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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(d)(4) OF THE
SECURITIES EXCHANGE ACT OF 1934
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CHILDREN'S DISCOVERY CENTERS OF AMERICA, INC.
(Name of Subject Company)
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CHILDREN'S DISCOVERY CENTERS OF AMERICA, INC.
(Name of Person(s) Filing Statement)
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COMMON STOCK, PAR VALUE $.01 PER SHARE
(Title of Class of Securities)
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168757 20 1
(CUSIP Number of Class of Securities)
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RICHARD A. NIGLIO
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
CHILDREN'S DISCOVERY CENTERS OF AMERICA, INC.
851 IRWIN STREET, SUITE 200
SAN RAFAEL, CALIFORNIA 94901
(415) 257-4200
(Name, Address and Telephone Number of Person Authorized to
Receive Notice and Communications on Behalf of the Person(s) Filing Statement)
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COPIES TO:
BRUCE MAXIMOV, ESQ.
WILLIAM J. MORAN, ESQ.
FARELLA BRAUN & MARTEL, LLP
235 MONTGOMERY STREET, 30TH FLOOR
SAN FRANCISCO, CALIFORNIA 94104
(415) 954-4400
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ITEM 1. SECURITY AND SUBJECT COMPANY.
The name of the subject company is Children's Discovery Centers of America,
Inc., a Delaware corporation (the "Company"), and the address of the principal
executive offices of the Company is 851 Irwin Street, Suite 200, San Rafael,
California 94901. The title of the class of equity securities to which this
Statement relates is the common stock, par value $.01 per share (the "Common
Stock"), of the Company.
ITEM 2. TENDER OFFER OF THE BIDDER.
This Solicitation/Recommendation Statement on Schedule 14D-9 (this
"Statement") relates to the tender offer disclosed in a Tender Offer Statement
on Schedule 14D-1 dated April 3, 1998 (the "Schedule 14D-1") of KBI Acquisition
Corp., a Delaware corporation ("Purchaser"), to purchase any and all of the
outstanding shares ("the Shares") of Common Stock at a price of $12.25 per
Share, net to the seller in cash, upon the terms and subject to the conditions
set forth in the Offer to Purchase dated April 3, 1998 (the "Offer to Purchase")
and the related Letter of Transmittal (which as amended and supplemented from
time to time together constitute the "Offer"). The Offer is being made pursuant
to an Agreement and Plan of Merger dated as of March 27, 1998 (the "Merger
Agreement") by and among the Company, Knowledge Beginnings, Inc., a Delaware
corporation ("Parent"), and Purchaser, which is a wholly-owned subsidiary of
Parent.
According to the Schedule 14D-1, the address of the principal executive
office of Parent is 844 Moraga Drive, Los Angeles, California 90049, and the
address of the principal executive office of Purchaser is also 844 Moraga Drive,
Los Angeles, California 90049.
ITEM 3. IDENTITY AND BACKGROUND.
(a) The name and business address of the Company, which is the person filing
this Statement, are set forth in Item 1 above.
(b)(i) Except as described in this Item 3 and in the Information Statement
pursuant to Section 14(f) of the Securities Exchange Act of 1934 and Rule 14f-1
thereunder (the "Information Statement"), which is attached to this Statement as
Schedule II and is incorporated herein by reference, to the knowledge of the
Company, as of the date hereof, there exists no material contract, agreement,
arrangement or understanding and no actual or potential conflict of interest
between the Company or its affiliates and (i) the Company's executive officers,
directors or affiliates or (ii) Parent or Purchaser or the executive officers,
directors or affiliates of Parent or Purchaser.
The stockholders of the Company should be aware that certain members of the
Company's management and certain members of the Board of Directors of the
Company (the "Company Board") have certain interests in the Merger that are in
addition to the interests of stockholders of the Company generally.
(ii) Merger Agreement and Option and Support Agreement
The following is a summary of the material terms of the Merger Agreement and
the Option and Support Agreement dated March 27, 1998 (the "Option and Support
Agreement") by and among the Company, Parent and each of Proactive Partners,
L.P., Fremont Proactive Partners, L.P. and Lagunitas Partners, L.P.
(collectively, the "Selling Stockholders"). Such summary is not a complete
description of such agreements and is qualified in its entirety by reference to
the complete texts of the agreements, copies of which are filed as exhibits to
this Statement, and are incorporated herein by reference. Capitalized terms not
otherwise defined herein shall have the meanings set forth in the applicable
agreement.
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THE MERGER AGREEMENT
THE OFFER. The Merger Agreement provides for the making of the Offer by
Purchaser. The obligation of Purchaser to accept for payment and pay for Shares
tendered pursuant to the Offer is subject to there having been validly tendered
pursuant to the Offer, and not validly withdrawn, a minimum of a majority of the
Shares (determined on a fully diluted basis) (the "Minimum Condition") and
satisfaction of certain other conditions that are described below under "Certain
Conditions of the Offer." Purchaser has agreed that, without the written consent
of the Company, it may not waive the Minimum Condition or amend the Offer to
decrease the Offer Price, decrease the number of Shares being sought in the
Offer, change the form of consideration to be paid in the Offer or impose
additional conditions to the Offer. Purchaser may, without the consent of the
Company, 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 notwithstanding
the satisfaction of the conditions set forth below under "Certain Conditions of
the Offer"). Subject to the terms and conditions set forth in the Merger
Agreement (including the right to terminate, extend or modify the Offer), and
subject to the other conditions set forth below under "Certain Conditions of the
Offer", including, without limitation, the Minimum Condition, Purchaser will use
its reasonable best efforts to consummate the Offer as soon as legally
permissible in accordance with the Merger Agreement. Such conditions are for the
sole benefit of Purchaser and may be asserted by Purchaser regardless of the
circumstances giving rise to any such condition or may be waived by Purchaser,
in whole or in part, at any time and from time to time, in its sole discretion.
THE COMPANY'S BOARD OF DIRECTORS. Pursuant to the terms of the Merger
Agreement, promptly upon acceptance for payment and payment for Shares pursuant
to the Offer, and from time to time thereafter, the Company and the Board of
Directors of the Company (the "Company Board") shall, upon the request of
Parent, promptly take all action, subject to compliance with applicable law,
necessary to cause to be elected as directors of the Company a number of
directors designated by Parent equal to the product, rounded up to the next
whole number, of the total number of directors on the Company Board (giving
effect to the directors so elected) multiplied by the percentage that the number
of Shares so accepted for payment and paid for by Purchaser bears to the number
of Shares outstanding. The Company is required to use its reasonable best
efforts to cause Parent's designees to be so elected, including by accepting the
resignations of certain incumbent directors or increasing the size of the
Company Board and causing Parent's designees to be elected. In accordance with
the Merger Agreement, the Company is required to use commercially reasonable
efforts to obtain, prior to the consummation of the Offer, the resignation of
each of the directors on the Company Board, other than Dr. Elanna S. Yalow,
which resignations are to be effective immediately following consummation of the
Offer.
THE MERGER. The Merger Agreement provides that, subject to the terms and
conditions therein, and in accordance with the General Corporation Law of the
State of Delaware (the "DGCL"), Purchaser (or such other subsidiary of Parent as
described below) will be merged with the Company (the "Merger"), and at the
effective time of the Merger (the "Effective Time") the separate corporate
existence of Purchaser shall cease and the surviving corporation in the merger
(the "Surviving Corporation") will be a wholly owned subsidiary of Parent.
Pursuant to the Merger Agreement, at Parent's election, the Merger may be
structured (i) as a merger of Purchaser and the Company, with either as the
Surviving Corporation, (ii) such that any direct or indirect subsidiary of
Parent is merged with and into the Company, with the Company as the Surviving
Corporation, or (iii) such that the Company is merged with and into any such
other subsidiary, with such other subsidiary as the Surviving Corporation. The
Merger will become effective at such time as a Certificate of Merger or, if
applicable, a Certificate of Ownership and Merger is filed with the Secretary of
State of the State of Delaware. As a result of the Merger, all of the
properties, rights, privileges and franchises of the Company and Purchaser will
vest in the Surviving Corporation, and all debts, liabilities and duties of the
Company and Purchaser will become the debts, liabilities and duties of the
Surviving Corporation.
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At the Effective Time, by virtue of the Merger and without any action on the
part of the Company, Parent or Purchaser (i) all Shares that are owned by the
Company, Parent, Purchaser or any direct or indirect wholly owned subsidiary of
the Company, Parent or Purchaser will be canceled, and no consideration will be
delivered in exchange therefor, (ii) each Share outstanding immediately prior to
the Effective Time will, except as otherwise provided in (i) above and except
for Shares held by stockholders exercising appraisal rights pursuant to Section
262 of the DGCL, be converted into the right to receive $12.25 (or such other
price that may be paid for each Share pursuant to the Offer, if amended) in
cash, without interest thereon (the "Merger Consideration"), and (iii) the
Surviving Corporation will become a wholly owned subsidiary of Parent.
The Merger Agreement provides that the Certificate of Incorporation and the
Bylaws of Purchaser at the Effective Time will be the Certificate of
Incorporation and Bylaws of the Surviving Corporation. The Merger Agreement also
provides that at the Effective Time the directors of Purchaser in office
immediately prior to the Effective Time will remain in office and will be the
initial directors of the Surviving Corporation, and the officers of the Company
immediately prior to the Effective Time will be the officers of the Surviving
Corporation, in each case until their successors are duly elected and qualified,
or their earlier death, resignation or removal.
STOCK OPTIONS. In accordance with the Merger Agreement, the Company shall,
prior to the consummation of the Offer, cause all outstanding options (the
"Options") granted under the Company's stock option plans or otherwise to become
exercisable immediately prior to the Effective Time, subject to the consummation
of the Merger. The Company is required to make an offer (the "Option Offer") to
each holder of Options prior to the consummation of the Offer and, if such
Option Offer is accepted, the Company shall pay, subject to consummation of the
Merger, each such holder an amount equal to the aggregate Merger Consideration
into which Shares issuable upon exercise of such holder's Options would have
been converted if such Options had been exercised immediately prior to the
Effective Time, reduced by (i) the aggregate exercise price for the Shares then
issuable upon exercise of such Options, (ii) the amount of any withholding taxes
which may be required thereon, and (iii) the amount of all outstanding loans, if
any, from the Company to such holder, in return for the cancellation of such
Options. Pursuant to the Merger Agreement, the Option Offer must be accepted, if
at all, irrevocably by the holders of all Options prior to the consummation of
the Offer and must provide that holders of Options subject to the Option Offer
agree not to exercise such Options after accepting the Option Offer. The Company
is required, pursuant to the Merger Agreement, to take such action as may be
necessary to make the Option Offer to each holder of Options and shall use its
best efforts to obtain acceptances of the Option Offer from all such holders.
RECOMMENDATION. The Company represents and warrants in the Merger Agreement
that the Company Board has, by the unanimous vote of all directors at a meeting
duly called and held: (i) determined that each of the Offer and the Merger is
fair to, and in the best interests of, the holders of Shares; (ii) approved and
adopted the Merger Agreement and the Option and Support Agreement and the
transactions contemplated thereby, including the Offer and the Merger; (iii)
recommended acceptance of the Offer, the tender of Shares pursuant to the Offer
and approval and adoption of the Merger Agreement and the Merger by the
stockholders of the Company; and (iv) taken all action necessary to render
Section 203 of the DGCL and other state takeover statutes inapplicable to the
Offer, the Merger and the Option and Support Agreement. Subject to the
provisions of the Merger Agreement, the recommendation of the Company Board may
be withdrawn, modified or amended to the extent that the Company Board deems it
necessary to do so in the exercise of its fiduciary duty after being so advised
in writing by outside counsel. Any withdrawal, modification or amendment of the
recommendation of the Company Board by the Company Board or any committee
thereof in any manner adverse to Parent or Purchaser, however, may give rise to
certain termination rights on the part of Parent and Purchaser under the Merger
Agreement and the right to receive certain termination fees as set forth
therein.
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INTERIM AGREEMENTS OF PARENT, PURCHASER AND THE COMPANY. Pursuant to the
Merger Agreement, the Company has covenanted and agreed that, between the date
of the Merger Agreement and the Effective Time, unless Parent shall otherwise
agree in writing, the business of the Company and its subsidiaries will be
conducted only in, and the Company and its subsidiaries will not take any action
except in, the ordinary course of business consistent with past practices. The
Merger Agreement provides that the Company will use its reasonable best efforts
to preserve intact and maintain the Company's business organization, its present
relationships with customers, suppliers and other persons having business
relations with the Company and its subsidiaries, assets, employees, regulatory
licenses and approvals and advantageous business relationships. Except as
otherwise contemplated by the Merger Agreement, the Company will not, nor will
it permit any of its subsidiaries or other entities controlled by it, between
the date of the Merger Agreement and the Effective Time, without the prior
written consent of Parent, to, directly or indirectly:
(i) Amend or propose to amend its Certificate of Incorporation,
regulations or Bylaws, or equivalent organizational documents;
(ii) (a) 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 Options outstanding on the date of the
Merger Agreement) or any of its subsidiaries; (b) 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; (c) authorize,
recommend or propose any change in its capitalization; or (d) 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);
(iii) (a) except in the ordinary course of business and consistent with
past practice, 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 (b) 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;
(iv) (a) 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 (b) 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;
(v) Except in the ordinary course of business and consistent with past
practice, 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);
(vi) 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);
(vii) Take any action with respect to the grant of any severance or
termination pay (other than pursuant to policies or written agreements of
the Company in effect on the date of the Merger Agreement) or with respect
to any increase of benefits payable under its severance or termination pay
policies or written agreements in effect on the date of the Merger
Agreement;
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(viii) 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 of the
Merger Agreement;
(ix) Make any tax election or settle or compromise any federal, state,
local or foreign income tax liability;
(x) Take any action or omit to take any action, which action or omission
would reasonably be expected to result in a breach or inaccuracy of any of
the representations and warranties set forth in the Merger Agreement in any
material respect at, or as of any time prior to, the Effective Time;
(xi) Enter into any contract or agreement other than in the ordinary
course of business or amend, terminate or modify any Material Contract or
enter into any contract or agreement which would have been a Material
Contract if entered into prior to the date of the Merger Agreement;
(xii) 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 of the Merger Agreement to, any affiliate (other than
the Company or any of its subsidiaries) of the Company or its subsidiaries,
including releasing Shares under pledge agreements;
(xiii) 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 by the Merger Agreement;
(xiv) Authorize or make any expenditure for capital or acquisitions which
are not specifically provided for in the Company's capital budget;
(xv) Incur costs, fees and expenses in connection with the Offer, the
Merger and the other transactions contemplated by the Merger Agreement in
excess of (i) $1,000,000 for the costs, fees and expenses of financial
advisors, including, without limitation, McGettigan, Wick & Co.,
("McGettigan, Wick") and Advest, Inc. ("Advest") and (ii) those reasonable
and necessary 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, 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; or
(xvi) Offer or propose to take or agree or commit to take any of the
foregoing actions.
OTHER AGREEMENTS OF PARENT, PURCHASER AND THE COMPANY. In the Merger
Agreement, the Company has agreed that, prior to the Effective Time, it will
not, nor will it authorize or permit any of its subsidiaries or any of its
subsidiaries' directors, officers, employees, agents or representatives, to,
directly or indirectly: (i) 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 of 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"); (ii) negotiate,
explore or otherwise communicate in any way with, or provide or furnish any
information to, any person (other than Parent or Purchaser) with respect to any
Acquisition Transaction; or (iii) enter into any agreement, arrangement or
understanding requiring the Company to abandon, terminate or fail to consummate
the Offer or the Merger or any other transaction contemplated by the Merger
Agreement; provided, however, that the Company may, in response to an
unsolicited written binding offer with respect
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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 Company Board 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 Acquisition
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
Board's fiduciary duties. The Company is required to advise Parent in writing of
the receipt by the Company, any of its subsidiaries or any or their respective
officers, directors, employees, agents or representatives of any request for
information, inquiries, indications of interest, offers or proposals relating to
any Acquisition Transaction and any actions taken with respect to such
Acquisition Transaction, which notice shall include the terms and conditions of
such Acquisition Transaction and the identity of the person making such request,
inquiry, indication of interest, offer or proposal.
Pursuant to the Merger Agreement, between the date of the Merger Agreement
and the Effective Time, the Company is required to, and will cause its
subsidiaries, officers, directors, employees, and agents to, afford the
officers, employees, counsel, investment bankers and agents of Parent and its
affiliates complete access at all reasonable times to 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 for such purposes as may be necessary or desirable. The
Company will, subject to the terms of the Merger Agreement, endorse the Offer
and the Merger and recommend to its stockholders the approval and adoption of
the Merger Agreement, the Merger and the transactions to be consummated
thereunder; and will use its 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 and the Merger Agreement, and to
cooperate with Parent and Purchaser in connection with the foregoing, including
using reasonable best efforts to obtain all necessary waivers, consents and
approvals, including by the Company's stockholders, if required, of the Merger
Agreement and the Merger.
Pursuant to the Merger Agreement, the Company must take all action necessary
to cause a meeting of its stockholders (the "Company Stockholder Meeting"), if
required by the DGCL, to be duly called and held as promptly as practicable
after the consummation of the Offer (provided Purchaser shall have accepted for
payment Shares tendered pursuant to the Offer) for the purposes of voting on the
approval and adoption of the Merger Agreement, the Merger and the transactions
contemplated thereby. The Company is also required to use its reasonable efforts
to solicit from stockholders of the Company proxies 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 the Company's
stockholders, if required by the DGCL, to effect the Merger.
The Merger Agreement provides that, if the Company Stockholder Meeting is
required by the DGCL, as promptly as practicable following consummation of the
Offer, the Company will prepare and file with the Commission a proxy statement
under the Exchange Act relating to the Company Stockholder Meeting (the "Proxy
Statement") and will cause the Proxy Statement, subject to compliance with the
rules and regulations of the Commission, to be mailed to its stockholders as
promptly as practicable thereafter and will use its reasonable best efforts to
secure all necessary approvals by its stockholders of the Merger Agreement and
the Merger. Notwithstanding the foregoing, in the event that Purchaser acquires
at least 90% of the outstanding Shares and Parent so requests, Parent, Purchaser
and the Company will take all actions necessary and appropriate to cause the
Merger to become effective without a meeting of the stockholders of the Company
in accordance with Section 253 of the DGCL.
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For a period of six years after the Effective Time, the Surviving
Corporation shall indemnify, defend and hold harmless the officers and directors
of the Company as of the date of the Merger Agreement 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 Time 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 of the Merger Agreement (to the
extent consistent with applicable law). The Surviving Corporation shall maintain
in effect the Company's existing policies of directors' and officers' liability
insurance with respect to claims arising from facts or events which occurred
prior to the Effective Time for a period of six years from and after the
Effective Time (provided that Parent or the Surviving Corporation may substitute
therefor policies of at least the same coverage and amounts containing terms and
conditions no less advantageous to such directors or officers); 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 by the Company as of the date of the Merger Agreement for such
insurance.
Pursuant to the Merger Agreement, the Company is required to use
commercially reasonable efforts to obtain employment or consulting agreements
and noncompete agreements, in form and substance satisfactory to Parent, from
Richard A. Niglio, Dr. Elanna S. Yalow, Randall J. Truelove, Frank A. Devine and
Jane A. Delaney (the "Named Officers"), releases, in form and substance
satisfactory to Parent, from each Named Officer and from McGettigan, Wick and a
fully executed copy of the Excess Payment Agreement dated March 27, 1998 by and
between the Company and Dr. Yalow, prior to the consummation of the Offer. In
addition, the Company is required to use commercially reasonable efforts to
obtain, prior to the consummation of the Offer, the resignation of each director
of the Company, other than Dr. Yalow, which resignations are to be effective
immediately following the consummation of the Offer.
