of the transactions
contemplated hereby nor compliance by the Company with any of the provisions
hereof shall (x) conflict with or result in any breach of the certificate of
incorporation or bylaws of the Company, (y) result in a violation or breach of,
or constitute (with or without notice or lapse of time or both) a default (or
give rise to any third party right of termination, cancellation, material
modification or acceleration) under any of the terms, conditions or provisions
of any note, bond, mortgage, indenture, license, contract, commitment,
arrangement, understanding, agreement or other instrument or obligation of any
kind to which the Company is a party or by which the Company or any of the
Company's properties or assets may be bound or (z) violate any order, writ,
injunction, decree, judgment, statute, rule or regulation applicable to the
Company.
(f) No "fair price", "moratorium", "control share acquisition" or
other form of antitakeover statute or regulation (including, without limitation,
the restrictions on "business combinations" set forth in Section 203 of the
Delaware Law) is or shall be applicable to execution of this Agreement or the
consummation of the transactions contemplated hereby, including without
limitation, the acquisition of any Stockholder's Shares or the Company Shares
pursuant to this Agreement (and the Board of Directors of the Company has taken
all action to approve the acquisition of the Company Shares and all
Stockholders' Shares to the extent necessary to avoid such application).
5. Option Granted to Parent by the Stockholders.
(a) Each Stockholder, severally and not jointly, hereby grants to
Parent an irrevocable option to purchase, in whole and not in part, all of such
Stockholder's respective Shares, on the terms and subject to the conditions set
forth herein (with respect to each Stockholder's Shares, the "Stockholder
Option").
(b) Each Stockholder Option may be exercised by Parent, in whole or
in part, at any time, or from time to time, during the period commencing
immediately after the occurrence of a Trigger Event and ending on, and
including, the date which is nine months after the termination of the Merger
Agreement. As used herein, "Trigger Event" shall mean (i) the termination of the
Merger Agreement pursuant to Section 8.1(c)(ii) or 8.1(b)(iii) or (ii) the
termination of the Merger Agreement for any other reason (other than pursuant to
Section 8.1(b)(ii)) and during the period commencing on the date hereof and
ending on, and including, the date which is nine months after the termination of
the Merger Agreement an Alternative Transaction (as defined inn the Merger
Agreement) is consummated.
(c) If Parent wishes to exercise a Stockholder Option, Parent shall
send a written notice to such Stockholder (to the address set forth herein) of
Parent's irrevocable election to exercise such Stockholder Option, specifying
the place, and, if then known, the time and the date (the "Option Closing Date")
of the closing of the purchase of such Stockholder's Shares (the "Option
Closing"). The Option Closing Date shall occur on the fifth business day (or
such longer period as may be required by applicable law or regulation) after the
later of (i) the date on which such notice is delivered and (ii) the
satisfaction of the conditions set forth in Section 5(f) hereof.
(d) At the Option Closing, the subject Stockholder shall deliver to
Parent (or its designee) all of such Stockholder's Shares by delivery of a
certificate or certificates evidencing such Shares, duly endorsed to Parent or
accompanied by stock powers duly executed in favor of Parent, with all necessary
stock transfer stamps affixed, free and clear of all liens, encumbrances and
restrictions, except for restrictions imposed by federal securities laws.
(e) At the Option Closing, Parent shall pay to the subject
Stockholder, by wire transfer in immediately available funds to the account of
such Stockholder specified in writing no less than two days prior to the Option
Closing, an amount equal to the product of $12.25 (as adjusted as provided in
Section 5(g)) (the "Purchase Price") and the number of shares of Common Stock
purchased pursuant to the exercise of the subject Stockholder Option.
(f) The purchase of Shares pursuant to each Stockholder Option shall
be subject to the satisfaction of each of the following conditions:
(i) no domestic court, arbitrator or governmental body, agency
or official shall have issued any order, decree or ruling (which has not been
stayed or suspended pending appeal) and there shall not be any effective
domestic statute, rule or regulation prohibiting the consummation of the
purchase and sale of Shares pursuant to the exercise of the such Stockholder
Option; and
(ii) any waiting period applicable to the consummation of the
purchase and sale of the Shares pursuant to the exercise of such Stockholder
Option under the Hart-Scott-Rodino Act shall have expired or been terminated.