REPRESENTATIONS AND WARRANTIES. The Merger Agreement contains various
customary representations and warranties of the parties thereto, including,
without limitation, representations by the Company as to corporate status and
good standing, subsidiaries, power and authority, enforceability,
capitalization, no violation, reports and financial statements, no commissions,
material developments and absence of undisclosed liabilities, compliance with
law, taxes, employee benefit plans, litigation and environmental liabilities. In
addition, the Company represented to Parent and Purchaser that the Company
Board, by a vote of all directors at a meeting duly called and held, has
unanimously (i) determined that each of the Offer, the Merger and the Option and
Support Agreement is fair to, and in the best interests of, the holders of
Shares; (ii) approved and adopted the Option and Support Agreement and the
Merger Agreement and the transactions contemplated thereby, including the Offer
and the Merger; (iii) resolved to recommend acceptance of the Offer, the tender
of Shares pursuant to the Offer and approval and adoption of the Merger
Agreement and the Merger by the stockholders of the Company; and (iv) taken all
action necessary to render Section 203 of the DGCL and other state takeover
statutes inapplicable to the Offer, the Merger, the Merger Agreement and the
Option and Support Agreement.
CONDITIONS TO THE MERGER. The respective obligations of the Company, Parent
and Purchaser to effect the Merger are subject to the satisfaction, at or prior
to the Effective Time, of the conditions that (i) Purchaser (or a subsidiary or
an affiliate of Parent) shall have accepted for payment and paid for Shares
tendered pursuant to the Offer in accordance with the terms of the Offer, (ii)
to the extent required by the DGCL, the Merger and the Merger Agreement shall
have been approved and adopted by the requisite vote or consent of the Company's
stockholders, and (iii) no permanent injunction, 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, Purchaser or the subsidiaries or affiliates of Parent of the
shares of common stock of the Surviving Corporation illegal or otherwise prevent
the consummation of the Merger (provided that the Company, Parent and Purchaser
shall have used all reasonable efforts to prevent such event). The
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obligation of Purchaser and Parent to effect the Merger is further subject to
satisfaction of the conditions, unless waived by Parent or Purchaser, that (i)
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 material license, permit,
authorization, approval or registration of the Company or any of its
subsidiaries, (ii) the Company shall not 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, (iii) each 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 be true and correct and each such
representation and warranty that is not so qualified shall be true and correct
in all material respects, in each case at the date of the Merger Agreement and
as of the Effective Time, 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, (iv) 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 (v) there shall not have occurred (A) any general suspension of, or
limitation on prices for, trading in securities on any United States stock
exchange, (B) the declaration of a banking moratorium or any suspension of
payments in respect of banks in the United States, (C) the commencement of a
war, armed hostilities or other international or national calamity materially
affecting the United States, (D) 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 (E) in the case of any of the foregoing
existing at the date of this Agreement, any material acceleration or worsening
thereof.
For purposes of the Merger Agreement, the term "Material Adverse Effect"
means 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 the Merger
Agreement.
TERMINATION. The Merger Agreement may be terminated at any time prior to
the Effective Time, whether prior to or after approval by the stockholders of
the Company, by mutual written consent duly authorized by the Company Board and
the Board of Directors of Parent. The Merger Agreement may also be terminated by
the Company, upon delivery of 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 the Merger Agreement, (B) terminated
the Offer, or (C) failed to pay for Shares tendered pursuant to the Offer within
120 days after the commencement of the Offer, provided 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 failure to perform in any material respect any of its
obligations under the Merger Agreement; (ii) if, prior to the purchase of any
Shares tendered pursuant to the Offer, Purchaser or Parent fails to perform in
any material respect any of their respective obligations under the Merger
Agreement or comply in any material respects with their respective agreements
and covenants under the Merger Agreement and such failure shall not have been
cured within ten days following notice from the Company to Parent of such
failure and the Company's intent to terminate the Merger Agreement; (iii) at any
time prior to the purchase of any Shares tendered pursuant to the Offer, to
allow the Company to enter into an agreement in respect of an Acquisition
Transaction if the Company Board 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 the Merger Agreement and that such action is
necessary in order to fulfill the fiduciary duty of the Company Board to the
Company's stockholders; provided that the Company Board 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
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the transaction contemplated by the Offer, the Merger and the Merger Agreement;
provided, further, that prior to any such termination, the Company notifies
Parent promptly of its intention to terminate the Merger 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 the Merger Agreement; provided, further, that
such termination shall not be effective until the Company pays Parent all
termination fees described in the Merger Agreement; 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.
In addition, the Merger Agreement may be terminated by Parent, upon delivery
of 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 the Merger Agreement, (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 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
their obligations under the Merger Agreement; (ii) if (A) the Company Board or
any committee thereof shall have withdrawn or modified (including by amendment
of this Schedule 14D-9) in any manner adverse to Parent or Purchaser its
approval or recommendation of the Offer, the Merger or the Merger Agreement, or
approved or recommended any Acquisition Transaction, or Parent requests in
writing that the Company Board reconfirm its recommendation of the Offer, the
Merger and the Merger Agreement to the Company's stockholders and the Company
Board fails to do so within five days after its receipt of Parent's request, (B)
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 (C) the Company Board 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 the Merger
Agreement or comply in any material respects with its agreements and covenants
under the Merger Agreement and such failure shall not have been cured within ten
days following notice from Parent to the Company of such failure and Parent's
intent to terminate the Merger Agreement; 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 their reasonable best efforts to remove or lift such order,
decree or ruling.
Except as otherwise provided in the Merger Agreement, in the event of
termination of the Merger Agreement, the Merger Agreement shall, upon receipt of
notice of termination, forthwith become void and of no further force and effect,
and the Company, Parent and Purchaser (and their respective directors, officers,
employees, stockholders, affiliates, agents and advisors) shall be released from
any and all liability thereunder; provided, however, that nothing shall relieve
the Company, Parent or Purchaser from liability for any breach of any agreement,
covenant, representation or warranty set forth in the Merger Agreement.
Notwithstanding the termination of the Merger Agreement, the Option and Support
Agreement and certain provisions of the Merger Agreement shall remain in full
force and effect and shall survive any such termination of the Merger Agreement.
TERMINATION FEE AND EXPENSES. Upon termination of the Merger Agreement for
any reason, in addition to any other amounts which may be payable or become
payable pursuant to the Merger Agreement, the Company shall (provided that
neither Parent nor Purchaser is then in material breach of their respective
obligations under the Merger Agreement) reimburse Parent and Purchaser for the
reasonable costs, expenses and fees incurred by them and their subsidiaries and
affiliates (including,
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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, the Merger Agreement, the Offer, the Merger and the consummation of all
the transactions contemplated by the Merger Agreement; provided, however, that
the Company shall not be obligated to reimburse Parent or Purchaser for any
costs, fees and expenses of its financial advisors (including, without
limitation, Donaldson, Lufkin & Jenrette Securities Corporation) in excess of
$250,000. Upon termination of the Merger Agreement as a result of the failure by
Parent or Purchaser to perform (or to cure in accordance with the Merger
Agreement) in any material respect any of their respective obligations under the
Merger Agreement or comply in any material respects with their respective
agreements and covenants under the Merger Agreement, Parent shall (provided that
the Company is not then in material breach of its obligations under the Merger
Agreement) reimburse the Company for the reasonable costs, expenses and fees
incurred by it and its subsidiaries or on their behalf in connection with the
Merger Agreement or the Offer, subject to the limitations set forth in the
Merger Agreement; 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 and Advest) in excess of
$250,000.
If the Merger Agreement shall have been terminated (i) by Parent due to
(A)(x) the withdrawal or modification (including by amendment of this Schedule
14D-9) by the Company Board or any committee thereof, in any manner adverse to
Parent or Purchaser, of the approval or recommendation of the Company Board of
the Offer, the Merger or the Merger Agreement, (y) the approval or
recommendation by the Company Board of any Acquisition Transaction, or (z) the
failure of the Company Board to reconfirm its recommendation of the Offer, the
Merger and the Merger Agreement to the Company's stockholders within five days
of receipt of a request for such reconfirmation by Parent, (B) the Company or
any of its subsidiaries entering into an agreement, agreement in principle or
letter of intent with any person with respect to an Acquisition Transaction, or
(C) the Company Board or any committee thereof resolving to take any of the
foregoing actions; or (ii) by the Company due to a determination by the Company
Board, at any time prior to the purchase of any Shares pursuant to the Offer, in
good faith, after advice of outside counsel, that an 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 the Merger Agreement and that such
action is necessary in order to fulfill the fiduciary duty of the Company Board
to the Company's stockholders (provided that, as described above, the Company 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
transactions contemplated by the Offer, the Merger and the Merger Agreement and
otherwise in accordance with the terms of the Merger Agreement); or (iii) for
any other reason (other than by the Company as a result of failure by Parent or
Purchaser to perform (or to cure in accordance with the Merger Agreement) in any
material respect any of their respective obligations under the Merger Agreement
or to comply in any material respects with their respective agreements and
covenants thereunder) and during the period commencing on the date of the Merger
Agreement and ending on, and including, the date which is nine months after the
date of the Merger Agreement is terminated an Alternative Transaction is
consummated, then, in any such case, the Company shall pay Parent $4,000,000
(the "Termination Fee"). For purposes of the Merger Agreement, an "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 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 Shares 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
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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.
The Termination Fee shall be paid to the Company on the date (the "Fee
Payment Date") which is (a) immediately prior to the termination of the Merger
Agreement in the case of payment pursuant to (ii) above, (b) within two business
days of the termination of this Agreement in the case of payment pursuant to (i)
above, and (c) immediately prior to the later to occur of the termination of the
Merger Agreement and the consummation of an Alternative Transaction, in the case
of payment pursuant to (iii) above.
Notwithstanding the foregoing, if and to the extent that Parent has
purchased Shares from the Company pursuant to the Option and Support Agreement
("Company Option Shares") or elected to exercise its right under the Option and
Support Agreement to receive cash rather than Shares (the "Cash Conversion")
prior to the Fee Payment Date, the sum of, (i) the Termination Fee, PLUS (ii)
the net cash amount received by Parent prior to the Fee Payment Date pursuant to
the Cash Conversion under the Option and Support Agreement, PLUS (iii)(x) the
amount received by Parent prior to the Fee Payment Date pursuant to the sale of
Company Option Shares (or any other securities into which such Company Option
Shares are converted or exchanged), less (y) Parent's purchase price for such
Shares, MINUS (iv) any amounts paid or Shares (valued at the closing sales price
of the Shares on the Nasdaq National Market ("NNM") on the day of delivery)
delivered to the Company pursuant to the Option and Support 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.
Pursuant to the Merger Agreement, if the Company fails to promptly pay the
Termination Fee, 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.
Except as otherwise described herein, each of the parties hereto shall pay
all the fees and expenses incurred by it incident to preparing for, entering
into and carrying into effect the Merger Agreement and the transactions
contemplated therein; provided that the Company covenants and represents and
warrants that such fees and expenses incurred by the Company and its
subsidiaries for costs, fees and expenses of financial advisors (including,
without limitation, McGettigan, Wick and Advest) associated with the Offer, the
Merger, the Merger Agreement and the transactions contemplated herein, will not
exceed $1,000,000.
AMENDMENTS; WAIVER. Subject to applicable law, the Merger Agreement may not
be modified, amended or supplemented prior to the Effective Time except by the
written agreement of the Company, Parent and Purchaser. Any failure by the
Company, Parent or Purchaser to comply with any obligation, covenant, agreement
or condition in the Merger Agreement 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. No extension
of time for performance of any obligations or other acts thereunder or under any
other agreement shall be deemed to be an extension of the time for performance
of any other obligations or any other acts.
THE OPTION AND SUPPORT AGREEMENT
Concurrently with the execution of the Merger Agreement, the Company, Parent
and the Selling Stockholders have entered into the Option and Support Agreement.
Pursuant to the Option and Support Agreement, the Company has granted Parent an
irrevocable option (the "Company Option") to purchase 1,342,155 Shares,
representing 19.9% of the outstanding Shares, at a per Share cash purchase price
of $10.125 per Share (as adjusted pursuant to the Option and Support Agreement).
In addition, pursuant to the Option and Support Agreement, each Selling
Stockholder has agreed to tender and sell all of the Shares owned by such
Selling Stockholder to Purchaser pursuant to and in accordance with the terms of
the Offer and has granted to Parent an irrevocable option (the "Stockholder
Option") to purchase, in
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whole but not in part, all Shares owned by such Selling Stockholders at a
purchase price of $12.25 per Share.
THE COMPANY OPTION. 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. For purposes of the Option and Support Agreement, the term "Trigger
Event" means (i) the termination of the Merger Agreement due to the withdrawal
or modification (including by amendment of this Schedule 14D-9) of the approval
or recommendation of the Company Board of the Offer, the Merger or the Merger
Agreement in any manner adverse to Parent or Purchaser or the approval or
recommendation by the Company Board of any Acquisition Transaction, or related
actions as described above or due to a determination by the Company Board, in
good faith, after advice of outside counsel, that an 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 the Merger Agreement and that such
action is necessary in order to fulfill the fiduciary duty of the Company Board
to the Company's stockholders, in accordance with the terms of the Merger
Agreement, as described above, or (ii) the termination of the Merger Agreement
for any other reason (other than as a result of failure by Parent or Purchaser
to perform (or to cure in accordance with the Merger Agreement) in any material
respect any of their respective obligations under the Merger Agreement or comply
in any material respects with their respective agreements and covenants under
the Merger Agreement), and during the period commencing on the date of the
Option and Support Agreement and ending on, and including, the date which is
nine months after the termination of the Merger Agreement, an Alternative
Transaction (as defined in the Merger Agreement) is consummated.
The number of Shares subject to the Company Option and the purchase price
thereof are subject to adjustment, in accordance with the terms of the Option
and Support Agreement, in the event of any stock dividend, stock split,
split-up, reclassification, recapitalization, merger or other change in the
corporate or capital structure of the Company, to restore Parent to its rights
under the Option and Support Agreement, including its right to purchase Shares
representing 19.9% of the capital stock of the Company entitled to vote for the
election of directors of the Company. In the event that any additional Shares
are issued after the date of the Option and Support Agreement (other than
pursuant to an event described in the preceding sentence), the number of Shares
subject to the Company Option shall be increased by 19.9% of the number of
additional Shares so issued (and such additional Shares subject to the Company
Option shall be exercisable upon the same terms and conditions as the Company
Option).
If at any time the Company Option is then exercisable pursuant to the terms
of the Option and Support Agreement, Parent may elect, in lieu of exercising the
Company Option to purchase Shares, to send written notice to the Company (the
"Cash Exercise Notice") specifying a date not later than twenty business days
and not earlier than ten 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 Shares
subject to the Company Option as Parent shall specify. As used in the Option and
Support Agreement, "Spread" shall mean the excess, if any, over the exercise
price of the Company Option (as adjusted, if applicable) of the HIGHER of (x) if
applicable, the highest price per Share (including any brokerage commissions,
transfer taxes and soliciting dealers' fees) paid by any person in an
Acquisition Transaction (the "Alternative Purchase Price") or (y) the closing
sales price of the Shares on NNM 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
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deemed to equal the fair market value of such property. If such other property
consists of property 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 the Option and Support Agreement as described
above and the payment of such cash to Parent, the obligations of the Company to
deliver Shares pursuant to the Company Option shall be terminated with respect
to such number of Shares for which Parent shall have elected to be paid the cash
Spread.
Notwithstanding any other provision of the Option and Support Agreement, in
no event shall Parent's Total Profit (as defined below) exceed $5,000,000 and,
if such Total Profit does exceed such amount, Parent, at its sole election,
shall, within five business days, either (a) deliver to the Company for
cancellation Shares (valued at the closing sales price of the Shares on NNM 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 $5,000,000 after taking into account the
foregoing actions. As used in the Option and Support Agreement, the term "Total
Profit" shall mean the aggregate amount (before taxes) of the following: (i) the
aggregate amount of cash received by Parent as a Termination Fee (as such may be
adjusted in accordance with the Merger Agreement) and pursuant to any cash
conversion of the Company Option in accordance with the Option and Support
Agreement, plus (ii)(x) the amount received by Parent pursuant to the sale of
Shares acquired upon exercise of the Company Option (or any other securities
into which such Shares are converted or exchanged), less (y) Parent's purchase
price for such Shares, less (iii) any amounts paid or Shares (valued at the
closing sales price of the Shares on NNM on the day of delivery) delivered to
the Company pursuant to the Option and Support Agreement or pursuant to any
other reimbursement obligation, including, without limitation, pursuant to
Section 16 of the Exchange Act.
THE STOCKHOLDER OPTION. The 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.
The number of Shares subject to the Stockholder Option and the purchase
price thereof are subject to adjustment, in accordance with the terms of the
Option and Support Agreement, in the event of a stock dividend or distribution,
or any change in the Shares by reason of any stock dividend, stock split,
spin-off, reorganization, recapitalization, reclassification, consolidation,
combination, exchange of shares or the like, 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 being exchanged for or
converted into cash, securities or other property.
AGREEMENT TO TENDER SHARES. Pursuant to the Option and Support Agreement,
each Selling Stockholder agrees to validly tender (and not 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. In addition, each
Selling Stockholder agrees that, until the first to occur of the Effective Time
or the date the Merger Agreement is terminated in accordance with the terms
thereof, 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
Selling Stockholder shall vote (or cause to be voted), including by way of
written consent, all Shares held of record or beneficially owned, from time to
time by such Selling 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 the Option and Support
Agreement and any actions required in furtherance 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 the Option and Support Agreement; and (iii) except
as specifically requested in writing by
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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 Company Board; (2) any material change
in the present capitalization of the Company or any amendment of the Company's
Certificate of Incorporation or Bylaws; (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 the Option and Support
Agreement or the contemplated economic benefits of any of the foregoing.
Moreover, such Selling Stockholder shall not enter into any agreement or
understanding which is inconsistent with clauses (i), (ii) or (iii) of the
preceding sentence.
Until the earlier to occur of the Effective Time and the termination of the
Merger Agreement pursuant to its terms, no Selling Stockholder shall (a) except
pursuant to the terms of the Merger Agreement and the Option and Support
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 Selling Stockholder's Shares or any
interest therein; (ii) grant any proxies or powers of attorney with respect to
any Shares beneficially owned by such Selling Stockholder, deposit any Shares
beneficially owned by such Selling Stockholder into a voting trust or enter into
a voting agreement with respect to any Shares beneficially owned by such Selling
Stockholder; or (iii) take any action that would make any representation or
warranty of such Selling Stockholder contained in the Option and Support
Agreement untrue or incorrect or have the effect of preventing or disabling such
Selling Stockholder from performing such Selling Stockholder's obligations under
the Option and Support Agreement.
Until the earlier to occur of the Effective Time and the termination of the
Merger Agreement pursuant to its terms, no Selling Stockholder shall, in its
capacity as such, directly or indirectly solicit, initiate, facilitate or
encourage any inquiries or the making of any 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 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 the Option and Support Agreement; provided, however, that the
foregoing shall not restrict a Selling Stockholder who is also a director of the
Company from taking actions in such Selling Stockholder's capacity as a director
to the extent and in the circumstances permitted under the Merger Agreement with
respect to an Acquisition Transaction. Such Selling Stockholder shall
immediately advise Parent in writing of the receipt by such Selling 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 with respect to such Acquisition
Transaction pursuant to 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. Under
the Option and Support Agreement, each Selling Stockholder and its agents and
representatives is required, upon the execution thereof, to cease any
discussions or negotiations with, and shall cease to provide any information to
or otherwise cooperate or encourage, any person with respect to an Acquisition
Transaction.
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DIVIDENDS AND DISTRIBUTIONS
The Company has not paid and does not intend to pay dividends on the Shares.
The Merger Agreement provides that the Company will not, among other things, (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.
CERTAIN CONDITIONS OF THE OFFER
Notwithstanding any other provisions of the Offer or 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 Purchaser's obligation to pay for or return
tendered Shares 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, if the
Minimum Condition shall not have been satisfied. Furthermore, notwithstanding
any other term of the Offer or the Merger Agreement, 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 have been 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 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 have been 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
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court, domestic or foreign, which is reasonably likely to result, directly
or indirectly, in any of the consequences referred to in clauses (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, as amended (the "HSR Act") 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 of the Commonwealth of
Pennsylvania, or the consummation of the Offer and the Merger will result in
the loss of any material license, permit, authorization, approval or
registration 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 Company Board or any committee thereof shall have withdrawn
or modified in a manner adverse to Parent or Purchaser its approval or
recommendation of the Offer, the Merger or the Merger Agreement, or approved
or recommended any Acquisition Transaction or Parent requests in writing
that the Company Board reconfirm its recommendation of the Offer, the Merger
and the Merger Agreement and the Company Board fails to do so within five
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 Company Board 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 shall be required to consummate the Merger, Purchaser is
not entitled to vote its Shares 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
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(k) The holders of all Options shall not have irrevocably agreed to
cancel such Options in return for the payment set forth in the Merger
Agreement;
(l) Parent shall not have received the employment and consulting
agreements, noncompete agreements, releases, excess payment agreement and
resignations from the persons contemplated by the Merger Agreement; or
(m) The Company shall not have obtained the insurance contemplated by
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 the acceptance for payment or payment for Shares
pursuant to the Offer.
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
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
above shall be final and binding upon all parties.
Should the Offer be terminated pursuant to the foregoing provisions, all
tendered Shares not theretofore accepted for payment shall forthwith be returned
by the Depositary to the tendering stockholders.
(iii) Consulting Agreement between the Company and Richard A. Niglio.
The Company and Richard A. Niglio, the Chairman and Chief Executive Officer
of the Company, have entered into a Consulting Agreement dated as of March 27,
1998. The Consulting Agreement will become effective on a date designated by
Parent, which will be on or after the date of consummation of the Offer and on
or before the date of the closing of the Merger. The Consulting Agreement has a
term of two years, subject to earlier termination by the Company. Under the
Consulting Agreement, Mr. Niglio will resign as an employee and an officer and
become a consultant to the Company as of the effective date thereof. Mr. Niglio
will consult with and advise and assist the Company in connection with such
matters as it may reasonably request, provided that he will not be required to
provide more than ten hours of consulting services per quarter. His compensation
under the Agreement will be $350,000 per year, and the full $700,000 for the
entire term of the Agreement will be paid to him on the effective date of the
Agreement. The Consulting Agreement provides that, during its term, Mr. Niglio
will not engage in any other business activity which would interfere with the
performance of his duties under the Consulting Agreement, including engaging in
any business that, as more than an incidental part of its business, operates
preschools or elementary schools (a "Competitive Business). In addition, for two
years from the effective date of the Consulting Agreement, even if it has been
terminated, he will not interfere with the Company's business relationships with
its customers or suppliers, employees or independent contractors, and will not
be engaged in, or own or control, or be associated with, any Competitive
Business anywhere in North America. Pursuant to the Consulting Agreement, Mr.
Niglio also agrees to maintain the confidentiality of the Company's proprietary
information. Mr. Niglio's Consulting Agreement supersedes any previous
employment, consulting or similar agreement between the Company and Mr. Niglio,
including, without limitation, his Employment Agreement with the Company entered
into as of January 15, 1998.
(iv) Employment Agreement between Parent and Elanna S. Yalow.
Parent and Elanna S. Yalow, a director and the President and Chief Operating
Officer of the Company, have entered into an Employment Agreement dated as of
March 27, 1998. The Employment Agreement will become effective on a date
designated by Parent, which will be on or after the date of consummation of the
Offer and on or before the date of the closing of the Merger. The Employment
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Agreement has a term of three years. If the Employment Agreement is terminated
earlier by Parent other than due to death or disability or for cause, Dr. Yalow
will receive one year's severance pay. Pursuant to the Employment Agreement, Dr.
Yalow will serve Parent in such executive capacity and will hold such offices
with Parent and/or its subsidiaries or affiliates as Parent's Board of Directors
may from time to time designate. Dr. Yalow's base compensation under the
Employment Agreement will be $200,000 per year, with eligibility for a 50%
bonus. She will be eligible to participate in any employee equity participation
program which may be developed by Parent or the Surviving Corporation, on terms
and conditions determined by Parent. In addition, options on common stock of the
Company which she will surrender in connection with the Merger will be replaced
with options, stock appreciation or other rights which will give her an economic
benefit substantially the same as that of the canceled options (provided that
such economic benefit does not constitute an "excess parachute payment" under
Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"). The
Employment Agreement provides that, during its term, Dr. Yalow will not compete
with Parent and that during employment and for two years from the date of
termination of employment she will not interfere with the Parent's business
relationships with its customers or suppliers, employees or independent
contractors. The Agreement also provides that during employment and, depending
on the circumstances under which such employment terminates, for an additional
period of up to two years after such termination, Dr. Yalow will not be engaged
in, or own or control, or be associated with, any business that operates
preschools or elementary schools anywhere in the world or, under certain
circumstances, any competitive business that involves any form of early
childhood or elementary education or that otherwise competes with Parent
anywhere in the world. Pursuant to the Employment Agreement, Dr. Yalow also
agrees to maintain the confidentiality of the Parent's proprietary information.
Dr. Yalow's Employment Agreement supersedes any previous employment, consulting
or similar agreement between the Company and Dr. Yalow, including her Employment
Agreement entered into as of January 15, 1998.
(v) Employment Agreements between the Company and Randall S. Truelove, Jane
A. Delaney and Frank A. Devine.
The Company has entered into Employment Agreements, each dated as of March
27, 1998, with Randall J. Truelove, the Chief Financial Officer of the Company,
Jane A. Delaney, Vice President of the Company, and Frank A. Devine, the
Secretary and General Counsel of the Company (each referred to in this Item
3(b)(v) as the "Executive"). The Employment Agreements have identical terms
except as noted below. Each Employment Agreement will become effective on a date
designated by the Company, which will be on or after the date of consummation of
the Offer and on or before the date of the closing of the Merger. Each
Employment Agreement has a term of two years. If an Agreement is terminated
earlier by the Company other than due to death or disability or for cause, the
Executive will receive one year's severance pay. If the Executive resigns during
the first year of the employment term, he or she will receive four months'
severance pay. If at any time during the employment term the Company advises Mr.
Truelove or Mr. Devine that his primary place of employment will be relocated to
outside of the San Francisco Bay Area and the Executive does not agree to
relocate, he will receive severance pay for six months or until the end of the
employment term, whichever occurs first. Pursuant to the Employment Agreements,
each Executive will serve in such executive capacity and will hold such offices
as the Company Board may from time to time designate. The base compensation
under the Employment Agreements will be $110,000 per year for Messrs. Truelove
and Devine and $90,000 per year for Ms. Delaney, in each case with eligibility
for a 30% bonus. Each Executive will be eligible to participate in any new
employee equity participation program which may be developed by the Company, on
terms and conditions determined by the Company. Each of the Employment
Agreements provides that, during its term, the Executive will not compete with
the Company and that during employment and for two years from the date of
termination of employment the Executive will not interfere with the Company's
business relationships with its customers or suppliers, employees or independent
contractors. Each Agreement also provides that, during employment and for two
years from the date of termination of employment, the Executive will not be
engaged in, or own or control, or be associated with, any business that involves
any form of early childhood or elementary
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education or that otherwise competes with the Company anywhere in the world,
except that this provision will not apply to Ms. Delaney after termination of
employment if her Employment Agreement is terminated by the Company without
cause. Pursuant to the Employment Agreements, each Executive also agrees to
maintain the confidentiality of the Company's proprietary information.
(vi) Excess Payment Agreement between the Company and Elanna S. Yalow.
The Company and Dr. Yalow have entered into an Excess Payment Agreement
dated as of March 27, 1998. Pursuant to this Agreement, the Company and Dr.
Yalow have agreed that, to the extent the repurchase by the Company of any of
her options (including options accelerated contingent upon consummation of the
Merger as described in "The Merger Agreement--Stock Options" under Item 3(b)(ii)
above) would cause her to receive an "excess parachute payment" under Section
280G of the Internal Revenue Code of 1986, as amended, she will surrender and
relinquish such options and the Company will cancel them.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(a) RECOMMENDATION OF BOARD OF DIRECTORS; BACKGROUND
In early October 1997, Richard A. Niglio, Chairman of the Board of Directors
and Chief Executive Officer of the Company, was contacted by representatives of
two companies inquiring whether the Company had any interest in exploring a
possible merger or other type of combination.
At the Company's October 29, 1997 Board meeting, Mr. Niglio informed the
Board members about the third party contacts. A full discussion ensued
concerning the Company and its industry and future prospects. After this
discussion, the Company Board authorized Mr. Niglio to meet with interested
third parties to discuss their ideas about a possible combination. In early
November 1997, Mr. Niglio was contacted directly by a third party as to the
Company's interest in exploring a possible merger or other type of combination.
During November and December 1997, Mr. Niglio met separately with executives
representing each of the three companies that had contacted him, including
representatives of Knowledge Universe, L.L.C., a Delaware limited liability
company ("Knowledge Universe"), which is the indirect parent of Preschool
Education Co., L.L.C., a Delaware limited liability company (and the direct
parent of Parent) ("PEC"), to discuss their interest and ideas regarding a
possible combination with the Company. Myron Wick, a member of both the Company
Board and the Company's Executive Committee, participated in certain of these
meetings. During this period, Dr. Elanna S. Yalow, a director and the President
and Chief Operating Officer of the Company, also met with representatives of
Knowledge Universe and PEC to discuss the Company's industry in general,
competition therein, and the Company's position in the industry relative to its
competition. By the middle of December 1997, the third interested party informed
Mr. Niglio that, for reasons related to its own internal developments, it did
not feel it could aggressively pursue a transaction with the Company at that
time.
On December 22, 1997, Knowledge Universe and PEC, acting through their
investment banker, made a non-binding proposal for the acquisition of the
Company, subject to terms and conditions customary in transactions of this kind.
Mr. Niglio called a meeting of the Company Board for January 5, 1998, to
consider the proposal. He also notified the other interested party of the
meeting date in the event it might be interested in also making a proposal by
that time.
At the January 5, 1998 meeting, the Company Board members discussed the
perceived differences between Knowledge Universe and PEC on the one hand and the
other interested party on the other hand and the potential impact on the Company
of a combination with one versus the other. The Company Board discussed the
appropriateness and timeliness of selling the Company, and it reviewed the terms
of the Knowledge Universe and PEC proposal, including its conditions. The
Company Board authorized Mr. Niglio to continue discussions with Knowledge
Universe and PEC.
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On January 6, 1998, the Board held a telephonic meeting. Mr. Niglio
described the continuing discussions with Knowledge Universe and PEC and
reported their request to undertake a due diligence review of the Company. The
Company Board determined to permit such due diligence on a non-exclusive basis.
Between January 9 and 23, 1998, Knowledge Universe and PEC undertook
physical inspections of a number of the Company's school facilities. In the same
period, a number of meetings took place between Company executives and
representatives of Knowledge Universe and PEC to assist with the due diligence
process. By January 23, 1998, Knowledge Universe and PEC had substantially
completed the physical inspection portion of their due diligence. In late
January 1998, PEC informed the Company that it would need to undertake legal and
accounting due diligence before it would be able to make a firm proposal, and it
proposed that such further due diligence be undertaken on an exclusive basis,
with economic protection should the Company enter into an alternative
transaction during, or within a limited period of time following, the conduct of
such due diligence.
At a telephonic Board meeting held on January 23, 1998, Mr. Niglio discussed
with the Company Board the continuing negotiations with PEC and the status of
its due diligence review. At the meeting, the Company Board members also
discussed information previously provided by McGettigan, Wick, the Company's
financial advisor, regarding its analysis of the Company's value. The Company
Board decided that negotiations for a possible transaction with PEC should be
continued, subject to the favorable completion of its legal and accounting due
diligence, and that PEC should be permitted to conduct that due diligence on an
exclusive basis.
On February 5, 1998, at the request of PEC, the Company and PEC entered into
an interim agreement under which the Company agreed not to pursue alternative
transactions with third parties during a specified period of time to permit
further due diligence. The Company also granted PEC a one year option with
contingent exercise rights on 300,000 shares of Common Stock at $9.50 per share
and agreed to reimburse PEC certain due diligence expenses under certain
circumstances. The Company Board had approved the terms of this interim
agreement at a telephonic Board meeting held on February 3, 1998.
On February 27, 1998, Parent advised the Company that it and its affiliates
had completed the due diligence review of the Company and that they were
prepared to purchase the Company for cash at a price of $12.25 per share,
subject to execution of a definitive agreement. From late February 1998 through
late March 1998, Parent and the Company negotiated the terms and conditions of
the Merger Agreement, the Option and Support Agreement and related documents.
On March 18, 1998, a telephonic Board meeting was held which was attended by
all Board members. At the meeting, the Company Board, together with the
Company's executive officers, the Company's outside legal counsel and a
representative of Advest, reviewed the terms and conditions of the Option and
the Merger as set forth in drafts of the Merger Agreement, the Option and
Support Agreement and related documents. The Company Board heard presentations
by its outside legal counsel with respect to the terms of the proposed
transaction. The Company Board also heard a presentation by the representative
of Advest with respect to the financial terms of the proposed Offer and Merger.
At the conclusion of this presentation, the representative of Advest delivered
Advest's oral opinion to the Company Board (as set forth in their written
opinion dated March 18, 1998) that, as of such date, the consideration proposed
to be paid to the stockholders of the Company in the Offer and the Merger was
fair, from a financial point of view, to such holders. Based upon such
discussions, presentations and opinion, the Company Board, by a unanimous vote,
approved the Offer and the Merger and authorized Mr. Niglio to complete
negotiations of the Merger Agreement, the Option and Support Agreement and the
related documents.
Additional negotiations of the Merger Agreement and the Option and Support
Agreement were completed on March 27, 1998, at which time the parties executed
the Agreements and delivered the signature pages thereto into escrow pending the
delivery of certain ancillary documents, which were
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delivered to Parent on March 29, 1998. A joint press release announcing the
execution of the Agreements was released by the parties prior to the opening of
the financial markets on March 30, 1998.
(b) REASONS FOR RECOMMENDATIONS OF BOARD OF DIRECTORS
In reaching its conclusions and recommendations described above, the Board
of Directors considered a number of factors, including the following:
(i) The Company's business, financial condition, results of operations,
assets, liabilities, business strategy and prospects, as well as various
uncertainties associated with those prospects.
(ii) The Company's existing competition in the industry in which it
operates and future competition, the relative size of the other participants
in the industry in which it operates and the available capital and resources
of such other participants as compared to the available capital and
resources of the Company.
(iii) The opinion of Advest, the Company's financial advisor, that, as of
the date of its written opinion and based upon and subject to various
considerations and assumptions set forth therein, the consideration to be
paid to the Company's stockholders pursuant to the Merger Agreement in the
Offer and the Merger is fair, from a financial point of view, to such
stockholders. A copy of the opinion rendered by Advest to the Company Board,
setting forth the procedures followed, the matters considered, the scope of
the review undertaken and the assumptions made by Advest in arriving at its
opinion, is attached hereto as Schedule I and is incorporated herein by
reference. Stockholders are urged to read such opinion in its entirety.
(iv) The financial analysis performed by Advest which indicated, among
other things, that based upon a discounted cash flow analysis of the
projections prepared by management of the Company, a comparable company
analysis and a comparable acquisition analysis, the Offer and the Merger
would be reasonably likely to provide the Company's stockholders with value
superior to alternative sales.
(v) The financial analyses performed by McGettigan, Wick and presented
to the Board.
(vi) The historical and current market prices of the Company's common
stock.
(vii) The fact that the Offer and the Merger would not be subject to a
financing condition.
(viii) The alternatives to the Offer and the Merger available to the
Company, including, without limitation, continuing to maintain the Company
as an independent company.
(ix) The fact that the Offer and the Merger are stock transactions for
cash consideration, thus eliminating corporate taxation that would be
triggered in an asset sale and any uncertainties in valuing the
consideration to be received by the Company's stockholders.
(x) The financial and other terms and conditions of the Offer, the
Merger and the Merger Agreement, including, without limitation, that the
terms of the Merger Agreement will not prevent other third parties from
making certain bona fide proposals subsequent to execution of the Merger
Agreement, will not prevent the Company Board from determining, in the
exercise of its fiduciary duties in accordance with the Merger Agreement, to
provide information to and engage in negotiations with such third parties,
and will permit the Company, subject to the non-solicitation provisions and
the payment of the termination fee discussed above, to enter into a
transaction with a third party that would be more favorable to the Company's
stockholders than the Offer and the Merger.
(xi) The structure of the transaction, which is designed, among other
things, to result in the holders of Shares receiving, at the earliest
practicable time, the consideration to be paid in the Offer and the fact
that the consideration to be paid in the Offer and the Merger is the same.
(xii) The likelihood that the Offer and the Merger would be consummated.
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The foregoing discussion of the information and factors considered and given
weight by the Board of Directors is not intended to be exhaustive. In view of
the variety of factors considered in connection with its evaluation of the Offer
and the Merger, the Board of Directors did not find it practicable to, and did
not, quantify or otherwise assign relative weights to the specific factors
considered in reaching its determination. In addition, individual members of the
Board of Directors may have given different weights to different factors.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
Pursuant to a letter agreement dated January 5, 1998, the Company retained
McGettigan, Wick to provide financial advisory services relative to the
structuring, evaluation, negotiation, documentation and closing of the sale or
merger of the Company, including the rendering of a fairness opinion if
requested by the Company Board. Pursuant to the engagement letter, the Company
has agreed to pay McGettigan, Wick a success fee of $1 million upon the closing
of the sale of the Company, less the cost to the Company of the Advest fairness
opinion referred to below. The Company has also agreed to reimburse McGettigan,
Wick's reasonable expenses, including the fees and disbursements of its counsel,
and to indemnify and defend McGettigan, Wick and certain related persons against
certain liabilities in connection with the engagement.
Pursuant to a letter agreement dated February 9, 1998, the Company retained
Advest to provide investment banking services, including the rendering of a
fairness opinion regarding the terms of the transaction contained in the Offer.
Pursuant to the engagement letter, the Company paid Advest an initial fee of
$25,000 and has agreed to pay it an additional $50,000 upon consummation of the
tender offer. In addition, if a proxy statement is mailed to the stockholders of
the Company in connection with consummation of the Merger, then the Company will
pay Advest an additional $25,000 at the time of such mailing. The Company has
also agreed to reimburse Advest's reasonable expenses, including the fees and
disbursements of its counsel, and to indemnify and defend Advest and certain
related persons against certain liabilities in connection with the engagement.
Except as disclosed herein, neither the Company nor any person acting on its
behalf currently intends to employ, retain or compensate any other person to
make solicitations or recommendations to security holders on its behalf
concerning the Offer or the Merger.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) No transactions in Shares have been effected during the past 60 days by
the Company or, to the best of the Company's knowledge, by any executive
officer, director, affiliate or subsidiary of the Company.
(b) To the best of the Company's knowledge, each executive officer, director
and affiliate of the Company currently intends to tender to Purchaser all Shares
over which such person has sole dispositive power as of the expiration date of
the Offer.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY.
(a) Except as set forth in this Schedule 14D-9, no negotiation is being
undertaken or is underway by the Company in response to the Offer which relates
to or would result in: (1) an extraordinary transaction such as a merger or
reorganization involving the Company; (2) a purchase, sale or transfer of a
material amount of assets by the Company; (3) a tender offer for or other
acquisition of securities by or of the Company; or (4) any material change in
the present capitalization or dividend policy of the Company.
(b) Except as described in Items 3(b), 3(c) or 4(a) above, there are no
transactions, Board of Directors resolutions, agreements in principle or signed
contracts in response to the Offer that relate to or would result in one or more
of the events referred to in Item 7(a) above.
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ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
(a) INFORMATION STATEMENT
The Information Statement attached as Schedule II hereto is being furnished
in connection with the possible designation by Parent, pursuant to the Merger
Agreement, of certain persons to be appointed to the Board of Directors other
than at a meeting of the Company's stockholders, as described in Item 3(b)
above.
(b) SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
As a Delaware corporation, the Company is subject to Section 203 ("Section
203") of the DGCL. Under Section 203, certain "business combinations" between a
Delaware corporation whose stock is publicly traded or held of record by more
than 2,000 stockholders and an "interested stockholder" are prohibited for a
three-year period following the date that such a stockholder became an
interested stockholder, unless, among other possible exemptions, the transaction
in which the stockholder became an interested stockholder or the business
combination was approved by the board of directors of the corporation before
such other party to the business combination became an interested stockholder.