(g) In the event of a stock dividend or distribution, or any change
in the Common Stock by reason of any stock dividend, stock split, spin-off,
reorganization, recapitalization, reclassification, consolidation, combination,
exchange of shares or the like, the term "Shares" as used in this Agreement
shall be deemed to refer to and include the Shares as well as all such stock
dividends and distributions and any securities or other property into which or
for which any or all of the Shares may be changed or exchanged, and the Purchase
Price shall be proportionately adjusted. In the event of any merger or
consolidation of the Company into another corporation, the exchange of all or
substantially all of the assets of the Company for the securities of another
corporation, or the recapitalization, reclassification, liquidation or
dissolution of the Company, or other adjustment or event which results in shares
of Common Stock being exchanged for or converted into cash, securities or other
property, "Shares" shall refer to the kind and amount of cash, securities and/or
other property receivable by each Stockholder as a result of such event and each
Stockholder Option shall be exercisable for such cash, securities and/or other
property and the Purchase Price shall be proportionately adjusted.
6. Option Grant to Parent by the Company.
(a) Subject to the other terms and conditions set forth herein, the
Company hereby grants to Parent an irrevocable option (the "Company Option") to
purchase up to 1,342,155 (as adjusted as provided herein) shares of Common Stock
(the "Company Shares") at a per share cash purchase price equal to $10.125 (as
adjusted as provided in Section 6(c)) (the "Company Purchase Price").
(b) The Company Option may be exercised by Parent, in whole or in
part, at any time, or from time to time, during the period commencing
immediately after the occurrence of a Trigger Event and ending on, and
including, the date which is nine months after the termination of the Merger
Agreement
(c) In the event of any change in the number of issued and
outstanding shares of Common Stock by reason of any stock dividend, stock split,
split-up, reclassification, recapitalization, merger or other change in the
corporate or capital structure of the Company, the number of Company Shares
subject to the Company Option and the purchase price per Company Share shall be
appropriately adjusted to restore Parent to its rights hereunder, including its
right to purchase Company Shares representing 19.9% of the capital stock of the
Company entitled to vote generally for the election of the directors of the
Company which is issued and outstanding immediately prior to the exercise of the
Company Option at an aggregate purchase price equal to the Company Purchase
Price multiplied by 1,342,155. In the event that any additional shares of Common
Stock are issued after the date of this Agreement (other than pursuant to an
event described in the preceding sentence), the number of Company Shares subject
to the Company Option shall be increased by 19.9% of the number of the
additional shares of Common Stock so issued (and such additional Company Shares
shall have a purchase price per share equal to the Company Purchase Price).
(d) In the event Parent wishes to exercise all or a portion of the
Company Option, Parent shall send a written notice to the Company (the "Stock
Exercise Notice") specifying a date not later than 10 business days and not
earlier than the three business days following the date such notice is given for
the closing of such purchase.
(e) If at any time the Company Option is then exercisable pursuant
to the terms of Section 6(b) hereof, Parent may elect, in lieu of exercising the
Company Option to purchase Company Shares provided in Section 6(a) hereof, to
send a written notice to the Company (the "Cash Exercise Notice") specifying a
date not later than 20 business days and not earlier than 10 business days
following the date such notice is given on which date the Company shall pay to
Parent an amount in cash equal to the Spread (as hereinafter defined) multiplied
by all or such portion of the Company Shares subject to the Company Option as
Parent shall specify. As used herein "Spread" shall mean the excess, if any,
over the Company Purchase Price of the higher of (x) if applicable, the highest
price per share of Common Stock (including any brokerage commissions, transfer
taxes and soliciting dealers' fees) paid by any Person in an Acquisition
Transaction (as defined in Section 6.5 of the Merger Agreement) (the
"Alternative Purchase Price") or (y) the closing sales price of the shares of
Common Stock on NASDAQ on the last trading day immediately prior to the date of
the Cash Exercise Notice (the "Closing Price"). If the Alternative Purchase
Price includes any property other than cash, the Alternative Purchase Price
shall be the sum of (i) the fixed cash amount, if any, included in the
Alternative Purchase Price plus (ii) the fair market value of such other
property. If such other property consists of securities with an existing public
trading market, the average of the closing sales prices (or the average of the
closing bid and asked prices if closing sales prices are unavailable) for such
securities in their principal public trading market on the five trading days
ending five days prior to the date of the Cash Exercise Notice shall be deemed
to equal the fair market value of such property. If such other property consists
of something other than cash or securities with an existing public trading
market and, as of the payment date for the Spread, agreement on the value of
such other property has not been reached, the Alternative Purchase Price shall
be deemed to equal the Closing Price. Upon exercise of Parent's right to receive
cash pursuant to this Section 6(e) and the payment of such cash to Parent, the
obligations of the Company to deliver the Company Shares pursuant to Section
6(g) shall be terminated with respect to such number of Company Shares for which
the Parent shall have elected to be paid the Spread.