The term "business combination" is defined generally to include mergers or
consolidations between a Delaware corporation and an interested stockholder,
transactions with an interested stockholder involving the assets or stock of the
corporation or its majority-owned subsidiaries and transactions which increase
an interested stockholder's percentage ownership of stock. The term "interested
stockholder" is defined generally as a stockholder who, together with affiliates
and associates, owns (or, within three years prior, did own) 15% or more of a
Delaware corporation's voting stock. An owner includes a person who has the
right to acquire such stock, including upon the exercise of an option.
In accordance with the Merger Agreement and Section 203, at its meeting on
March 18, 1998, the Company Board unanimously approved the Offer and the Merger
and determined to make the restrictions of Section 203 inapplicable to the Offer
and the Merger.
(c) ANTITRUST
Under the provisions of the HSR Act applicable to the Offer, the acquisition
of Shares by Purchaser under the Offer may be consummated only following the
expiration or early termination of the applicable waiting period under the HSR
Act.
Under the provisions of the HSR Act applicable to the purchase of Shares
pursuant to the Offer, such purchase may not be made until the expiration of a
15-calendar day waiting period following the required filing of a Notification
Report Form under the HSR Act by the ultimate parent entity of Purchaser, which
the Company understands will be submitted on April 3, 1998. Accordingly, the
waiting period under the HSR Act will expire at 11:59 P.M., New York City time,
on April 18, 1998, unless early termination of the waiting period is granted by
the Federal Trade Commission ("FTC") and the Department of Justice, Antitrust
Division (the "Antitrust Division"), or the ultimate parent entity of Purchaser
receives a request for additional information or documentary material prior
thereto. If either the FTC or the Antitrust Division issues a request for
additional information or documentary material prior to the expiration of the
15-day waiting period, the waiting period will be extended and will expire at
11:59 P.M., New York City time, on the tenth calendar day after the date of
substantial compliance by the ultimate parent entity of Purchaser with such
request unless terminated earlier by the FTC and the Antitrust Division. If such
a request is issued, the purchase of and payment for Shares pursuant to the
Offer will be deferred until the additional waiting period expires or is
terminated. Only one extension of such waiting period pursuant to a request for
additional information or documentary material is authorized by the rules
promulgated under the HSR Act. Thereafter, the waiting period can be extended
only by court order or by consent of the ultimate parent entity of Purchaser.
23
<PAGE>
The Antitrust Division and the FTC frequently scrutinize the legality under
the antitrust laws of transactions such as the proposed acquisition of the
Company pursuant to the Offer. At any time before or after Purchaser's
acquisition of Shares pursuant to the Offer, the Antitrust Division or the FTC
could take such action under the antitrust laws as either deems necessary or
desirable in the public interest, including seeking to enjoin the purchase of
Shares pursuant to the Offer or the consummation of the Merger or seeking the
divestiture of Shares acquired by Purchaser or the divestiture of substantial
assets of the Company or its subsidiaries or Parent and Purchaser or their
subsidiaries. Private parties and states Attorneys General may also bring legal
action under the antitrust laws under certain circumstances. There can be no
assurance that a challenge to the Offer on antitrust grounds will not be made,
or, if such a challenge is made, of the result thereof.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
<TABLE>
<S> <C>
Exhibit 1 Agreement and Plan of Merger, dated as of March 27, 1998, by and among Knowledge
Beginnings, Inc., KBI Acquisition Corp. and Children's Discovery Centers of
America, Inc.
Exhibit 2 Option and Support Agreement, dated as of March 27, 1998, by and among Knowledge
Beginnings, Inc., Children's Discovery Centers of America, Inc., Proactive
Partners, L.P., Fremont Proactive Partners, L.P. and Lagunitas Partners, L.P.
Exhibit 3 Letter to Stockholders of the Company, dated April 3, 1998.*
Exhibit 4 Press Release of Children's Discovery Centers of America, Inc., dated March 29,
1998.
Exhibit 5 Opinion of Advest, Inc., dated March 18, 1998. (Included herein as Schedule I).*
Exhibit 6 Consulting Agreement, dated as of March 27, 1998, between Children's Discovery
Centers of America, Inc. and Richard A. Niglio.
Exhibit 7 Excess Payment Agreement, dated as of March 27, 1998, between Children's
Discovery Centers of America, Inc. and Elanna S. Yalow.
Exhibit 8 Employment Agreement, dated as of March 27, 1998, between Knowledge Beginnings,
Inc. and Elanna S. Yalow.
Exhibit 9 Employment Agreement, dated as of March 27, 1998, between Children's Discovery
Centers of America, Inc. and Randall J. Truelove.
Exhibit Employment Agreement, dated as of March 27, 1998, between Children's Discovery
10 Centers of America, Inc. and Frank A. Devine.
Exhibit Employment Agreement, dated as of March 27, 1998, between Children's Discovery
11 Centers of America, Inc. and Jane A. Delaney.
Exhibit Information Statement pursuant to Section 14(f) of the Securities Exchange Act
12 of 1934 and Rule 14f-1 thereunder. (Included herein as Schedule II).*
</TABLE>
- ------------------------
* Included in copies mailed to stockholders
24
<PAGE>
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
<TABLE>
<S> <C> <C>
CHILDREN'S DISCOVERY CENTERS OF AMERICA, INC.
By: /s/ RICHARD A. NIGLIO
-----------------------------------------
Richard A. Niglio
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
</TABLE>
Dated: April 3, 1998
25
<PAGE>
SCHEDULE I
[Letterhead of Advest, Inc.]
March 18, 1998
Board of Directors
c/o Richard A. Niglio
Children's Discovery Centers of America, Inc.
851 Irwin Street, Suite 200
San Rafael, California 94901
Members of the Board:
We understand that Children's Discovery Centers of America, Inc. ("CDC" or
the "Company") is expected to enter into a definitive agreement (the
"Agreement"), with Knowledge Beginnings, Inc. ("KB") pursuant to which KB will
purchase all of the outstanding shares of common stock, par value $0.01 per
share, of CDC, for $12.25 per share in cash in a proposed tender offer (the
"Proposed Transaction"). We assume that the other terms and conditions of the
Agreement will be as set forth in the draft Agreement and Plan of Merger dated
March 13, 1998.
You have asked us whether, in our opinion, the financial terms of the
Proposed Transaction, taken as a whole, are fair from a financial point of view,
to the Company and its shareholders.
Advest, Inc. ("Advest"), as part of its investment banking business is
regularly engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, private placements of equity and debt
and negotiated underwritings.
In connection with this opinion, Advest has reviewed annual reports on Form
10-K of the Company for the five years ended December 31, 1996; quarterly
reports on form 10-Q; the draft Agreement and Plan of Merger dated March 13,
1998; and certain internal financial statements and other financial operating
data concerning the Company; analyzed certain projections of the Company
prepared by its management for the year ending December 31, 1998; and discussed
the past and current operations and financial conditions and the prospects of
the Company with senior executives. In addition, Advest has compared the
financial performance of the Company's stock price and trading activity of the
Company's common stock with those of certain other comparable publicly-traded
companies. Advest has also reviewed the financial terms, to the extent publicly
available, of certain comparable acquisition transactions and performed such
other analyses and examinations and considered such other factors as we have
deemed appropriate.
In arriving at our opinion, we were not authorized to solicit, and did not
solicit, interest from any party with respect to the acquisition of the Company
or any of its assets. In preparing the opinion, we have assumed and relied upon,
without independent verification, the accuracy and completeness of the
information reviewed by us for the purpose of this opinion including information
from public sources and databases for purposes of our analysis. Furthermore, we
have not conducted a physical inspection of the properties or facilities of the
Company or made or obtained any independent valuation or appraisal of the assets
or liabilities of the Company, nor have we been furnished with any such
independent valuations or appraisals.
The Company has agreed to pay Advest a fee for delivery of this opinion
letter. Advest has provided certain investment banking services to the Company
in the past and has received fees for rendering these services. This opinion is
necessarily based on economic, market and other conditions as they exist and can
be evaluated by us as of the date of this letter.
Our opinion expressed herein is provided for the information of the Board of
Directors of CDC in its evaluation of the Proposed Transaction. We understand
and consent that our opinion will be filed with the
26
<PAGE>
Securities and Exchange Commission and may be included with proxy materials
mailed to shareholders of CDC.
Based upon and subject to the foregoing, we are of the opinion that as of
the date hereof, the $12.25 per share in cash, to be received by the holders of
the outstanding common stock pursuant to the Proposed Transaction is fair, from
a financial point of view, to the Company and its shareholders.
<TABLE>
<S> <C> <C>
Very truly yours,
/s/ ADVEST, INC.
-----------------------------------------
Advest, Inc.
</TABLE>
27
<PAGE>
SCHEDULE II
CHILDREN'S DISCOVERY CENTERS OF AMERICA, INC.
851 IRWIN STREET, SUITE 200
SAN RAFAEL, CALIFORNIA 94901
INFORMATION PURSUANT TO SECTION 14(f)
OF THE SECURITIES EXCHANGE ACT OF 1934
AND RULE 14f-1 THEREUNDER
The following information is being furnished to holders of the common stock,
par value $.01 per share ("Common Stock"), of Children's Discovery Centers of
America, Inc., a Delaware corporation (the "Company"), in connection with the
possible designation by Knowledge Beginnings, Inc., a Delaware corporation
("Parent"), of at least a majority of the members of the Board of Directors of
the Company pursuant to the terms of an Agreement and Plan of Merger, dated as
of March 27, 1998 (the "Merger Agreement"), by and among the Company, Parent and
KBI Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of
Parent ("Purchaser"). THIS INFORMATION IS BEING PROVIDED SOLELY FOR
INFORMATIONAL PURPOSES AND NOT IN CONNECTION WITH A VOTE OF THE COMPANY'S
STOCKHOLDERS.
The Merger Agreement provides that, subject to compliance with applicable
law, promptly following the purchase of any Shares 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 persons
designated by Parent to become directors of the Company (the "Parent Designees")
so that the total number of directorships held by such persons is proportionate
to the percentage calculated by dividing (i) the number of Shares accepted for
payment pursuant to the Offer plus Shares beneficially owned by Parent or any
affiliate thereof by (ii) the total number of Shares outstanding. The Company
has also agreed to increase the size of the Board of Directors or exercise
reasonable best efforts to secure the resignation of existing directors so as to
enable Parent's designees to be elected to the Board of Directors in accordance
with such provisions.
The information contained in this Schedule II concerning Parent and
Purchaser has been furnished to the Company by Parent, and the Company assumes
no responsibility for the accuracy or completeness of any such information.
VOTING SECURITIES OF THE COMPANY
As of March 27, 1998, there were issued and outstanding 6,744,499 shares of
Common Stock, each of which entitles the holder to one vote.
28
<PAGE>
BOARD OF DIRECTORS, PARENT DESIGNEES
AND EXECUTIVE OFFICERS
BOARD BIOGRAPHICAL INFORMATION
The persons named below are the current members of the Board of Directors.
The following sets forth as to each director his or her age (as of March 27,
1998), principal occupation and business experience, and the period during which
he or she has served as a director.
<TABLE>
<CAPTION>
NAME AGE DIRECTOR SINCE
- ------------------------------------------------------------------------- --- ---------------
<S> <C> <C>
Richard A. Niglio(1)(2).................................................. 55 1987
Elanna S. Yalow.......................................................... 43 1996
W. Wallace McDowell, Jr.(4).............................................. 61 1984
Robert E. Kaufmann(3).................................................... 57 1985
Michael J. Connelly(1)(2)(3)............................................. 47 1992
Mark P. Clein(2)......................................................... 38 1991
Myron A. Wick, III(1)(4)................................................. 54 1993
</TABLE>
- ------------------------
(1) Member of the Executive Committee.
(2) Member of the Audit Committee.
(3) Member of Quality Committee.
(4) Member of Compensation Committee.
The following is a brief summary of the background of each director of the
Company:
Richard A. Niglio was appointed Chief Executive Officer of the Company in
March 1987. From 1982 until joining the Company, he was President, Chief
Executive Officer and a director of Victoria Station Incorporated, a restaurant
chain based in Larkspur, California. From 1971 until 1982, Mr. Niglio was
President of Mr. Donut of America, Inc., a wholly-owned subsidiary of
International Multifoods Corp. Mr. Niglio is currently a director and member of
the Compensation Committee of the Board of Directors of PMR Corporation, a
manager of psychiatric partial hospitalization services.
Elanna S. Yalow has been President and a director of the Company since
January 1996. Dr. Yalow was retained by the Company from July 1989 until April
1992, as a self-employed consultant to develop the Company's employee-sponsored
business. She was appointed as a Vice President in 1992 and was promoted to
Executive Vice President in 1994. From September 1987 until June 1989, Dr. Yalow
attended Stanford University Graduate School of Business, graduating with a
Masters degree in Business Administration. Dr. Yalow has a doctorate in
Educational Psychology from the Stanford University School of Education.
W. Wallace McDowell, Jr. has been a director of the Company since November
1984. Mr. McDowell is currently a private investor. From January 1991 until
October 1994, Mr. McDowell was a Managing Director of Morgan Lewis Githens &
Ahn, the general partner of an investment partnership concentrating on leveraged
transactions. Mr. McDowell was Chairman and Chief Executive Officer of The
Prospect Group, Inc. from November 1983 to January 1990. Mr. McDowell is a
director of U.S. HomeCare Corporation, a provider of comprehensive home health
care services; Excelsior Funds, a group of mutual funds; and I.T.I.
Technologies, Inc., a manufacturer of home security devices.
Robert E. Kaufmann has been a director of the Company since July 1985. Since
June 1, 1995, Mr. Kaufmann has been an executive search consultant for Spencer
Stuart. From 1980 until July 1994, Mr. Kaufmann was Headmaster of Deerfield
Academy, Deerfield, Massachusetts. From 1971 to 1975, he was Assistant Dean and
from 1975 to 1980 Associate Dean for Finance and Administration, Faculty of Arts
and Sciences, Harvard University.
29
<PAGE>
Michael J. Connelly has been a director of the Company since November 1992.
Since April 1987, Mr. Connelly has been President of Lepercq Capital Management,
Inc., the venture capital subsidiary of Lepercq de Neuflize & Co. Inc., a New
York-based portfolio management and investment banking firm, and the Managing
General Partner of LN Investment Capital Limited Partnership ("LNIC"). He is
also Chairman, Chief Executive Officer and a director of The MNI Group, Inc., a
public company engaged in the weight-control and health and beauty aid
businesses. Mr. Connelly was originally nominated for election as a director
pursuant to an agreement entered into in connection with the Company's
acquisition of American Family Service Corporation ("AFSC") in November 1992
(the "AFSC Agreement"). See "Certain Relationships and Related Transactions."
Mark P. Clein has been a director of the Company since April 1991. Since May
1996, Mr. Clein has been Chief Financial Officer of PMR Corporation, a manager
of psychiatric partial hospitalization services. Mr. Clein was a Managing
Director of Jefferies & Co., Inc., an investment banking firm, from August 1995
to May 1996. Mr. Clein was a Managing Director of Rodman & Renshaw Inc., an
investment banking firm, from March 1993 until March 1995, and a director of
Mabon Securities Corp., an investment banking firm, from March to August 1995.
Mr. Clein was a Vice President of Sprout Group, the venture capital affiliate of
Donaldson, Lufkin & Jenrette, Inc., from May 1991 until March 1993. From January
1989 to April 1991, Mr. Clein served as acting Chief Executive Officer of Magic
Years Child Care & Learning Centers, Inc., an operator of child care centers
located in the Northeast acquired by the Company in April 1991, and served as
Chairman of the Board from March to September 1990. From 1982 until February
1990 and from August 1990 to May 1991, Mr. Clein was a Vice President of Merrill
Lynch Venture Capital, Inc.
Myron A. Wick, III has been a director of the Company since June 1993. Since
1988, Mr. Wick has been a Managing Director of McGettigan, Wick & Co., Inc., a
private investment banking firm. Since 1991, Mr. Wick has been a general partner
of Proactive Investment Managers, L.P., which is the general partner of
Proactive Partners, L.P., a merchant banking fund. Mr. Wick is a director of the
following public companies: NDE Environmental Corporation, which provides
systems and services to detect leaks in underground storage tanks; Phoenix
Network, Inc., a reseller of long distance telephone service; Sonex Research,
Inc., which is engaged in development of fuel combustion technology; WrayTech
Instruments, Inc., which manufactures and sells industrial weighing gauges;
Modtech, Inc., which designs, manufactures and installs modular relocatable
classrooms; DIGITAL DICTATION, INC., a medical transcription firm which supplies
services to hospitals and medical groups.
INFORMATION CONCERNING PARENT DESIGNEES
Parent has informed the Company that it will select the Parent Designees
from among Thomas J. Kalinske (age 53), Ronald J. Packard (age 35) and Deborah
Bond-Upson (age 48), each of whom is a director or executive officer of Parent,
certain subsidiaries of Parent or Purchaser. Information concerning the Parent
Designees is contained in Annex I to the Offer to Purchase, a copy of which is
being mailed to the Company's stockholders together with this Schedule 14D-9.
The information in such Annexes is incorporated herein by reference. In addition
to the information concerning Mr. Kalinske in such Annexes, Mr. Kalinske is a
director of CRT PLC. Parent has also informed the Company that each of such
directors and executive officers has consented to act as a director of the
Company, if so designated. It is expected that none of the Parent Designees will
receive any compensation for services performed in his or her capacity as a
director of the Company.
COMMITTEES OF THE BOARD OF DIRECTORS; BOARD OF DIRECTORS MEETINGS
During 1997, the Company's Board of Directors met five (5) times. There are
four standing committees of the Board of Directors, the functions of which are
described below.
30
<PAGE>
AUDIT COMMITTEE. The functions of the Audit Committee are to recommend to
the Board the appointment of independent public accountants for the Company and
the terms of their engagement, and to review, coordinate, analyze and assess
financial information presented to it by the independent public accountants and
the Chief Financial Officer of the Company. The Audit Committee is comprised of
Messrs. Connelly, Clein and Niglio. The Audit Committee met once during 1997.
COMPENSATION COMMITTEE. The task of the Compensation Committee is to review
and determine levels of executive compensation for the Company, as well as to
administer the Company's Stock Option Plan. The Compensation Committee is
comprised of Messrs. McDowell and Wick. The Compensation Committee took action
by unanimous written consent three times during 1997.
EXECUTIVE COMMITTEE. During intervals between the meetings of the Board of
Directors, the Executive Committee exercises all the powers of the Board (except
those specifically reserved by Delaware law to the full Board of Directors) in
the management and direction of the business of the Company in all cases in
which specific directions have not been given by the Board. The Executive
Committee is comprised of Messrs. Connelly, Wick and Niglio. The Executive
Committee did not meet during 1997.
QUALITY COMMITTEE. The Quality Committee is charged with the task of
establishing and implementing policies and procedures in the following areas:
curriculum, training, safety and remediation. The Quality Committee is comprised
of Mr. Kaufmann and Mr. Connelly. The Quality Committee met once during 1997.
There is no nominating committee or any committee performing similar
functions. The Board determines nominees for election to the Board, subject to
any applicable agreements giving certain persons the right to designate a
nominee.
During 1997, no director attended fewer than 75% of the aggregate of the
total number of meetings of the Board or the total number of meetings of the
Committees on which any individual director served, except Mr. McDowell, who was
unable to attend two meetings of the Board.
To the Company's knowledge, no decision has been made by the Parent
Designees regarding the membership of any committees of the Board.
COMPENSATION OF DIRECTORS
Directors of the Company are reimbursed for actual expenses incurred in
connection with attendance at the Company Board and Committee meetings.
Directors who are employed by the Company receive no director fees, while other
directors each receive a retainer of $10,000 a year, plus $1,000 for attendance
at each Board meeting and $500.00 for attendance at each Committee meeting.
Directors who are employees of the Company receive no additional compensation
for their services as directors. However, such directors are reimbursed for
their reasonable expenses incurred in connection with attendance at or
participation in meetings of the Board of Directors or committees of the Board
of Directors.
During 1993, the Company established a Non-Employee Directors' Stock Option
Plan ("Directors' Plan") and authorized the reservation of 180,000 shares of
Common Stock for issuance thereunder. Pursuant to the Directors' Plan, effective
as of December 9, 1993 (the date on which an underwritten public offering of its
Common Stock was commenced (the "1993 Public Offering")), each of the non-
employee directors of the Company (consisting of Messrs. McDowell, Kaufmann,
Clein, Connelly and Wick) received an option to purchase 11,500 shares of Common
Stock at an exercise price of $8.00 per share, which was the offering price of
the Common Stock in the 1993 Public Offering. In addition, pursuant to the
Directors' Plan, upon reelection to the Board following the Company's annual
meeting in 1995 and 1996, each non-employee director received an option to
purchase 3,500 shares of Common Stock at exercise prices of $16.38 and $7.63 per
share, respectively. No director is entitled to receive, in the aggregate,
options to purchase more than 30,000 shares of Common Stock under the Directors'
Plan. In
31
<PAGE>
August 1996, the Directors' Plan was amended to eliminate the automatic grant of
stock options upon reelection to the Board of Directors of any person and to
authorize the Board [or the Compensation Committee] to "grant options" on a
discretionary basis to non-employee directors in such amounts as the Board or
the Committee deems appropriate and with no individual limitation.
Simultaneously, each non-employee director was granted options for 6,000 shares
under the Directors' Plan, one-third of which were immediately exercisable and
an additional one-third exercisable on each of the first two anniversaries of
the date of grant. Options granted under the Directors' Plan have an exercise
price equal to the fair market value of the Common Stock on the date of grant.
All options granted under the Directors' Plan will expire ten years from the
date of grant.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors and executive officers, and
persons who own more than ten percent of a registered class of the Company's
equity securities, to file with the Securities and Exchange Commission (the
"SEC") initial reports of ownership of Common Stock on Form 3 and reports of
changes in ownership of Common Stock on Forms 4 or 5 and to furnish the Company
with copies of all forms they file.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company, all Section 16(a) filing requirements
applicable to its executive officers, directors and greater than ten percent
beneficial owners were complied with in 1997, except that (a) on April 3, 1998,
Mr. Niglio reported the grant, on April 2, 1997, of options for 25,000 shares of
common stock, (b) on April 3, 1998 Dr. Yalow reported the grant, on April 2,
1997, of options for 100,000 shares of common stock and (c) on April 3, 1998,
Mr. Devine reported the grant, on April 2, 1997, of options for 10,000 shares of
common stock.
EXECUTIVE OFFICERS
Executive officers serve at the discretion of the Board of Directors. The
following table sets forth certain information concerning the executive officers
of the Company (as of March 27, 1998) who are expected to serve in such capacity
until the consummation of the Merger (none of whom has a family relationship
with any other executive officer):
<TABLE>
<CAPTION>
NAME POSITION AGE
- ------------------------------------------- ------------------------------------------- -----------
<S> <C> <C>
Richard A. Niglio.......................... Chairman and Chief Executive Officer 55
Elanna S. Yalow............................ President and Chief Operating Officer 43
Randall J. Truelove........................ Chief Financial Officer 49
Jane A. Delaney............................ Vice President 34
Frank A. Devine............................ Secretary 51
</TABLE>
For a brief summary of the backgrounds of Mr. Niglio and Dr. Yalow see
"--Board Biographical Information," above. The following is a brief summary of
the background of each other executive officer of the Company:
Randall J. Truelove has been Vice President, Finance of the Company since
December 1987. From 1982 until joining CDC, Mr. Truelove was Controller of
Victoria Station Incorporated.
Jane A. Delaney has been a Vice President of the Company since June 1995 and
from 1991 to 1995 was a Regional Director with the Company.
Frank A. Devine has been Secretary and General Counsel of the Company since
October 1987. Prior to that time, Mr. Devine was Corporate Counsel of Victoria
Station Incorporated.
32
<PAGE>
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information with respect to the beneficial
ownership, as of March 27, 1998, of the Common Stock by (i) any person known by
the Company to beneficially own more than 5% of the outstanding Common Stock;
(ii) each director of the Company; (iii) the Company's Chief Executive Officer
and each of the four most highly compensated executive officers (collectively,
the "Named Officers") whose total salaries and bonuses exceeded $100,000 for
services rendered to the Company during the last fiscal year; and (iv) all
directors and executive officers of the Company as a group, including the Named
Officers. On March 20, 1998, there were 6,744,499 shares of Common Stock issued
and outstanding.
<TABLE>
<CAPTION>
NUMBER OF SHARES
OF COMMON STOCK
BENEFICIALLY PERCENTAGE
NAME AND ADDRESS OF BENEFICIAL OWNER* OWNED OWNERSHIP
- ----------------------------------------------------------------------------------- ----------------- -------------
<S> <C> <C>
(a) 5% Stockholders
Gruber & McBaine Capital Management, Inc., et al. .............................
50 Osgood Place
San Francisco, CA 94133 1,363,700(1) 20.2%
Heartland Advisors, Inc .......................................................
790 North Milwaukee Street
Milwaukee, Wisconsin 53202 880,000(2) 13.0%
Wellington Management Company .................................................
75 State Street
Boston, Massachusetts 02109 620,000(3) 9.2%
Kennedy Capital Management, Inc ...............................................
425 N. New Ballas Road, Suite 181
St. Louis, Missouri 63141 493,250(4) 7.3%
Dimensional Fund Advisors, Inc ................................................
1299 Ocean Avenue
Santa Monica, California 90401 380,600(5) 5.6%
(b) Directors
Richard A. Niglio.............................................................. 510,182(6) 7.2%
Elanna S. Yalow................................................................ 176,655(7) 2.6%
W. Wallace McDowell, Jr........................................................ 33,262(8) **
Robert E. Kaufmann............................................................. 30,100(9) **
Mark P. Clein.................................................................. 33,100(10) **
Michael J. Connelly............................................................ 67,066(11) 1.0%
Myron A. Wick, III............................................................. 750,100(12) 11.1%
(c) All directors and executive officers as a group (includes 10 persons)(13)...... 1,763,975 23.3%
</TABLE>
- ------------------------
* Except as noted below, each beneficial owner has sole voting and investment
power with respect to the shares reported.
** Represents less than 1% of the outstanding Common Stock.
33
<PAGE>
(1) According to information supplied to the Company by Gruber & McBaine
Capital Management, Inc. ("GMCM"), an investment adviser, Jon D. Gruber and
J. Patterson McBaine, the executive officers, directors and stockholders of
GMCM, Lagunitas Partners, L.P. ("Lagunitas"), an investment partnership for
which GMCM and Messrs. Gruber and McBaine are the general partners,
Proactive Investment Managers, L.P. ("PIM") as the general partner of
Proactive Partners, L.P. ("PP") and Fremont Proactive Partners, L.P.
("FPP"), two investment partnerships, and Charles C. McGettigan and Myron
A. Wick, III, who are general partners (along with Messrs. Gruber and
McBaine), in PIM, and GMJ Investments, Inc. ("GMJ" and, collectively with
each of the foregoing, the "G&M Group"), members of the G&M Group own
shares as follows: Mr. Gruber owns 6,100 shares, Mr. McBaine owns 38,000
shares, Lagunitas owns 207,500 shares, PP owns 522,000 shares, and FPP owns
7,000 shares. The shares reported by the G&M Group do not include 24,500
shares issuable upon exercise of options exercisable upon consummation of
the Merger which Mr. Wick has received in his capacity as a director of the
Company.
(2) Based on information set forth in a Schedule 13G dated January 23, 1998.
(3) Based on information set forth in a Schedule 13G (Amendment No. 1) dated
January 24, 1997.
(4) Based on information set forth in a Schedule 13G dated February 10, 1998.
(5) Based on information set forth in a Schedule 13G dated February 6, 1998.
(6) Consists of 131,650 shares owned directly by Mr. Niglio, 2,000 shares owned
by Mr. Niglio's wife and 376,532 shares issuable upon exercise of currently
exercisable options and options exercisable upon consummation of the
Merger. Mr. Niglio disclaims beneficial ownership of shares owned by his
wife.
(7) Consists of 10,600 shares of Common Stock owned by Dr. Yalow and 166,055
shares issuable upon exercise of currently exercisable options and options
exercisable upon consummation of the Merger.
(8) Consists of 5,262 shares of Common Stock owned by Mr. McDowell and 28,000
shares issuable upon exercise of currently exercisable options and options
exercisable upon consummation of the Merger.
(9) Consists of 2,100 shares of Common Stock owned by Mr. Kaufmann and 28,000
shares issuable upon exercise of currently exercisable options and options
exercisable upon consummation of the Merger.
(10) Consists of 5,100 shares of Common Stock owned by Mr. Clein and 28,000
shares issuable upon exercise of currently exercisable options and options
exercisable upon consummation of the Merger.
(11) Consists of 38,102 shares owned directly by Mr. Connelly, 4,464 shares of
Common Stock owned by LN Investment Capital Limited Partnership ("LNIC")
and 24,500 shares issuable upon exercise of currently exercisable options
and options exercisable upon consummation of the Merger. Mr. Connelly is
the Managing General Partner of LNIC. Mr. Connelly disclaims beneficial
ownership of shares of Common Stock owned by LNIC except to the extent of
his proportionate interest therein.
(12) Consists of 49,000 shares owned by four trusts for benefit of Mr. Wick or
members of his family, 4,000 shares owned by Mr. Wick as custodian for his
children, 672,600 shares owned by two investment partnerships which are
part of the G&M Group and for which Mr. Wick may be deemed to have shared
voting and dispositive power, and 24,500 shares issuable upon exercise of
currently exercisable options and options exercisable upon consummation of
the Merger.
(13) Includes 810,897 shares of Common Stock issuable upon exercise of
currently exercisable options and options exercisable upon consummation of
the Merger.
34
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth a summary of annual and long-term
compensation earned by or paid to the Named Officers for services rendered to
the Company during each of the last three fiscal years:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL ------------
------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING
SALARY BONUS COMPENSATION OPTIONS/SARS
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) (#)
- ---------------------------- ---- -------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Richard A. Niglio .......... 1995 $295,000 $ 0 $0 0
Chairman and 1996 $295,000 $ 0 $0 40,000
Chief Executive Officer 1997 $295,000 $86,040 $0 25,000
Elanna S. Yalow ............ 1995 $ 95,000 $ 0 $0 0
President and 1996 $125,000 $ 0 $0 20,000
Chief Operating Officer 1997 $150,000 $43,750 $0 100,000
Randall J. Truelove ........ 1995 $ 95,000 $ 0 $0 0
Vice President and 1996 $ 95,000 $ 0 $0 12,000
Chief Financial Officer 1997 $ 95,000 $27,710 $0 0
Frank A. Devine ............ 1995 $ 95,000 $ 0 $0 0
Secretary 1996 $ 95,000 $ 0 $0 12,000
1997 $ 95,000 $27,710 $0 10,000
Jane A. Delaney ............ 1995 $ 58,542 $ 0 $0 0
Vice President 1996 $ 71,750 $ 5,681 $0 4,000
1997 $ 80,875 $24,790 $0 10,000
</TABLE>
The following table contains information concerning the grant of stock
options made to the Named Officers during the fiscal year ended December 31,
1997 under the Company's Stock Option Plan or otherwise:
OPTION/SAR GRANTS IN LAST FISCAL YEAR
STOCK OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------------------------------ VALUE AT ASSUMED
NUMBER OF % OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO OPTION TERM(1)
OPTIONS EMPLOYEES EXERCISE OR ----------------------
GRANTED IN FISCAL BASE PRICE EXPIRATION 5% 10%
(#) YEAR ($/SH) DATE ($) ($)
----------- ------------- ------------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Richard A. Niglio................... 25,000 13.4 4.88 4/1/07 $ 76,647 $ 194,237
Elanna S. Yalow..................... 100,000 53.6 4.88 4/1/07 $ 307,000 $ 777,000
Frank A. Devine..................... 10,000 5.4 4.88 4/1/07 $ 30,700 $ 77,000
Jane A. Delaney..................... 10,000 5.4 4.88 4/1/07 $ 30,700 $ 77,000
</TABLE>
- ------------------------
(1) Amounts indicated under the "Potential Realizable Value" columns above have
been calculated by multiplying the market price on the date of grant by the
annual appreciation rate shown (compounded for the term of the options),
subtracting the exercise price per share and multiplying the gain per share
by the number of shares covered by the options.
35
<PAGE>
Except as disclosed above, no other grants of stock options were made in the
fiscal year ended December 31, 1997 to any of the Named Officers. No stock
options were exercised by any of the Named Officers during the fiscal year ended
December 31, 1997, except as set forth below:
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
VALUE
REALIZED NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES (MARKET PRICE UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
ACQUIRED ON AT EXERCISE OPTIONS AT FY-END(#) AT FY END(1)
EXERCISE LESS -------------------------- ---------------------------
NAME (#) EXERCISE PRICE) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------------- ----------- --------------- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Richard A. Niglio......... 38,750 67,813 340,364 36,168 $ 3,318,548 $ 352,638
Elanna S. Yalow........... 0 0 86,722 79,333 $ 845,536 $ 773,500
Randall J. Truelove....... 3,300 6,875 49,155 5,600 $ 479,261 $ 54,600
Frank A. Devine........... 2,500 4,375 52,955 12,600 $ 516,311 $ 122,850
Jane A. Delaney........... 0 0 6,133 8,867 $ 59,800 $ 86,450
</TABLE>
- ------------------------
(1) Based upon the per share closing price of the Common Stock on December 31,
1997, which was $9.75.
EXECUTIVE COMPENSATION
GENERAL
The Company's compensation program for executive officers is administered by
the Compensation Committee of the Board of Directors (the "Committee"), which
consists of two non-employee members of the Board of Directors, W. Wallace
McDowell, Jr. and Myron A. Wick, III. The compensation program is comprised of
three elements: (i) base salary, (ii) annual incentive compensation, and (iii)
long-term incentive compensation in the form of stock options. Generally, the
philosophy of the program is to set base salaries somewhat below competitive
levels to permit the Company to rely to a large degree on the annual and
long-term incentive compensation components, which are more closely linked to
Company performance; each year's annual incentive compensation is directly
linked to the Company's earnings in that year, while stock options indirectly
reflect the Company's performance through changes in the market price of the
Common Stock.
With respect to base salary for executive officers other than Mr. Niglio,
the Committee reviews and generally accepts recommendations of Mr. Niglio, who
is in the best position to evaluate performance, competitive salaries and
relative company rank. The Committee reserves the right, however, to question
Mr. Niglio's recommendation and to discuss with him the bases for his
recommendations.
The base salary of Mr. Niglio is determined by the Committee upon an
evaluation of his overall job performance, with consideration given to both
quantitative and qualitative factors. Quantitative factors include the growth in
Company revenues, achievement of forecasted working capital position and the
progress made in expansion of the business through acquisition of additional
child care centers. Qualitative factors include Mr. Niglio's leadership
qualities, his impact on employee morale and his ability to enhance the
Company's industry reputation. Mr. Niglio's base salary for 1996 and 1997 of
$295,000 was not increased over his 1995 base salary. The Board of Directors
increased Mr. Niglio's base salary for 1998 to $350,000.
With respect to the annual incentive compensation component, in 1992 the
Company established an incentive plan which provides for the creation of an
incentive bonus pool in each year from which payments are made to executive
officers based on the Company's earnings in that year. The portion of the
incentive pool each officer is eligible to receive is based on the officer's
base salary as a percentage of the aggregate base salary of all participating
officers. In 1996, the Company's level of earnings did not reach the minimum
requirements of the incentive plan for that year and consequently no bonuses
were earned.
36
<PAGE>
In 1997, the Company's level of earnings reached the requirements set by the
1997 incentive plan and consequently bonuses were earned as set forth above in
the Summary Compensation Table.
The third component of the compensation program consists of the awarding of
options to purchase Common Stock under the Company's Stock Option Plan (the
"Option Plan"). Stock options may be granted under the Option Plan with an
exercise price of no less than 85% of the fair market value of the Common Stock
on the date of grant, although all options granted under the Option Plan to date
have been granted at exercise prices which are not less than 100% of the fair
market value on the respective dates of grant. In addition, options granted
under the Option Plan are generally subject to a three-year vesting period.
Accordingly, an optionee will realize value from the grant only if the market
value of the Common Stock increases over an extended period following the date
of grant. Because the compensation element of stock options is dependent on
increases over time in market value of such shares, stock options represent
compensation tied to the Company's long-term performance. The Committee believes
compensation in the form of stock options serves to align the interests of the
executive officers directly with the interests of the Company's stockholders.
Options granted to the Named Executive Officers during 1997 are disclosed above.
The number of options granted to any officer under the Option Plan is
determined by the Committee based on a number of factors, including that
officer's corporate level of responsibility and performance, the frequency and
number of options granted to that officer in the past and compensation paid or
awarded to that officer under other aspects of the compensation program.
EMPLOYMENT AGREEMENTS
The Company has entered into Employment Agreements, each dated as of January
15, 1998, with Richard A. Niglio and Elanna S. Yalow (each referred to in this
paragraph as the "Executive"). The Employment Agreements have substantially
identical terms, except as noted below. Each Employment Agreement has an initial
term of three years, renewable for additional successive three-year terms unless
earlier terminated, or modified, extended or replaced by mutual agreement. If
the Employment Agreement is terminated due to death or disability, or is
terminated by the Company other than for cause, or is terminated by the
Executive for good reason, then Executive (or Executive's estate) will receive
as severance (a) a lump-sum payment equal to the greater of Executive's base
salary for the remainder of the three-year term then in effect (including in
some cases base salary for the successive three-year term) or two times
Executive's base salary, and (b) a PRO RATA bonus for the fiscal year in which
termination occurs, PROVIDED THAT if termination occurs within 365 days of a
"Change in Control" (as defined) of the Company, Executive shall receive a bonus
(the "Bonus Multiple") equal to two times the highest annual bonus earned by
Executive in the three fiscal years prior to the year of termination, plus the
amount, if any, by which the PRO RATA bonus exceeds the Bonus Multiple. In
addition, all of Executive's unvested stock options will vest and be exercisable
for three months and, except in the case of termination due to death, Executive
will continue to participate in all Company benefits for two years. If the
Agreement is terminated voluntarily by Executive or by the Company for cause
Executive will only receive his or her base salary and expense reimbursements
through date of termination. Pursuant to his Employment Agreement Mr. Niglio
serves as Chief Executive Officer, with a base salary of $350,000 per year, and
pursuant to her Employment Agreement Dr. Yalow serves as Chief Operating Officer
and President with a base salary of $200,000 per year. Mr. Niglio's Employment
Agreement will be superseded by his Consulting Agreement dated March 27, 1998,
and Dr. Yalow's Employment Agreement will be superseded by her Employment
Agreement dated March 27, 1998.
COMPENSATION DEDUCTION LIMITATION
As part of the 1993 Omnibus Budget Reconciliation Act, Congress enacted
Section 162(m) of the Internal Revenue Code of 1986 (the "Code"), which limits
to $1 million per year the federal income tax deduction available to public
companies of compensation paid to its chief executive officers and, in certain
37
<PAGE>
cases, its four other highest paid executive officers, unless the compensation
qualifies for certain "performance-based" exceptions provided for in that
section. Although it is anticipated that cash compensation payable to the
Company's executive officers for the next several years will not exceed the $1
million limitation, the Company's strategy, nevertheless, is to qualify
compensation paid to its executive officers for deductibility for federal income
tax purposes to the extent feasible. Notwithstanding the foregoing, to maximize
its flexibility with regard to executive compensation arrangements, the Company
reserves the right to take actions which it deems to be in the best interests of
the Company and its stockholders but which may not always qualify for tax
deductibility under Section 162(m) or other sections of the Code.
COMPENSATION COMMITTEE
W. Wallace McDowell, Jr.
Myron A. Wick, III
38
<PAGE>
COMPENSATION COMMITTEE REPORT ON REPRICING OF STOCK OPTIONS
On August 27, 1996 upon recommendation of the Compensation Committee, the
Board of Directors of the Company reduced the exercise price of all previously
granted options with exercise prices of greater than $6.00 to $5.25, which was
the closing market price of the Company's Common Stock as reported on the NASDAQ
National Market as of that date. The Compensation Committee, in making its
recommendation to the Board of Directors, and the Board of Directors, in acting
to reduce the exercise price of the stock options considered several factors.