(f) The closing of the Company Option shall be subject to the
satisfaction of each of the following conditions:
(i) no court, arbitrator or governmental body, agency or
official shall have issued any order, decree or ruling (which has not been
stayed or suspended pending appeal) and there shall not be any effective
statute, rule or regulation, restraining, enjoining or prohibiting the
consummation of the purchase and sale of the Company Shares pursuant to the
exercise of the Company Option; and
(ii) any waiting period applicable to the consummation of the
purchase and sale of the Company Shares pursuant to the exercise of the Company
Option under the Hart-Scott-Rodino Act shall have expired or been terminated.
(g) Any closing hereunder shall take place on the date specified by
Parent in its Stock Exercise Notice or Cash Exercise Notice, as the case may be,
at 8:00 A.M., local time, at the offices of Latham & Watkins, 75 Willow Road,
Menlo Park, CA 94025, or, if the conditions set forth in Section 6(f) have not
then been satisfied, on the second business day following the satisfaction of
such conditions, or at such other time and place as the parties hereto may agree
(the "Closing Date"). On the Closing Date, (i) in the event of a closing
pursuant to Section 6(d) hereof, the Company will deliver to Parent a
certificate or certificates representing the Company Shares in the denominations
designated by Parent in its Stock Exercise Notice and Parent will purchase such
Company Shares from the Company at the price per Share equal to the Company
Purchase Price or (ii) in the event of a closing pursuant to Section 6(e)
hereof, the Company will deliver to Parent the cash in an amount determined
pursuant to Section 6(e) hereof. Any payment made by Parent to the Company, or
by the Company to the Parent, pursuant to this Agreement shall be made by
certified or official bank check or by wire transfer of federal funds to a bank
designated by the party receiving such funds.
(h) The certificates representing the Company Shares may bear an
appropriate legend relating to the fact that such Company Shares have not been
registered under the Securities Act.
7. Listing of Company Shares; Regulatory Filings and Approvals. Subject to
applicable law and the rules and regulations of NASDAQ, the Company will
promptly file an application to list the Company Shares on NASDAQ and will use
its best efforts to obtain approval of such listing and to file any necessary
filings by the Company under the Hart-Scott-Rodino Act; provided, however, that
if the Company is unable to effect such listing on NASDAQ by the Closing Date,
the Company will nevertheless be obligated to deliver the Company Shares upon
the Closing Date. The Company and Parent will use their best efforts to obtain
consents of all third parties and all regulatory approvals, if any, necessary to
the consummation of the closing of the sale of the Company Shares (or payment of
the Spread) upon exercise of the Company Option.
8. Profit Limitation. Notwithstanding any other provision of this
Agreement, in no event shall Parent's Total Profit (as defined below) exceed $5
million and, if it does exceed such amount, Parent, at its sole election, shall,
within five business days, either (a) deliver to the Company for cancellation
Company Shares (valued, for the purposes of this Section 8, at the closing sales
price of the Common Stock on NASDAQ on the day of delivery) previously purchased
by Parent, (b) pay cash or other consideration to the Company or (c) undertake
any combination thereof, so that Parent's Total Profit shall not exceed $5
million after taking into account the foregoing actions.
As used herein, the term "Total Profit" shall mean the aggregate
amount (before taxes) of the following: (i) the amount of cash received by
Parent pursuant to Section 8.2(b) of the Merger Agreement and Section 6(e)
hereof, plus (ii)(x) the amount received by Parent pursuant to the sale of
Company Shares acquired upon exercise of the Company Option (or any other
securities into which such Company Shares are converted or exchanged), less (y)
Parent's purchase price for such Company Shares, less (iii) any amounts paid or
Company Shares (valued, for the purposes of this Section 8, at the closing sales
price of the Common Stock on NASDAQ on the day of delivery) delivered to the
Company pursuant to this Section 8 or other reimbursement obligation, including,
without limitation, pursuant to Section 16 of the Exchange Act.
9. Registration Rights for Company Shares.
(a) If Parent shall desire to sell any of the Company Shares within
two years after the purchase of such Company Shares pursuant hereto, at Parent's
request, the Company will cooperate with Parent and any underwriters in
registering such Company Shares for resale, including, without limitation,
promptly filing a registration statement which complies with the requirements of
applicable federal and state securities laws, entering into an underwriting
agreement with such underwriters upon such terms and conditions as are
customarily contained in underwriting agreements with respect to secondary
distributions; provided that the Company shall not be required to have declared
effective more than two registration statements hereunder and shall be entitled
to delay the filing or effectiveness of any registration statement for up to 60
days if the offering would, in the judgment of the Board of Directors of the
Company, require premature disclosure of any material corporate development or
otherwise interfere with or adversely affect any pending or proposed offering of
securities of the Company or any other material transaction involving the
Company.
(b) If any Company Shares are registered pursuant to the provisions
of this Section 9, the Company agrees (i) to furnish copies of the registration
statement and the prospectus relating to the Company Shares covered thereby in
such numbers as Parent may from time to time reasonably request and (ii) if any
event shall occur as a result of which it becomes necessary to amend or
supplement any registration statement or prospectus, to prepare and file under
the applicable securities laws such amendments and supplements as may be
necessary to keep effective for at least 90 days a prospectus covering the
Common Stock meeting the requirements of such securities laws, and to furnish
Parent such numbers of copies of the registration statement and prospectus as
amended or supplemented as may reasonably be requested. The Company shall bear
the cost of the registration, including, but not limited to, all registration
and filing fees, printing expenses, and fees and disbursements of counsel and
accountants for the Company, except that Parent shall pay the fees and
disbursements of its counsel, the underwriting fees and selling commissions
applicable to the shares of Common Stock sold by Parent. The Company shall
indemnify and hold harmless Parent, its affiliates and its officers, directors
and controlling persons from and against any and all losses, claims, damages,
liabilities and expenses arising out of or based upon any statements contained
or incorporated by reference in, and omissions or alleged omissions from, each
registration statement filed pursuant to this paragraph; provided, however, that
this provision does not apply to any loss, liability, claim, damage or expense
to the extent it arises out of any untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Company by
Parent, its affiliates and its officers expressly for use in any registration
statement (or any amendment thereto) or any preliminary prospectus filed
pursuant to this paragraph. The Company shall also indemnify and hold harmless
each underwriter and each person who controls any underwriter within the meaning
of either the Securities Act or the Securities Exchange Act of 1934, as amended,
against any and all losses, claims, damages, liabilities and expenses arising
out of or based upon any statements contained or incorporated by reference in,
and omissions or alleged omissions from, each registration statement filed
pursuant to this paragraph; provided, however, that this provision does not
apply to any loss, liability, claim, damage or expense to the extent it arises
out of any untrue statement or omission made in reliance upon and in conformity
with written information furnished to the Company by the underwriters expressly
for use in any registration statement (or any amendment thereto) or any
preliminary prospectus filed pursuant to this paragraph.
10. Tender of Shares; Stockholders' Agreement to Vote.
(a) Tender of Shares. Each Stockholder, severally and not jointly,
hereby agrees to validly tender (and not to withdraw) pursuant to and in
accordance with the terms of the Offer (provided that the Offer is not amended
in a manner prohibited by the Merger Agreement), in a timely manner for
acceptance by Purchaser of the Offer, its respective Shares. Such Stockholder
hereby acknowledges and agrees that Parent's obligation to accept for payment
and pay for Common Stock in the Offer, including such Stockholder's Shares, is
subject to the terms and conditions of the Offer. Each Stockholder hereby agrees
to permit Parent and Purchaser to disclose in any press release or public
announcement related to the Offer, Merger or Merger Agreement, publish and
disclose in the Offer Documents and, if approval of the stockholders of the
Company is required under applicable law, the Proxy Statement (including all
documents and schedules filed with the Commission) its identity and ownership of
Common Stock and the nature of its commitments, arrangements and understandings
under this Agreement.