One was the decline in the price of the Common Stock over a period of
approximately one year prior to the date of the repricing, which resulted in
many of the previously granted stock options having exercise prices well in
excess of the prevailing market price for the Common Stock at the time of the
repricing. As a consequence, the impact of the stock options as a motivational
tool and as a reward to the recipients was significantly eroded. In addition,
the Committee and the Board considered that no payments were made to the
Company's executive officers under the Company's incentive plan for 1995 and,
based on information available to management at the time of the repricing, it
appeared that no payments would be made for 1996 as well. In view of the
Company's reliance on stock options as a major component of its compensation
program, and that another component of the program, the incentive plan, had not
been a source of income to the Company personnel in 1995 and would not be a
source of income in 1996, the Committee and Board believed that the reduction in
the exercise prices of the options was critical to retaining and motivating the
executive personnel and others who are in a position to contribute substantially
to the progress and success of the Company. Exercise prices for options to
purchase an aggregate of 387,244 shares outstanding on August 27, 1996 were
reduced by the Board.
The following table sets forth for Mr. Niglio, Dr. Yalow and the Company's
other executive officers a summary of all repricing of options previously
granted to them which was effected during the ten year period ending December
31, 1997.
TEN YEAR OPTION REPRICING
<TABLE>
<CAPTION>
LENGTH OF
# OF ORIGINAL
SECURITIES MARKET PRICE EXERCISE OPTION TERM
UNDERLYING OF STOCK AT PRICE AT NEW REMAINING AT
DATE OF OPTIONS TIME OF TIME OF EXERCISE DATE OF
NAME REPRICING REPRICED REPRICING REPRICING PRICE REPRICING
- --------------------------------------- --------- ----------- ------------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Richard A Niglio....................... 8/27/96 72,500 $ 5.25 $ 8.00 $ 5.25 6.5 yrs.
8/27/96 37,500 $ 5.25 $ 8.00 $ 5.25 6.5 yrs.
8/27/96 66,391 $ 5.25 $ 10.25 $ 5.25 8.3 yrs.
8/27/96 13,889 $ 5.25 $ 10.25 $ 5.25 8.3 yrs.
10/19/92 38,750 $ 6.00 $ 10.00 $ 6.00 5.0 yrs.
Elanna S. Yalow........................ 8/27/96 13,277 $ 5.25 $ 10.25 $ 5.25 8.3 yrs.
8/27/96 17,500 $ 5.25 $ 8.00 $ 5.25 6.5 yrs.
8/27/96 2,778 $ 5.25 $ 10.25 $ 5.25 8.3 yrs.
10/19/92 3,125 $ 6.00 $ 10.00 $ 6.00 5.0 yrs.
Randall J. Truelove.................... 8/27/96 13,277 $ 5.25 $ 10.25 $ 5.25 8.3 yrs.
8/27/96 17,500 $ 5.25 $ 8.00 $ 5.25 6.5 yrs.
8/27/96 2,778 $ 5.25 $ 10.25 $ 5.25 8.3 yrs.
10/19/92 2,500 $ 6.00 $ 10.00 $ 6.00 5.0 yrs.
Frank A. Devine........................ 8/27/96 13,277 $ 5.25 $ 10.25 $ 5.25 8.3 yrs.
8/27/96 17,500 $ 5.25 $ 8.00 $ 5.25 6.5 yrs.
8/27/96 2,778 $ 5.25 $ 10.25 $ 5.25 8.3 yrs.
10/19/92 2,500 $ 6.00 $ 10.00 $ 6.00 5.0 yrs.
Jane A. Delaney........................ 8/27/96 1,000 $ 5.25 $ 10.25 $ 5.25 3.3 yrs.
</TABLE>
39
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Effective November 5, 1992, the Company acquired American Family Service
Corporation ("AFSC") pursuant to the merger of a wholly-owned subsidiary of the
Company with and into AFSC. Pursuant to the terms of a Shareholders Agreement
with LNIC, the principal stockholder of AFSC, which was entered into
simultaneously with the agreement and plan of merger in that transaction, LNIC
was granted the right to designate one person as a director of the Company upon
consummation of the acquisition of AFSC, and to thereafter require the Company
to include in the slate of nominees for election of directors at any meeting of
stockholders of the Company at which directors are elected, and to solicit
proxies for, one nominee selected by LNIC for so long as the shares owned by
LNIC, including shares issuable upon conversion of the preferred stock which was
issued to AFSC in the transaction, constituted more than 5% of the total number
of shares of Common Stock issued and outstanding. Michael J. Connelly was LNIC's
designee on the Board commencing in 1992 pursuant to the Shareholders Agreement.
During the fourth quarter of 1997 LNIC converted the remaining balance of its
preferred stock into shares of Common Stock of the Company and has disposed of a
sufficient number of its shares of Common Stock so that it no longer satisfies
the 5% test referred to above.
In 1993 and 1994, the Company furnished loans to each of its executive
officers in connection with their purchases of Common Stock. In connection with
a private placement of shares in 1993, the Company loaned $200,200 to Mr. Niglio
and $20,075 to each of Dr. Yalow, Randall J. Truelove, Vice President, Finance,
Rebekah K. Renshaw, Vice President, Operations, and Frank A. Devine, Secretary
and General Counsel, constituting the purchase price for their respective
shares. Each of the loans bears interest at 5.5% annum and is payable in 36
equal monthly installments of principal and interest, commencing on May 1, 1996.
The Board of Directors of the Company has deferred indefinitely the payment of
interest and principal of these loans. In connection with their purchases of
publicly registered shares in 1994, the Company loaned $224,475 to Mr. Niglio
and $33,825 to each of Dr. Yalow, Mr. Truelove, Ms. Renshaw and Mr. Devine,
constituting substantially all of the purchase price for their respective
shares. Those loans bear interest at the rate of 7.3% per annum, and are payable
in 36 monthly installments of principal and interest commencing in December
1997. The Board of Directors of the Company has also deferred indefinitely the
payment of interest and principal of these loans. As of February 28, 1998, the
aggregate amount of indebtedness of each of the executive officers to the
Company pursuant to the 1993 and 1994 loans was $533,444 for Mr. Niglio, $67,653
for Dr. Yalow, $67,653 for Mr. Truelove, and $67,653 for Mr. Devine. In
connection with the exercise of certain stock options the Compensation Committee
in October 1997 approved loans of $266,200 to Mr. Niglio, $18,700 to Mr.
Truelove, and $15,000 to Mr. Devine.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Niglio, Chairman and Chief Executive Officer of the Company, is a
director and member of the Compensation Committee of PMR Corporation. Mark P.
Clein, a director of the Corporation, is Chief Financial Officer of PMR
Corporation.
40
<PAGE>
STOCK PERFORMANCE GRAPH
The following stock performance graph reflects a comparison of the
cumulative total return on an investment in the Common Stock of the Company from
December 31, 1992 through December 31, 1997 with the Amex Market Value Index, an
old "Peer Group" of other publicly traded companies (KinderCare Learning
Centers, Inc., Sunrise Preschools, Inc., and Nobel Education Dynamics, Inc.) and
a new "Peer Group" which consists of members of the old "Peer Group" plus two
additional companies primarily engaged in child care services, Kiddie Academy
International, Inc. and New Horizon Kids Quest, Inc., both of which conducted
initial public offerings in 1995. The Company has elected to utilize a new Peer
Group because it believes that the new Peer Group constitutes a more
representative sample of publicly-owned companies which are competitive with the
Company. Dividend reinvestment has been assumed and, with respect to companies
in the old and new Peer Groups, the performance of each such company's stock has
been weighed to reflect relative stock market capitalization. The comparisons in
this table are required by the SEC and, therefore, are not intended to forecast
or be indicative of possible future performance of the Company's Common Stock.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG CHILDREN'S DISCOVERY CENTERS OF AMERICA, INC.,
THE AMEX MARKET VALUE INDEX, A NEW PEER GROUP AND AN OLD PEER GROUP
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
CHILDREN'S DISCOVERY
<S> <C> <C> <C> <C>
Centers of America,
Inc. New Peer Group Old Peer Group AMEX Market Value
12/92 $ 100 $ 100 $ 100 $ 100
12/93 $ 195 $ 100 $ 100 $ 120
12/94 $ 246 $ 129 $ 129 $ 109
12/95 $ 111 $ 486 $ 486 $ 137
12/96 $ 151 $ 284 $ 284 $ 146
12/97 $ 211 $ 271 $ 244 $ 177
</TABLE>
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN AT
----------------------------------------------------------------------------
12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Children's Discovery Centers of America, Inc.......... $ 100 $ 195 $ 246 $ 111 $ 151 $ 211
New Peer Group........................................ 100 100 129 486 284 271
Old Peer Group........................................ 100 100 129 486 284 244
AMEX Market Value..................................... 100 120 109 137 146 177
</TABLE>
- ------------------------
* Assumes $100 was invested on December 31, 1992 in the applicable stock or
index, and that all dividends were reinvested.
41
<PAGE>
The materials contained in this Information Statement under the caption
"Stock Performance Graph" are not "soliciting material," are not deemed filed
with the Securities and Exchange Commission and are not to be incorporated by
reference in any filing of the Company under the Securities Act of 1933, as
amended, or the Securities Exchange Act of 1934, as amended, whether made before
or after the date of this Information Statement and irrespective of any general
incorporation provision contained therein, except to the extent that the Company
specifically incorporates it by reference into such filing.
42
<PAGE>
EXECUTION COPY
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
KNOWLEDGE BEGINNINGS, INC.,
KBI ACQUISITION CORP.
AND
CHILDREN'S DISCOVERY CENTERS OF AMERICA, INC.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. THE OFFER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
1.1. THE OFFER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
1.2. COMPANY ACTION. . . . . . . . . . . . . . . . . . . . . . . . . . . .3
1.3. DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
2. THE MERGER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
2.1. THE MERGER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
2.2. EFFECT OF THE MERGER. . . . . . . . . . . . . . . . . . . . . . . . .5
2.3. CONSUMMATION OF THE MERGER. . . . . . . . . . . . . . . . . . . . . .5
2.4. CERTIFICATE OF INCORPORATION; BYLAWS; DIRECTORS AND
OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
2.5. CONVERSION OF SECURITIES. . . . . . . . . . . . . . . . . . . . . . .5
2.6. DISSENTING STOCK. . . . . . . . . . . . . . . . . . . . . . . . . . .5
2.7. COMPANY STOCK OPTIONS AND RELATED MATTERS . . . . . . . . . . . . . .6
2.8. EXCHANGE OF CERTIFICATES. . . . . . . . . . . . . . . . . . . . . . .7
2.9. PAYMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
2.10. NO FURTHER RIGHTS OF TRANSFERS . . . . . . . . . . . . . . . . . . .8
2.11. CLOSING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
3. REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER . . . . . . . . . . . . .9
3.1. ORGANIZATION AND QUALIFICATION. . . . . . . . . . . . . . . . . . . .9
3.2. AUTHORITY RELATIVE TO THIS AGREEMENT. . . . . . . . . . . . . . . . .9
3.3. COMPLIANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
3.4. BROKERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.5. FINANCIAL CAPABILITY. . . . . . . . . . . . . . . . . . . . . . . . 10
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY . . . . . . . . . . . . . . . . . 10
4.1. ORGANIZATION AND QUALIFICATION. . . . . . . . . . . . . . . . . . . 10
4.2. SUBSIDIARIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.3. CAPITALIZATION. . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.4. COMPANY INVESTMENTS . . . . . . . . . . . . . . . . . . . . . . . . 11
4.5. AUTHORITY RELATIVE TO THIS AGREEMENT. . . . . . . . . . . . . . . . 12
4.6. COMPLIANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.7. COMMISSION FILINGS. . . . . . . . . . . . . . . . . . . . . . . . . 13
4.8. ABSENCE OF UNDISCLOSED LIABILITIES. . . . . . . . . . . . . . . . . 13
4.9. LITIGATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.10. COMPLIANCE WITH LAW. . . . . . . . . . . . . . . . . . . . . . . . 14
4.11. CHANGES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.12. TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.13. TITLE TO PROPERTIES; CONDITION OF PROPERTIES . . . . . . . . . . . 19
4.14. CONTRACTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.15. EMPLOYEE BENEFIT PLANS . . . . . . . . . . . . . . . . . . . . . . 21
4.16. COMPLIANCE WITH LEGISLATION REGULATING ENVIRONMENTAL
QUALITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.17. LABOR MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.18. INTELLECTUAL PROPERTY. . . . . . . . . . . . . . . . . . . . . . . 24
4.19. PERMITS; LICENSES. . . . . . . . . . . . . . . . . . . . . . . . . 25
4.20. INSURANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
4.21. SCHOOLS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
4.22. OPINION OF FINANCIAL ADVISOR . . . . . . . . . . . . . . . . . . . 26
<PAGE>
TABLE OF CONTENTS
(Continued)
(Page)
<S> <C>
4.23. BROKERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
4.24. SETTLEMENT OF FAIR LABOR STANDARDS ACT VIOLATIONS. . . . . . . . . 26
4.25. ACCOUNTING AND LEGAL FEES. . . . . . . . . . . . . . . . . . . . . 27
5. CONDUCT OF BUSINESS PENDING THE MERGER. . . . . . . . . . . . . . . . . . . . . 27
5.1. ORDINARY COURSE OF BUSINESS . . . . . . . . . . . . . . . . . . . . 27
5.2. PRESERVATION OF ORGANIZATION. . . . . . . . . . . . . . . . . . . . 27
5.3. CAPITALIZATION CHANGES. . . . . . . . . . . . . . . . . . . . . . . 27
5.4. SALE OF ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . 28
5.5. DIVIDENDS AND REPURCHASES . . . . . . . . . . . . . . . . . . . . . 28
5.6. ACQUISITIONS; INVESTMENTS . . . . . . . . . . . . . . . . . . . . . 28
5.7. INDEBTEDNESS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
5.8. SEVERANCE AND TERMINATION PAY . . . . . . . . . . . . . . . . . . . 28
5.9. EMPLOYEE BENEFITS . . . . . . . . . . . . . . . . . . . . . . . . . 28
5.10. TAX ELECTION; ACCOUNTING . . . . . . . . . . . . . . . . . . . . . 29
5.11. SUBSEQUENT FINANCIALS. . . . . . . . . . . . . . . . . . . . . . . 29
5.12. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . 29
5.13. CONTRACTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
5.14. AFFILIATES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
5.15. LITIGATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
5.16. CAPITAL EXPENDITURES . . . . . . . . . . . . . . . . . . . . . . . 29
5.17. TRANSACTION EXPENSES . . . . . . . . . . . . . . . . . . . . . . . 29
5.18. COMMITMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
6. ADDITIONAL AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
6.1. PROXY STATEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . 30
6.2. MEETING OF STOCKHOLDERS OF THE COMPANY; VOTING AND
DISPOSITION OF THE SHARES. . . . . . . . . . . . . . . . . . . 30
6.3. STOCK OPTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
6.4. ADDITIONAL AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . 31
6.5. NO SOLICITATION OF TRANSACTIONS . . . . . . . . . . . . . . . . . . 32
6.6. NOTIFICATION OF CERTAIN MATTERS . . . . . . . . . . . . . . . . . . 33
6.7. ACCESS TO INFORMATION . . . . . . . . . . . . . . . . . . . . . . . 33
6.8. TAKEOVER LAWS . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
6.9. EMPLOYMENT AGREEMENTS; NONCOMPETE AGREEMENTS ; RELEASES AND
EXCESS PAYMENT AGREEMENT . . . . . . . . . . . . . . . . . . . 33
6.10. OTHER AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . 34
6.11. INDEMNIFICATION AND INSURANCE. . . . . . . . . . . . . . . . . . . 34
7. CONDITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
7.1. CONDITIONS TO OBLIGATION OF EACH PARTY TO EFFECT THE MERGER . . . . 35
7.2. ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF PURCHASER . . . . . . . 35
8. TERMINATION, AMENDMENT AND WAIVER . . . . . . . . . . . . . . . . . . . . . . . 36
8.1. TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
8.2. EFFECT OF TERMINATION . . . . . . . . . . . . . . . . . . . . . . . 38
9. GENERAL PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
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TABLE OF CONTENTS
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9.1. AMENDMENT; MODIFICATION; WAVIER; CONSENTS . . . . . . . . . . . . . 40
9.2. PUBLIC STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . 40
9.3. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
9.4. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
9.5. INTERPRETATION; SEVERABILITY. . . . . . . . . . . . . . . . . . . . 42
9.6. REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . . . . . . . . 42
9.7. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
</TABLE>
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "AGREEMENT"), dated as of
March 27, 1998, is by and among Knowledge Beginnings, Inc., a Delaware
corporation ("PARENT"), KBI Acquisition Corp., a Delaware corporation and a
wholly-owned subsidiary of Parent ("PURCHASER") and Children's Discovery Centers
of America, Inc., a Delaware corporation ("COMPANY").
RECITALS
WHEREAS, the respective Boards of Directors of Parent, Purchaser and the
Company have each determined that it is in the best interests of their
respective stockholders for the Company to be acquired pursuant to the terms and
subject to the conditions of this Agreement.
WHEREAS, in furtherance of such acquisition it is proposed that Purchaser
will make a tender offer (the "OFFER") to purchase all of the issued and
outstanding shares of common stock, par value $0.01 per share, of the Company
(the "COMMON STOCK"), subject to the terms and conditions of this Agreement and
ANNEX I hereto, for $12.25 per share net to the tendering stockholder in cash,
without interest thereon. The Common Stock is sometimes hereinafter referred to
as the "SHARES."
WHEREAS, to complete such acquisition, the respective Boards of Directors
of Parent, Purchaser and the Company have each duly approved the merger of
Purchaser and the Company (the "MERGER") following consummation of the Offer, in
accordance with the terms of this Agreement and the General Corporation Law of
the State of Delaware (the "DELAWARE LAW").
WHEREAS, Parent and the Company have also entered into an Option and
Support Agreement dated as of the date hereof, in the form attached as EXHIBIT A
hereto (the "OPTION AGREEMENT"), providing for the grant by the Company to
Parent of an option to purchase, under certain circumstances, 19.9% of the
outstanding Shares at $10.125 per Share.
WHEREAS, Parent and Proactive Partners, L.P., Fremont Proactive Partners,
L.P. and Lagunitas Partners, L.P. have entered into the Option Agreement
providing for, among other things, the agreement of each such stockholder to
tender all Shares owned by it pursuant to the Offer and the grant by each such
stockholder to Parent of an option to purchase, under certain circumstances, all
Shares owned by such stockholder at $12.25 per Share.
WHEREAS, the Board of Directors of the Company unanimously (i) determined
that the Offer and the Merger is fair to, and in the best interests of, the
stockholders of the Company, (ii) approved and adopted this Agreement, the
Option Agreement and the transactions contemplated hereby and thereby, and
(iii) recommends acceptance of the Offer and approval and adoption by the
stockholders of the Company of this Agreement and the Merger.
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AGREEMENT
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, Parent, Purchaser and the Company
hereby agree as follows:
1. THE OFFER
1.1. THE OFFER.
(a) Provided that nothing shall have occurred which would
result in a failure to satisfy any of the conditions set forth in ANNEX I
hereto, Purchaser shall, as soon as practicable after the date hereof, but in no
event later than the fifth business day after the date of this Agreement,
commence (within the meaning of Rule 14d-2(a) of the Securities Exchange Act of
1934, as amended (the "EXCHANGE ACT")) the Offer. Subject to the terms and
conditions set forth in this Agreement (including the right to terminate, extend
or modify the Offer), and subject to the other conditions set forth in ANNEX I
hereto, including, without limitation, a minimum of a majority of the Shares
(determined on a fully diluted basis) being validly tendered and not withdrawn
prior to the expiration or termination of the Offer (the "MINIMUM CONDITION"),
Purchaser shall use its reasonable efforts to consummate the Offer as soon as
legally permissible. As used herein "on a fully diluted basis" means, as of any
date, the number of Shares outstanding, together with Shares issuable upon
exercise of outstanding Company Options (as hereafter defined). Notwithstanding
any provision of this Agreement, Purchaser expressly reserves the right to
modify the terms of the Offer, including, without limitation, to extend the
Offer beyond the scheduled expiration date (including an extension of up to 20
business days beyond the initial scheduled expiration date whether or not the
conditions set forth in ANNEX I hereto have been satisfied); provided that the
Offer shall not, without the written consent of the Company, be amended to
decrease the price per Share or change the form of consideration payable in the
Offer, decrease the number of Shares sought, waive the Minimum Condition or
impose additional conditions to the Offer. The Company agrees that no Shares
held by the Company or any of its wholly-owned subsidiaries will be tendered
pursuant to the Offer.