(b) Voting. Each Stockholder, severally and not jointly, hereby
agrees that, until the Termination Date (as defined in Section 13), at any
meeting of the stockholders of the Company, however called, or in connection
with any written consent of the stockholders of the Company, such Stockholder
shall vote (or cause to be voted), including by way of written consent, the
shares of Common Stock held of record or beneficially owned, from time to time
by such Stockholder (i) in favor of the Merger, the adoption of the Merger
Agreement and the approval of the terms thereof and each of the other actions
contemplated by the Merger Agreement and this Agreement and any actions required
in furtherance hereof and thereof; (ii) against any action or agreement that
would result in a breach of any covenant, representation or warranty or any
other obligation or agreement of the Company under the Merger Agreement or this
Agreement; and (iii) except as specifically requested in writing by Parent in
advance, against the following actions (other than the Merger and the
transactions contemplated by the Merger Agreement): (A) any Acquisition
Transaction, including without limitation, any extraordinary corporate
transaction, such as a merger, consolidation or other business combination
involving the Company or any of its subsidiaries, a sale, lease or transfer of a
material amount of assets of the Company or any of its subsidiaries or a
reorganization, recapitalization, dissolution or liquidation of the Company or
any of its subsidiaries; or (B) (1) the election of any Person to, or other
change in the size or composition of, the board of directors of the Company; (2)
any material change in the present capitalization of the Company or any
amendment of the Company's Certificate of Incorporation or By-Laws; (3) any
other material change in the Company's corporate structure or business; or (4)
any other action which is intended, or could reasonably be expected, to impede,
interfere with, delay, postpone, discourage or materially adversely affect the
Offer, the Merger or the transactions contemplated by the Merger Agreement or
this Agreement or the contemplated economic benefits of any of the foregoing.
Such Stockholder shall not enter into any agreement or understanding which is
inconsistent with clauses (i), (ii) or (iii) of the preceding sentence.
11. Certain Covenants of Stockholders. Except in accordance with the terms
of this Agreement, each Stockholder severally and not jointly, hereby covenants
and agrees as follows:
(a) No Solicitation. Prior to the Termination Date, no Stockholder
shall, in its capacity as such, directly or indirectly solicit, initiate,
facilitate or encourage any inquiries or the making of any proposal with respect
to any tender offer, exchange offer, merger, consolidation, sale of assets,
sales or capital stock or other business combination involving the Company or
its subsidiaries or the acquisition of 20% or more of the assets or capital
stock of the Company and its subsidiaries taken as a whole (an "Acquisition
Transaction"), or negotiate, explore or otherwise communicate in any way with,
or provide or furnish any information to, any Person (other than Parent or the
Purchaser) with respect to any Acquisition Transaction or enter into any
agreement, arrangement or understanding requiring it to abandon, terminate or
fail to consummate the Offer or the Merger or any other transaction contemplated
by the Merger Agreement or this Agreement; provided, however, that the foregoing
shall not restrict a Stockholder who is also a director of the Company from
taking actions in such Stockholder's capacity as a director to the extent and in
the circumstances permitted by Section 6.5 of the Merger Agreement. Such
Stockholder shall immediately advise Parent in writing of the receipt by such
Stockholder or any of its agents or representatives of any request for
information, inquiries, indications of interest, offers or proposals relating to
an Acquisition Transaction and any actions taken pursuant to Section 6.5 of the
Merger Agreement, which notice shall include the identity of the Person making
such request, inquiry, indication of interest, offer or proposal and the terms,
if any, of such Acquisition Transaction. Such Stockholder and its agents and
representatives will upon the execution of this Agreement, cease any discussion
or negotiations with, and shall cease to provide any information to or otherwise
cooperate or encourage, any Person with respect to an Acquisition Transaction.