(b) As soon as practicable on the date of commencement of the
Offer, Purchaser shall file with the Securities and Exchange Commission (the
"COMMISSION") with respect to the Offer a Schedule 14D-1 (the "SCHEDULE 14D-1")
which will contain an offer to purchase and forms of the related letter of
transmittal and summary advertisement (which documents, together with any
supplements or amendments thereto, are referred to herein collectively as the
"OFFER DOCUMENTS"). Each of Parent and Purchaser, on the one hand, and the
Company, on the other hand, agrees promptly to correct any information provided
by it for use in the Offer Documents if and to the extent that it shall have
become false or misleading in any material respect, and Parent and Purchaser
further agree to take all steps necessary to cause the Offer Documents as so
corrected to be filed with the Commission and to be disseminated to the
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<PAGE>
stockholders of the Company, in each case as and to the extent required by
applicable federal securities laws.
1.2. COMPANY ACTION.
(a) The Company approves and consents to the Offer, the Merger
and the Option Agreement and represents that the Board of Directors of the
Company has, by a vote of all directors at a meeting duly called and held,
unanimously (i) determined that each of the Offer and the Merger is fair to, and
in the best interests of, the stockholders of the Company, (ii) approved and
adopted the Option Agreement and this Agreement and the transactions
contemplated hereby and thereby, including the Offer and the Merger,
(iii) recommended acceptance of the Offer and approval and adoption of this
Agreement and the Merger by the stockholders of the Company, and (iv) taken all
action necessary to render Section 203 of the Delaware Law and other state
takeover statutes inapplicable to the Offer, the Merger and the Option
Agreement. The Company further represents that Advest, Inc. has rendered to the
Board of Directors of the Company its opinion that the consideration to be
received by the stockholders of the Company pursuant to the Offer and the Merger
is fair to such stockholders from a financial point of view.
(b) The Company agrees to promptly prepare, and after review by
Purchaser, file with the Commission on the same date the Offer Documents are
filed with the Commission and to mail to its stockholders a
Solicitation/Recommendation Statement on Schedule 14D-9 with respect to the
Offer (the "SCHEDULE 14D-9") containing the recommendation described in Section
1.2(a) hereof and to disseminate the Schedule 14D-9 as required by Rule 14d-9
promulgated under the Exchange Act. The Company agrees to provide Parent and
its counsel with any comments that the Company or its counsel may receive from
the Commission or its staff with respect to the Schedule 14D-9 promptly after
the receipt of such comments and shall provide Parent and its counsel an
opportunity to participate, including by way of discussion with the Commission
or its staff, in the response of the Company to such comments. Each of the
Company, on the one hand, and Parent and Purchaser, on the other hand, agrees
promptly to correct any information provided by it for use in the Schedule 14D-9
if and to the extent that it shall have become false or misleading in any
material respect, and the Company further agrees to take all steps necessary to
cause the Schedule 14D-9 as so corrected to be filed with the Commission and to
be disseminated to the stockholders of the Company, in each case as and to the
extent required by applicable federal securities laws; PROVIDED, HOWEVER, that
subject to the provisions of Article 8, such recommendation may be withdrawn,
modified or amended to the extent that the Board of Directors of the Company
deems it necessary to do so in the exercise of its fiduciary duty after being so
advised in writing by outside counsel.
(c) The Company will promptly furnish Purchaser with mailing
labels containing the names and addresses of the record holders of Shares and
lists of securities positions of Shares held in stock depositories, each as of a
recent date, and shall furnish
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Purchaser with such additional information, including updated lists of
stockholders, mailing labels and lists of securities positions, and
assistance as Purchaser or its agents or representatives may reasonably
request in connection with the Offer. The Company has been advised that each
of its directors intends to tender pursuant to the Offer all shares of Common
Stock owned of record or beneficially by him or her.
1.3. DIRECTORS. Subject to compliance with applicable law, promptly
upon the acceptance for payment and payment by Purchaser for Shares purchased
pursuant to the Offer, and from time to time thereafter, the Company and its
Board of Directors shall, upon request of Parent, promptly take all actions
necessary to cause to be elected as directors of the Company a number of
Parent's designees which equals the product, rounded up to the next whole
number, of the total number of directors on the Board of Directors (giving
effect to the directors elected pursuant to this sentence) multiplied by the
percentage that such number of Shares so accepted for payment and paid for by
Purchaser bears to the number of Shares outstanding, and the Company shall, at
such time, use its reasonable best efforts to cause Parent's designees to be so
elected, including by accepting resignations of those incumbent directors
designated by the Company or increasing the size of the Board of Directors of
the Company and causing Parent's designees to be elected. Subject to applicable
law, the Company shall take all action necessary to effect any such election,
including mailing to its stockholders the information required by Section 14(f)
of the Exchange Act and Rule 14f-1 promulgated thereunder.
2. THE MERGER
2.1. THE MERGER.
(a) At the Effective Date (as defined in Section 2.3), in
accordance with this Agreement and the Delaware Law, Purchaser shall be merged
with and into the Company, the separate corporate existence of Purchaser shall
cease, and the Company shall continue as the surviving corporation under the
corporate name it possesses immediately prior to the Effective Date. The
Company hereinafter sometimes is referred to as the "SURVIVING CORPORATION." At
the Effective Date, the separate corporate existence of Purchaser shall cease.
(b) If Parent so elects, the Merger may alternatively be
structured with Purchaser as the Surviving Corporation or so that any direct or
indirect subsidiary of Parent is merged with and into the Company or the Company
is merged with and into any such other subsidiary. In the event of such an
election, the parties agree to execute an appropriate amendment to this
Agreement in order to reflect such election. If Parent elects to structure the
Merger so that the Company is not the Surviving Corporation, the inaccuracy of
any representation or warranty of the Company which is premised on the
assumption that the Company shall be the Surviving Corporation, which
representation or warranty becomes inaccurate solely as a result of the Company
not being the Surviving Corporation, shall not be deemed to be a breach of such
representation or warranty.
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<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
5
<PAGE>
provisions of the Delaware Law concerning the right of holders of common
stock to dissent from the Merger and require appraisal of their shares of
Common Stock ("DISSENTING STOCKHOLDERS") shall not be converted into the
right to receive the Merger Consideration but shall become the right to
receive such consideration as may be determined to be due such Dissenting
Stockholders pursuant to the Delaware Law; PROVIDED, HOWEVER, that (i) if any
Dissenting Stockholder shall subsequently deliver a written withdrawal of his
or her demand for appraisal (with the written approval of the Surviving
Corporation, if such withdrawal is not tendered within 60 days after the
Effective Date), or (ii) if any Dissenting Stockholder fails to establish and
perfect his or her entitlement to appraisal rights as provided by applicable
law, or (iii) if within 120 days of the Effective Date neither any Dissenting
Stockholder nor the Surviving Corporation has filed a petition demanding a
determination of the value of all Shares outstanding at the Effective Date
and held by Dissenting Stockholders in accordance with applicable law, then
such Dissenting Stockholder or Stockholders, as the case may be, shall
forfeit the right to appraisal of such Shares and such Shares shall thereupon
be deemed to have been converted into the right to receive, as of the
Effective Date, the Merger Consideration, without interest. The Company
shall give Parent and Purchaser (A) prompt notice of any written demands for
appraisal, withdrawals of demands for appraisal and any other related
instruments received by the Company, and (B) the opportunity to direct all
negotiations and proceedings with respect to demands for appraisal. The
Company will not voluntarily make any payment with respect to any demands for
appraisal and will not, except with the prior written consent of Parent,
settle or offer to settle any demand.
2.7. COMPANY STOCK OPTIONS AND RELATED MATTERS. Prior to the
consummation of the Offer, the Board of Directors of the Company shall cause
each option issued under the Company's Employee Stock Option Plan, the
Non-Employee Director Stock Option Plan and options issued to employees not
under either of such plans (collectively, the "COMPANY OPTIONS"), to become
exercisable immediately prior to the Effective Date, subject to the consummation
of the Merger. Prior to the consummation of the Offer, the Company shall offer
(the "OPTION OFFER") to pay, subject to consummation of the Merger, each holder
of a Company Option an amount equal to (x) the aggregate Merger Consideration
into which the shares of Common Stock issuable upon exercise of such Company
Option would have been converted if such option had been exercised immediately
prior to the Effective Date, reduced by (y)(I) the aggregate exercise price for
the shares of Common Stock then issuable upon exercise of such Company Option,
(II) the amount of any withholding taxes which may be required thereon and (III)
the amount of all outstanding loans from the Company to such holder, in return
for the cancellation of such Company Option. The Option Offer shall be
accepted, if at all, irrevocably by the holders of the Company Options prior to
the consummation of the Offer. The Option Offer shall provide that the holder
of the Company Option shall agree not to exercise the Company Option after
accepting the Option Offer.
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2.8. EXCHANGE OF CERTIFICATES.
(a) Prior the Effective Date, Parent shall designate a bank or
trust company to act as exchange agent (the "EXCHANGE AGENT") in effecting the
exchange for the Merger Consideration of stock certificates (the "CERTIFICATES")
which, prior to the Effective Date, represented Shares entitled to payment
pursuant to Section 2.5. Upon the surrender for cancellation to the Exchange
Agent of such Certificates, together with a letter of transmittal, duly executed
and completed in accordance with the instructions thereon, and any other items
specified in the letter of transmittal, the Exchange Agent shall promptly pay to
the Person entitled thereto the Merger Consideration deliverable in respect
thereto and such Certificates shall be canceled. Until so surrendered and
exchanged, each such Certificate (other than Certificates representing Shares to
be canceled pursuant to Section 2.5(b) and Shares held by Dissenting
Stockholders) shall represent solely the right to receive the Merger
Consideration multiplied by the number of Shares represented by such
Certificate. If any cash is to be paid to a Person other than the Person in
which the Certificate representing Shares surrendered in exchange therefor is
registered, it shall be a condition to such payment that the Certificates so
surrendered shall be properly endorsed or accompanied by appropriate stock
powers and otherwise in proper form for transfer, that such transfer otherwise
be proper and that the Person requesting such payment shall pay to the Exchange
Agent any transfer or other taxes required by reason of the payment of such cash
to a Person other than that of the registered holder of the Certificate
surrendered, or such Person shall establish to the satisfaction of the Exchange
Agent that such tax has been paid or is not applicable. Notwithstanding anything
in this Agreement, neither the Exchange Agent nor any party hereto shall be
liable to a holder of Shares for any Merger Consideration delivered to a public
official pursuant to applicable abandoned property laws. In the event any
Certificate shall have been lost, stolen or destroyed, upon the making of an
affidavit of that fact by the Person claiming such Certificate to be lost,
stolen or destroyed, the Exchange Agent will issuein exchange for such lost,
stolen or destroyed Certificate the Merger Consideration deliverable in respect
thereof as determined in accordance with this Article 2, provided that, the
Person to whom the Merger Consideration is paid shall, as a condition precedent
to the payment thereof, give the Surviving Corporation a bond in such amount as
it may direct or otherwise indemnify the Surviving Corporation in a manner
satisfactory to it against any claim that may be made against the Surviving
Corporation with respect to the Certificate claimed to have been lost, stolen or
destroyed.
(b) Promptly following the date which is six months after the
Effective Date, the Exchange Agent shall return to the Surviving Corporation all
cash and property in its possession relating to the transactions described in
this Agreement, and the Exchange Agent's duties shall terminate. Thereafter,
each holder of a Certificate representing a Share may surrender such Certificate
to the Surviving Corporation and (subject to applicable abandoned property,
escheat and similar laws) receive in exchange therefor the Merger Consideration,
without any interest thereon, but shall have no greater rights against the
Surviving Corporation than may be accorded to general creditors of the Surviving
Corporation under applicable law.
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(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.
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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.
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(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,
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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
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Subsidiaries owns or has the right to acquire, directly or indirectly, any
interest or investment (whether equity, debt, loan or advance) in any Person,
other than investments of less than $100,000 in the aggregate.
4.5. AUTHORITY RELATIVE TO THIS AGREEMENT. The Company has the
requisite corporate power and authority to execute and deliver this Agreement
and the Option Agreement, to perform its obligations hereunder and thereunder
and to consummate the transactions contemplated hereunder and thereunder. The
execution and delivery of this Agreement and the Option Agreement by the Company
and the consummation by the Company of the transactions contemplated hereby and
thereby have been duly authorized by the Board of Directors of the Company and
no other corporate proceeding on the part of the Company is necessary to
authorize the execution, delivery and performance of this Agreement or the
Option Agreement and the transactions contemplated hereby or thereby, including
the acquisition of the Shares pursuant to the Offer and the Merger, except for
the approval of the Company's stockholders owning at least a majority of the
outstanding Shares of the Merger, if required, pursuant to the Delaware Law as
set forth in Section 6.2 of this Agreement. The Company has taken all action
necessary to render the prohibitions of Section 203 of the Delaware Law to be
inapplicable to the execution and delivery of this Agreement and the Option
Agreement, and the transactions contemplated hereby and thereby, including the
acquisition of the Shares pursuant to the Offer and the Merger. To the
knowledge of the Company, no other "fair price'" "merger moratorium," "control
share acquisition" or other anti-takeover statute or similar statute or
regulation applies or purports to apply to the Merger, this Agreement the Option
Agreement or any of the transactions contemplated hereby or thereby. This
Agreement and the Option Agreement have been duly executed and delivered by the
Company and, assuming due authorization, execution and delivery by Parent and
Purchaser, each constitutes a valid and binding obligation of the Company,
enforceable against the Company in accordance with its respective terms, except
to the extent that enforceability may be limited by applicable bankruptcy,
insolvency, reorganization or other laws affecting the enforcement of creditors
rights generally or by general equitable principles, regardless of whether such
enforceability is considered in a proceeding in equity or at law.
4.6. COMPLIANCE.
(a) Neither the execution and delivery of this Agreement or the
Option Agreement by the Company, nor the consummation of the transactions
contemplated hereby (including the acquisition of the Shares pursuant to the
Offer and the Merger) or thereby, nor compliance by the Company with any of the
provisions hereof or thereof will (i) conflict with or result in any breach of
any provision of the certificate of incorporation, charter documents or bylaws
of the Company or any Company Subsidiary; (ii) violate, conflict with, or result
in a breach of any provision of, or constitute a default (or an event which,
with notice or lapse of time or both, would constitute a default) under, or
result in the termination of, or accelerate the performance required by, or
result in the loss of any material benefit under, or result in a right of
termination or acceleration under, any of the terms, conditions or provisions of
any note, bond,
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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
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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;
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(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;
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(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.
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(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.
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(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.
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(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.
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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.
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(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.
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(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.
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(iii) For purposes of this Section 4.15, an entity is an
"Affiliate" of the Company or any of its subsidiaries if it would have ever been
considered a single employer with the Company or any of its subsidiaries,
respectively, under ERISA Section 4001(b) or part of the same "controlled group"
as the Company or any of its subsidiaries or any of their respective
subsidiaries for purposes of ERISA Section 302(d)(8)(C).
(iv) "Multiemployer Plan" means a (pension or
non-pension) employee benefit plan to which more than one employer contributes
and which is maintained pursuant to one or more collective bargaining
agreements.
4.16. COMPLIANCE WITH LEGISLATION REGULATING ENVIRONMENTAL QUALITY.
All plants, offices, manufacturing facilities, stores, warehouses,
improvements, administration buildings, and real property and related
facilities of the Company and its subsidiaries, whether currently or
previously owned, operated or leased by the Company and its subsidiaries
(collectively, the "FACILITIES") are and at all times have been maintained
and operated in material compliance with all applicable federal, state and
local environmental protection, occupational, health and safety or similar
laws, ordinances, restrictions, orders, regulations and licenses
(collectively "ENVIRONMENTAL LAWS") including but not limited to the Federal
Water Pollution Control Act (33 U.S.C Section 1251 ET SEQ. ), Resource
Conservation & Recovery Act (42 U.S.C. Section 6901 ET SEQ.), Safe Drinking
Water Act (21 U.S.C. Section 349, 42 U.S.C. Sections 201, 300f), Toxic
Substances Control Act (15 U.S.C. Section 2601 ET SEQ.), Clean Air Act (42
U.S.C. Section 7401 ET SEQ.), and Comprehensive Environmental Response,
Compensation and Liability Act (42 U.S.C. Section 9601 ET SEQ.). No
materials, substances, or products have been at any time been placed, held,
located, disposed of or released on, under, at, within, or about the
Facilities which may reasonably be expected to result in a regulatory agency
or other governmental entity requiring clean up, removal or other remedial
action by the Company or any of its subsidiaries under Environmental Laws.
No hazardous or toxic substance, waste or material (collectively "HAZARDOUS
MATERIALS") has at any time been used, stored, treated, transported or
handled by the Company or any of its subsidiaries or any of its consultants,
contractors or agents on, under, at, within, or about the Facilities except
Hazardous Materials that are used, stored, treated, transported or handled
on, under, at, within or about the Facilities in material compliance with
Environmental Laws. No litigation, administrative enforcement actions,
proceedings or notices of potential liability have been (x) received, served
or, to the knowledge of the Company, filed or threatened against the Company
or any of its subsidiaries or (y) to the knowledge of the Company, received,
served, filed or threatened against any predecessor business or landowner or
with respect to any Facility, in each case, relating to damage, contribution,
cost recovery, compensation, loss or injury resulting from any Hazardous
Materials or arising out of the use, generation, storage, treatment, release,
discharge, transportation, handling or disposal of Hazardous Materials or
resulting from a violation or alleged violation of Environmental Laws.
4.17. LABOR MATTERS. Except as set forth on the Disclosure Schedule,
the Company and its subsidiaries are not a party to any labor agreement with
respect to its employees with any
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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
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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
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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
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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).
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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
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or employee or pay any benefit not required by any plan, arrangement or
agreement in effect on the date hereof.
5.10. TAX ELECTION; ACCOUNTING. Neither the Company nor any of its
subsidiaries shall make any tax election or settle or compromise any federal,
state, local or foreign income tax liability. Each of the Company and its
subsidiaries shall maintain its books of account and records in its usual,
regular and ordinary manner, consistent with its past practices, and except
as may be required as a result of a change in law or in generally accepted
accounting principles shall not make any change in any accounting principle
or accounting practice.
5.11. SUBSEQUENT FINANCIALS. The Company shall deliver to Parent all
of the Company's monthly and quarterly, if any, financial statements for
periods and dates subsequent to the date hereof, as soon as the same are
available to the Company.
5.12. REPRESENTATIONS AND WARRANTIES. The Company and its
subsidiaries will not take any action or omit to take any action, which
action or omission would reasonably be expect to result in a breach or
inaccuracy of any of the representations and warranties set forth in this
Agreement in any material respect at, or as of any time prior to, the
Effective Date.
5.13. CONTRACTS. The Company and its subsidiaries will not enter
into any contract or agreement other than in the ordinary course of business.
The Company and its subsidiaries will not amend, terminate or modify any
Material Contract and will not enter into any contract or agreement which
would have been a Material Contract if entered into prior to the date of this
Agreement.
5.14. AFFILIATES. Without Parent's written consent, the Company and
its subsidiaries will not enter into, amend, modify or terminate any contract
or agreement with, or make any payment other than pursuant to a written
agreement existing on the date hereof to, any affiliate (other than the
Company or any of its subsidiaries) of the Company or its subsidiaries;
including releasing Shares under pledge agreements.
5.15. LITIGATION. The Company and its subsidiaries will not settle
or compromise any pending or threatened suit, action or claim for an amount
in excess of $25,000 per suit, action or claim or which relates to the
transactions contemplated hereby.
5.16. CAPITAL EXPENDITURES. The Company and its subsidiaries will
not authorize or make any expenditure for capital or acquisitions which are
not specifically provided for in the Company's capital budget (a true and
correct copy of which has been delivered to Parent and is set forth in the
Disclosure Schedule).
5.17. TRANSACTION EXPENSES. The Company and its subsidiaries will
not incur costs, fees and expenses in connection with the Offer, the Merger
and the other transactions contemplated by this Agreement, in excess of (i)
$1,000,000 for the costs, fees and expenses of
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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
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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
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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.