(b) Restriction on Transfer, Proxies and Noninterference. Prior to
the expiration of the Stockholder Option, no Stockholder shall, directly or
indirectly: (i) except pursuant to the terms of the Merger Agreement and this
Agreement, offer for sale, sell, transfer, tender, pledge, encumber, assign or
otherwise dispose of (including by merger or otherwise by operation of law) or
enter into any contract, option or other arrangement or understanding with
respect to, or consent to the offer for sale, sale, transfer, tender, pledge,
encumbrance, assignment or other disposition of, or exercise any discretionary
powers to distribute, any or all of such Stockholder's Shares or any interest
therein; (ii) grant any proxies or powers of attorney with respect to any shares
of Common Stock beneficially owned by it, deposit any shares of Common Stock
beneficially owned by it into a voting trust or enter into a voting agreement
with respect to any shares of Common Stock beneficially owned by it; or (iii)
take any action that would make any representation or warranty of such
Stockholder contained herein untrue or incorrect or have the effect of
preventing or disabling such Stockholder from performing such Stockholder's
obligations under this Agreement.
(c) Waiver of Appraisal and Dissenter's Rights. Each Stockholder
hereby waives any rights of appraisal or rights to dissent from the Merger that
such Stockholder may have.
(d) Attachment. Each Stockholder agrees that this Agreement and the
obligations of such Stockholder hereunder shall attach to such Stockholder's
Shares and shall be binding upon any Person to which legal or beneficial
ownership of such Shares shall pass, whether by operation of law or otherwise.
Each Stockholder agrees, if so requested by Parent, to promptly submit to the
Company or its agent the certificates representing such Stockholder's Shares so
that legends referencing the restrictions imposed by this Agreement may be
placed on the certificates.
(e) Stop Transfer. Each Stockholder agrees with, and covenants to,
Parent that such Stockholder shall not request that the Company register the
transfer (book-entry or otherwise) of any certificate or uncertificated interest
representing any of such Stockholder's Shares, unless such transfer is made in
compliance with this Agreement. The Company acknowledges the foregoing and
agrees in furtherance thereof to issue stop transfer instructions to the
transfer agent for the Common Stock, at the request of Parent, to enforce the
foregoing agreement.
12. Further Assurances. From time to time, at the another party's request
and without further consideration, each party hereto shall execute and deliver
such additional documents and take all such further action as may be necessary
or desirable to consummate and make effective, in the most expeditious manner
practicable, the transactions contemplated by this Agreement.
13. Termination. The obligations of the Stockholders under Section 10,
Section 11(a) and 11(b) shall terminate upon the first to occur of (a) the
effective time of the Merger and (b) the date the Merger Agreement is terminated
in accordance with its terms (the "Termination Date"). The representations and
warranties of the parties hereto shall survive the consummation of the
transactions contemplated hereby and by the Merger Agreement and the Termination
Date. The agreements and obligations of the parties hereto shall survive in
accordance with their respective terms.
14. Miscellaneous.
(a) Entire Agreement; Assignment. This Agreement (i) constitutes the
entire agreement between the parties with respect to the subject matter hereof
and supersedes all other prior agreements and understandings, both written and
oral, between the parties with respect to the subject matter hereof and (ii)
shall not be assigned by operation of law or otherwise without the prior written
consent of the other parties, provided that Parent may assign, in its sole
discretion, its rights and obligations hereunder to any subsidiary or affiliate
of Parent, but no such assignment shall relieve Parent of its obligations
hereunder if such assignee does not perform such obligations. Subject to the
foregoing limitations, this Agreement shall be binding upon and inure to the
benefit of the permitted successors and permitted assigns of the parties hereto.
(b) Amendments. This Agreement may not be modified, amended, altered
or supplemented, except upon the execution and delivery of a written agreement
executed by Parent and the parties hereto that are affected directly by such
amendment. Schedule I may be supplemented by Parent by adding the name and other
relevant information concerning any stockholder of the Company who is or agrees
to be bound by the terms of this Agreement without the agreement of any other
party hereto, and thereafter such added stockholder shall be treated as a
"Stockholder" for all purposes of this Agreement.
(c) Notices. All notices and other communications hereunder shall be
in writing and shall be delivered personally, by next-day courier or mailed by
registered or certified mail (return receipt requested), first class postage
prepaid, or telecopied with confirmation of receipt to the parties at the
addresses specified below (or at such other addresses as shall be specified by
the parties by like notice; provided, however, that notices of a change of
address shall be effective only upon receipt thereof). Any such notice shall be
effective upon receipt, if personally delivered or telecopied, one day after
delivery to a courier for next-day delivery, or three days after mailing, if
deposited in the U.S. mail, first class postage prepaid.
If to the Company: Children's Discovery Centers of America,
Inc.
851 Irwin Street, Suite 200
San Rafael, California 94901
Telecopy: 415-459-1374
Attn: President
copy to: Farella Braun & Martel, L.L.P.
235 Montgomery Street, 30th Floor
San Francisco, California 94104
Telecopy: 415-954-4480
Attn: Bruce Maximov
If to a Stockholder: at the address set forth on Schedule I
If to Parent: Knowledge Beginnings, Inc.
844 Moraga Drive
Los Angeles, California 90049
Telecopy: 310-440-3669
Attn: President
copy to: Latham & Watkins
75 Willow Road
Menlo Park, California 94025
Telecopy: 650-463-2600
Attn: Peter F. Kerman, Esq.
(d) Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware, regardless of the laws
that might otherwise govern under applicable principles of conflicts of laws
thereof.
(e) Enforcement. The parties agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in addition to any other remedy at
law or in equity. The parties further agree to waive any requirements for
proving actual damages and for securing or posting of any bond in connection
with obtaining any such equitable relief. If the Company or any Stockholder
shall fail to perform any of its obligations under this Agreement, it hereby
agrees that all reasonable fees and expenses, including reasonable attorneys'
fees, which may be incurred by Parent in enforcing this Agreement shall be paid
by the Company or such Stockholder, as the case may be.
(f) Counterparts; Effectiveness. This Agreement may be executed in
two or more counterparts, each of which shall be deemed to be an original, but
both of which shall constitute one and the same Agreement. This Agreement, and
all of the provisions contained herein, shall not become effective until
executed by all of the parties hereto.
(g) Descriptive Headings. The descriptive headings used herein are
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or interpretation of this Agreement.
(h) Severability. Whenever possible, each provision or portion of
any provision of this Agreement will be interpreted in such manner as to be
effective and valid under applicable law but if any provision or portion of any
provision of this Agreement is held to be invalid, illegal or unenforceable in
any respect under any applicable law or rule in any jurisdiction, such
invalidity, illegality or unenforceability will not affect any provision or
portion of any provision in any other jurisdiction or any other provision or
portion of any provision in such same jurisdiction, and this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision or portion of any provision had never been
contained herein.
(i) Expenses. Each party shall pay its own expenses incurred in
connection with this Agreement, except as otherwise specifically provided
herein.
(j) Definitions. For purposes of this Agreement: "beneficially own"
or "beneficial ownership" and similar terms with respect to any securities shall
mean having "beneficial ownership" of such securities (as determined pursuant to
Rule 13d-3 under the Exchange Act), including pursuant to any agreement,
arrangement or understanding, whether or not in writing. Without duplicative
counting of the same securities by the same holder, securities beneficially
owned by a Person shall include securities beneficially owned by all other
Persons with whom such Person would constitute a "group" as described in Section
13(d)(3) of the Exchange Act.
IN WITNESS WHEREOF, Parent, the Company and each Stockholder have
caused this Agreement to be duly executed as of the day and year first above
written.
Knowledge Beginnings, Inc.
By:_____________________
Title:
Name:
Children's Discovery Centers of America,
Inc.
By:_________________________
Title:
Name:
STOCKHOLDERS Proactive Partners, L.P.
By:_________________________
Title:
Name:
Fremont Proactive Partners, L.P.
By:_________________________
Title:
Name:
Lagunitas Partners, L.P.
By:_________________________
Title:
Name:
<PAGE>
EXHIBIT 2.3
ii
8K032798
i
8K032798.doc
Schedule I
Record Holder or Beneficial
Owner Number of Shares Address for Notices
Lagunitas Partners, L.P. 691,100 Charles McGettigan
McGettigan, Wick & Co., Inc.
50 Osgood Place, Penthouse
San Francisco, CA 94133
Proactive Partnes, L.P. 649,600 Charles McGettigan
McGettigan, Wick & Co., Inc.
50 Osgood Place, Penthouse
San Francisco, CA 94133
Fremont Proactive Partners, 23,000 Charles McGettigan
L.P. McGettigan, Wick & Co., Inc.
50 Osgood Place, Penthouse
San Francisco, CA 94133
<PAGE>
EXHIBIT 2.3
2
8K032798 Page 2
<PAGE>
Contact: Richard A. Niglio
Chief Executive Officer
Children's Discovery Centers of America, Inc.
(415) 257-4200
FOR IMMEDIATE RELEASE
KNOWLEDGE BEGINNINGS, A SUBSIDIARY OF KNOWLEDGE UNIVERSE, ACQUIRES CHILDREN'S
DISCOVERY CENTERS
BURLINGAME, California (March 30, 1998) -- Knowledge Beginnings, Inc., a
subsidiary of Knowledge Universe, L.L.C., and Children's Discovery Centers of
America, Inc. ("CDC") announced today that they have signed a definitive merger
agreement pursuant to which Knowledge Universe will acquire CDC. Headquartered
in San Rafael, California, Children's Discovery Centers (NASDAQ:CDCR) is one of
the nation's largest providers of educational programs and services for infants
through school-age children. Revenues from its 248 schools totaled over $93
million in 1997. Under terms of the agreement announced today, Knowledge
Beginnings, a privately held company, will pay $12.25 per share for all of the
outstanding shares of CDC.
Tom Kalinske, president of Knowledge Universe, said, "Adding Children's
Discovery Centers to our growing educational enterprise is in keeping with our
overall mission to improve the quality of education to people of all ages. CDC
is an excellent company, and we hope to continue its traditions and perhaps to
accelerate its growth."
Richard A. Niglio, chairman and CEO of CDC, announced that he will resign
at the consummation of the tender offer, but will continue as a consultant to
the company for the next two years. Mr. Niglio said, "Building this company
these past 11 years has been a very gratifying experience. I am looking forward
to a new challenge in the future that I hope will be equally as rewarding."
"We are delighted to align ourselves with Knowledge Beginnings," said Dr.
Elanna S. Yalow, president and chief operating officer of CDC, and the daughter
of Nobel Prize winner Dr. Rosalyn Yalow. "CDC will benefit greatly from the
extensive experience that Knowledge Beginnings brings to addressing the
educational challenges facing our nation. Working in concert, we will make a
difference in the lives of millions of American children by helping them get
started on the road to lifelong learning."
Under the terms of the merger agreement, a subsidiary of Knowledge
Beginnings will promptly commence a tender offer for all outstanding shares of
CDC at a net price of $12.25 per share in cash. In connection with the execution
of the merger agreement, Knowledge Beginnings entered into an Option and Support
Agreement with three partnerships owning a total of 1,363,700 shares of common
stock pursuant to which such stockholders agreed, among other things, to tender
their shares and under certain conditions to sell their shares to Knowledge
Beginnings for $12.25 per share in cash. In addition, Knowledge Beginnings
entered into an agreement to purchase from CDC, under certain conditions,
1,342,155 previously unissued shares of CDC common stock at a price of $10.125
per share. Completion of the tender offer is subject to a number of conditions,
including the acquisition of Knowledge Beginnings of a majority of CDC's common
stock.
Founded in 1983, CDC operates preschool and elementary schools in 22
states and the District of Columbia, serving approximately 25,000 children
ranging from infants through grade eight. CDC also provides employer-sponsored
programs through affiliations with over 50 governmental agencies, hospitals, and
private corporations such as Amoco and GE Capital Services Corporation.
MARKET TRENDS
Current demographic and social trends indicate a growing need for child
care and educational services such as those provided by companies such as CDC.
Also, educational researchers stress the need for quality education and learning
experiences for children beginning in infancy and throughout their preschool
years and that these are crucial years in a child's development. These two
trends present an excellent opportunity for CDC and Knowledge Beginnings to
offer parents the highest quality early childhood education for their children.
About Knowledge Beginnings
Knowledge Beginnings, Inc. is a subsidiary of Knowledge Universe, L.L.C.
Knowledge Universe is an education company that offers a full array of products
and services designed to meet the educational and knowledge management needs of
organizations and individuals. Founded in 1996, the privately held company is
headquartered in Burlingame, California.
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