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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.
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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 of Schedule 6.10(a).
(b) The Company shall use commercially reasonable efforts to
obtain prior to the consummation of the Offer from Frontier Insurance the letter
attached hereto as Schedule 6.10(b).
(c) The Company shall use commercially reasonable efforts to
obtain prior to the consummation of the Offer the insurance coverage set forth
in Schedule 6.10(c) from J&H Marsh & McLeanan.
6.11. INDEMNIFICATION AND INSURANCE.
(a) For a period of six years after the Effective Date, the
Surviving Corporation shall indemnify, defend and hold harmless the officers and
directors of the Company as of the date hereof against all losses, claims,
damages, expenses or liabilities arising out of actions or omissions or alleged
actions or omissions occurring at or prior to the Effective Date to the same
extent and on the same terms and conditions (including with respect to
advancement of expenses) provided for in the Company's Certificate of
Incorporation and Bylaws in effect at the date hereof (to the extent consistent
with applicable law).
(b) From and after the Effective Date until the sixth
anniversary thereof, the Surviving Corporation shall maintain in effect the
current policies of directors' and officers' liability insurance maintained by
the Company (provided that the Parent or the Surviving Corporation may
substitute therefor policies of at least the same coverage and amounts
containing terms and conditions which are no less advantageous) with respect to
claims arising from facts or events which occurred before the Effective Date;
PROVIDED, HOWEVER, that the Surviving Corporation shall not be obligated to make
annual premium payments for such insurance to the extent such premiums exceed
150% of the premiums paid as of the date hereof by the Company for such
insurance.
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7. CONDITIONS
7.1. CONDITIONS TO OBLIGATION OF EACH PARTY TO EFFECT THE MERGER.
The respective obligations of each party to effect the Merger shall be
subject to the fulfillment at or prior to the Effective Date of the following
conditions:
(a) The Purchaser (or a subsidiary or an affiliate of Parent)
shall have accepted for payment and paid for Shares pursuant to the Offer in
accordance with the terms thereof;
(b) To the extent required by the Delaware Law, this Agreement
and the Merger shall have been approved and adopted by the requisite vote or
consent of the stockholders of the Company; and
(c) No permanent injunction or other order, decree or ruling
issued by a court of competent jurisdiction in the United States or by a
domestic governmental, regulatory or administrative agency or commission nor any
statute, rule, regulation or executive order promulgated or enacted by any
domestic governmental authority shall be in effect, which would make the
acquisition or holding by Parent, its subsidiaries or affiliates of the shares
of common stock of the Surviving Corporation illegal or otherwise prevent the
consummation of the Merger; PROVIDED, HOWEVER, that the parties shall have used
all reasonable efforts to prevent such event.
7.2. ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF PURCHASER. The
obligations of Parent and Purchaser to effect the Merger are also subject to the
following conditions:
(a) Parent, Purchaser and the Company shall have obtained such
licenses, permits, consents, waivers, approvals, authorizations, qualifications,
orders, actions and non-actions from all third parties, including governmental
authorities and agencies, as are necessary for consummation of the Merger and
the consummation of the Merger will not result in the loss of any Permit of the
Company or any of its subsidiaries;
(b) The Company shall not have breached or failed to perform in
any material respect any of its obligations in this Agreement or failed to
comply in any material respect with any of its agreements or covenants in this
Agreement;
(c) Each of the representations and warranties of the Company
set forth in this Agreement that are subject to, or qualified by, any
materiality qualification shall be true and correct and each such
representations and warranties that is not so qualified shall be true and
correct in all material respect, in each case at the date of this Agreement and
as of the Effective Date, except as to each such representation or warranty
which speaks as of a specific date which must be true and correct in the
foregoing respects as of such date;
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(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
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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;
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(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
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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
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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
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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.
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(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
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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.
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IN WITNESS WHEREOF, each of Parent, Purchaser and the Company have caused
this Agreement to be executed as of the date first written above by their
respective officers thereunder duly authorized.
KNOWLEDGE BEGINNINGS, INC.
/s/ Ronald J. Packard
-----------------------------------
Name: Ronald J. Packard
Title: Treasurer
KBI ACQUISITION CORP.
/s/ Ronald J. Packard
-----------------------------------
Name: Ronald J. Packard
Title: Treasurer
CHILDREN'S DISCOVERY CENTERS OF AMERICA, INC.
/s/ Randall J. Truelove
-----------------------------------
Name: Randall J. Truelove
Title: Vice President
<PAGE>
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
<PAGE>
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
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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
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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.
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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.
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(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.
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(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
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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
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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
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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
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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
Page 8
<PAGE>
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.
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<PAGE>
(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.
Page 10
<PAGE>
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
Page 11
<PAGE>
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
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<PAGE>
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,
Page 13
<PAGE>
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, 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
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<PAGE>
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
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<PAGE>
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
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<PAGE>
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.
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<PAGE>
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: /s/ Ronald J. Packard
-------------------------------
Title: Treasurer
Name: Ronald J. Packard
Children's Discovery Centers of America, Inc.
By: /s/ Randall J. Truelove
-------------------------------
Title: Vice President
Name: Randall J. Truelove
STOCKHOLDERS
Proactive Partners, L.P.
By: /s/ Charles C. McGettigan
-------------------------------
Title: General Partner
Name: Charles C. McGettigan
Fremont Proactive Partners, L.P.
By: /s/ Charles C. McGettigan
-------------------------------
Title: General Partner
Name: Charles C. McGettigan
Lagunitas Partners, L.P.
By: /s/ J. Patterson McBaine
-------------------------------
Title: General Partner
Name: J. Patterson McBaine
Page 18
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
Record Holder or
Beneficial Owner Number of Shares Address for Notices
- -------------------------- ---------------- -----------------------
<S> <C> <C>
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 23,000 Charles McGettigan
Partners, l.P. McGettigan, Wick & Co., Inc.
50 Osgood Place, Penthouse
San Francisco, CA 94133
</TABLE>
<PAGE>
[Letterhead of Children's Discovery Centers of America, Inc.]
[LOGO]
April 3, 1998
To Our Stockholders:
We are pleased to inform you that on March 27, 1998, Children's Discovery
Centers of America, Inc. (the "Company") entered into an Agreement and Plan of
Merger (the "Merger Agreement") by and among Knowledge Beginnings, Inc.
("Parent"), KBI Acquisition Corp. ("Purchaser"), a wholly-owned subsidiary of
Parent, and the Company, pursuant to which Purchaser has commenced a tender
offer (the "Offer") to purchase all of the outstanding shares of the Company's
common stock, par value $.01 per share (the "Common Stock"), for a cash price of
$12.25 per share. The Offer is conditioned upon, among other things, the tender
of a minimum of a majority of the Common Stock (determined on a fully diluted
basis). The Merger Agreement provides that, following consummation of the Offer,
Purchaser (or such other subsidiary of Parent as Parent may elect) will be
merged (the "Merger") with the Company, and those shares of Common Stock that
are not acquired in the Offer will be converted into the right to receive $12.25
per share of Common Stock in cash in the Merger.
The Board of Directors has unanimously (i) determined that each of the Offer
and the Merger is fair to, and in the best interests of, the Company's
stockholders, (ii) approved and adopted the Merger Agreement and the Option and
Support Agreement (each as defined in the accompanying Schedule 14D-9) and the
transactions contemplated thereby, including the Offer and the Merger, and (iii)
recommended that the Company's stockholders accept the Offer and tender their
Shares pursuant to the Offer. In arriving at its recommendation, the Board of
Directors considered the factors described in the accompanying Schedule 14D-9,
including the opinion of Advest, Inc. ("Advest") to the effect that, as of the
date of such opinion, the consideration to be paid to the stockholders of the
Company pursuant to the Merger Agreement in the Offer and the Merger is fair to
the Company and the holders of Common Stock from a financial point of view. A
copy of Advest's written opinion, which sets forth the assumptions made,
procedures followed and matters considered in, and the limitations on, the
review by Advest in rendering its opinion, is attached to the Schedule 14D-9 as
Schedule I.
The accompanying Offer to Purchase sets forth all of the terms of the Offer.
Additionally, the enclosed Schedule 14D-9 sets forth additional information
regarding the Offer and the Merger relevant to making an informed decision. We
urge you to read these materials carefully and in their entirety.
Very truly yours,
/S/ RICHARD A. NIGLIO
Richard A. Niglio
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
[LOGO]
<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
<PAGE>
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.
-END-
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CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT ("Agreement"), dated as of March 27, 1998
and effective as of the Effective Date (as defined in Section 9), is made
between CHILDREN'S DISCOVERY CENTERS OF AMERICA, INC., a Delaware corporation
("Company"), and RICHARD A. NIGLIO ("Consultant").
RECITALS:
WHEREAS, pursuant to an Agreement and Plan of Merger, dated as of
March 27, 1998, by and among Knowledge Beginnings, Inc. ("Parent"), KBI
Acquisition Corp. ("Merger Sub"), and Company (the "Merger Agreement"), Parent
proposes to acquire not less than a majority of the outstanding shares of
capital stock of Company;
WHEREAS, Consultant has been a key employee of Company, and Parent,
Merger Sub and Company deem Consultant's continued services with Company during
the term of this Agreement and Consultant's covenants contained herein to be
material and significant to Company's success and desire to ensure that the
skills and experience of Consultant will remain available to Company;
WHEREAS, without Consultant's agreement to consult with Company and
to provide the covenants contained herein, Parent and Merger Sub would not have
entered into the Merger Agreement or agreed to consummate the transactions
contemplated thereby; and
WHEREAS, the parties hereto desire to enter into this Agreement
providing for the engagement of Consultant with Company and Consultant's other
covenants contained herein on the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual promises and subject
to the terms and conditions set forth herein, the parties hereto agree as
follows:
SECTION 1. ENGAGEMENT.
Effective as of the Effective Date without further action of
Company or Consultant, Consultant resigns as an employee and officer of Company,
Company engages Consultant as a consultant to Company and Consultant accepts
such engagement with Company on the terms and conditions set forth in this
Agreement, which such terms and conditions shall supersede all of the terms and
conditions of Consultant's employment with Company in effect prior to the
Effective Date. Consultant shall consult with, advise and assist Company in
connection with such matters as may be reasonably requested by Company from time
to time during the Consulting Term (as defined below); provided, however, that
Consultant shall not be required to provide more than ten (10) hours of
consulting services per quarter and Company
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shall pay Consultant's reasonable travel and incidental out-of-pocket expenses
incurred in connection with any such consulting services.
SECTION 2. CONSULTING FEE.
As full and complete satisfaction of all of Company's obligations
to Consultant, Company shall pay to Consultant a consulting fee of Three Hundred
Fifty Thousand Dollars ($350,000) per annum for an aggregate consulting fee of
Seven Hundred Thousand Dollars ($700,000) for the entire Consulting Term. The
aggregate consulting fee of Seven Hundred Thousand Dollars ($700,000) for the
entire Consulting Term shall be paid to Consultant on the Effective Date.
SECTION 3. TERM.
Consultant's engagement shall commence as of the Effective Date and
shall terminate on the date that is two (2) years after the Effective Date (the
"Consulting Term"), unless terminated earlier by Company upon written notice to
Consultant. Upon termination of Consultant's engagement, Consultant shall not
be entitled to receive any compensation or benefits (other than as provided in
Section 2 above) and Consultant shall not be obligated to return any consulting
fees to Company as a result of any such termination.
SECTION 4. COVENANTS OF CONSULTANT.
4.1 ACKNOWLEDGMENTS. Consultant acknowledges the following:
4.1.1 ACCESS TO CONFIDENTIAL INFORMATION. Consultant's
services previously rendered to Company and to be rendered hereunder have placed
Consultant and shall continue to place Consultant in a position of confidence
and trust which shall allow Consultant access to Confidential Information. As
used herein, "Confidential Information" shall mean information and compilations
of information relating to the business of Company, Parent, Merger Sub and/or
the affiliates of Company, Parent and/or Merger Sub (collectively, the
"Affiliates") including, but not limited to, information regarding any trade
secrets, proprietary knowledge, operating procedures, finances, financial
condition, projections, organization, employees, suppliers, customers, clients,
agents, and other personnel, business activities, budgets, strategic or
financial plans, objectives, marketing plans, prices and price lists, customer
and supplier lists, operating and training materials, data bases and analyses,
designs, formulaes, test data, and all strategies, documents and computer
databases relating to any of the foregoing.
4.1.2 FAIR AND REASONABLE COVENANT. The type and period
of restrictions imposed by the covenants in this Section 4 are fair and
reasonable and such restrictions will not prevent Consultant from earning a
livelihood.
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4.2 COVENANT AS TO NONDISCLOSURE OR USE OF CONFIDENTIAL
INFORMATION. Consultant agrees that at all times during and after the term of
Consultant's engagement hereunder, Consultant will maintain the Confidential
Information in strictest confidence and will not, unless required to do so in
the conduct of Company's operations, disclose to any individual or business
enterprise of any nature, or use for Consultant's own personal use or financial
gain, whether individually or on behalf of another person, firm, corporation or
entity, any Confidential Information. Without limiting the generality of the
foregoing, Consultant agrees that Company's agreements with other persons may
include agreements that impose obligations or restrictions regarding inventions
that occur in connection with work relating to such an agreement, or regarding
the confidential nature of work pursuant to such an agreement. Consultant
agrees to be bound by all such obligations and restrictions, and to do whatever
is reasonably necessary to satisfy the obligations of Company.
4.3 ASSIGNMENT OF INVENTIONS. To the maximum extent permitted
by law, Consultant shall assign and transfer to Company and does hereby assign
and transfer to Company Consultant's entire right, title and interest in and to
all inventions including, but not limited to, designs, discoveries, inventions,
improvements, formulas, ideas, devices, techniques, processes, writings, trade
secrets, trademarks, trademark applications, patents, copyrights and all other
intellectual property rights including but not limited to notes, records,
reports, software, plans, memoranda and other tangible information relating to
such intellectual property, whether or not subject to protection under
applicable laws, which Consultant solely or jointly with others conceives,
makes, acquires or suggests at any time during Consultant's past, present or
future employment or engagement with Company and which relate in any manner to
the actual or demonstrably anticipated business, products, processes, work,
operations, research and development or other activities of Company, or result
from or are suggested by any task assigned to Consultant or any work performed
by Consultant for or on behalf of Company ("Inventions"). All Inventions are
and shall be the sole property of Company.
4.4 DISCLOSURE OF INVENTIONS, PATENTS, COPYRIGHTS AND MASK WORK
RIGHTS. Consultant agrees:
4.4.1 To keep and maintain adequate and current written
records of all Inventions made by Consultant (in the form of notes, sketches,
drawings and other forms specified by Company) while engaged by Company. These
records shall be available to Company and shall be and remain the sole property
of Company at all times. Consultant will disclose such Inventions promptly in
writing to the Chief Executive Officer of Company.
4.4.2 Upon request, to promptly execute a written
assignment of title to Company for any Invention required to be assigned by
Section 4.3 ("assignable invention") and Consultant will preserve any such
assignable invention as Confidential Information.
4.4.3 Upon request, to assist Company or its nominee at
Company's expense during and at any time subsequent to Consultant's engagement
in every reasonable way
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to obtain for Company's or its nominee's benefit, patents, copyrights, mask work
rights and other statutory rights ("Statutory Rights") for such assignable
inventions in any and all countries, which inventions shall be and remain the
sole and exclusive property of Company or its nominee whether or not patented,
copyrighted or the subject of a mask work right. Consultant shall execute such
papers and perform such lawful acts as Company deems necessary to exercise all
rights, title and interest in such Statutory Rights.
4.4.4 To execute and deliver to Company or its nominee
upon request and at Company's expense all documents, including applications for
and assignments of Statutory Rights to be issued therefor, as Company determines
are necessary or desirable to apply for and obtain Statutory Rights on such
assignable inventions in any and all countries and/or to protect the interest of
Company or its nominee in Statutory Rights and to vest title thereto in Company
or its nominee.
4.5 RETURN OF RECORDS, EQUIPMENT AND CONFIDENTIAL INFORMATION.
Upon the earlier of termination of Consultant's engagement hereunder or request
by Company, Consultant shall promptly return to Company: (i) all Confidential
Information and all documents, records, procedures, books, notebooks, and any
other documentation in any form whatsoever (including, but not limited to,
written, audio, video or electronic) containing any information pertaining to
Company which includes Confidential Information, including any and all copies of
such documentation then in Consultant's possession or control regardless of
whether such documentation was prepared or compiled by Consultant, Company,
other consultants or employees of Company, representatives, agents, or
independent contractors, and (ii) all equipment or tangible personal property
entrusted to Consultant by Company. Consultant will not retain any original,
copy, description, document, data base or other form of media that contains or
relates to any Confidential Information whether produced by Consultant or
otherwise. Without limiting the generality of the foregoing, Consultant shall
permanently delete all Confidential Information from all computers, disks,
CD-ROMS, tapes, and other media owned or used by or accessible to Consultant,
other than from any of the foregoing owned, used or controlled by Company.
Consultant acknowledges that all Confidential Information and all such
documentation, copies of such documentation, equipment, and tangible personal
property are and shall at all times remain the sole and exclusive property of
Company.
4.6 ADDITIONAL COVENANTS PROTECTING THE INTERESTS OF COMPANY.
Consultant agrees as follows:
4.6.1 That during Consultant's engagement hereunder,
Consultant shall not directly or indirectly, individually or together or through
any affiliate or other person, firm, corporation, or entity engage in any other
business activity which would interfere with the performance of Consultant's
duties hereunder including, but not limited to, engaging in any business
(including any non-profit business) that, as more than an incidental part of its
business, operates preschools or elementary schools (including charter schools
at the elementary level) or
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that otherwise competes with a business in which Company is engaged as of the
Effective Date (a "Competitive Business").
4.6.2 That for the period commencing on the Effective
Date and ending two (2) years after the Effective Date and irrespective of the
duration of the Consulting Term, Consultant shall not directly or indirectly,
individually, or together with, or through any other person, firm, corporation,
or entity: (i) in any manner discourage any person or entity which is or has
been a customer or supplier of Company from continuing its business relationship
with Company, (ii) solicit, approach, counsel, or attempt to induce any person
who is then in the employ of or an independent contractor of Company, to leave
their employ or engagement, or (iii) aid or counsel any other person, firm,
corporation, or entity to do any of the above.
4.6.3 That for the period commencing on the Effective
Date and ending two (2) years after the Effective Date and irrespective of the
duration of the Consulting Term, Consultant will not directly or indirectly on
Consultant's own behalf or on behalf of any other person, firm or entity (a)
engage in; (b) own or control any interest in (except as a passive investor of
less than 5% of the publicly traded stock of a publicly held company); (c) act
as a director, officer, manager, employee, trustee, agent, partner, joint
venturer, participant, consultant of or be obligated to, or be connected in any
advisory, business or ownership capacity with; (d) lend credit or money for the
purpose of the establishing or operating; or (e) allow Consultant's name or
reputation to be used by any firm, corporation, partnership, trust or other
business enterprise directly or indirectly engaged in, any Competitive Business
anywhere in North America. Consultant has carefully considered the nature and
extent of the restrictions upon competition set forth herein and agrees that the
same are reasonable with respect to duration and territory.
4.7 POST-ENGAGEMENT COOPERATION. Consultant agrees that during
and following Consultant's engagement under this Agreement, Consultant shall,
upon Company's reasonable request, in good faith and with Consultant's best
efforts, subject to Consultant's reasonable availability, cooperate and assist
Company in any dispute, controversy, or litigation in which Company may be
involved and with respect to which Consultant obtained knowledge while employed
or engaged by Company or any of its predecessors, affiliates, successors, or
assigns, including, but not limited to, Consultant's participation in any court
or arbitration proceedings, giving of testimony, signing of affidavits, or such
other personal cooperation as counsel for Company shall request. Any such
activities shall be scheduled, to the extent reasonably possible, to accommodate
Consultant's business and personal obligations at the time. Company shall pay
Consultant's reasonable travel and incidental out-of-pocket expenses incurred in
connection with any such cooperation.
4.8 REMEDIES. In view of the position of confidence which
Consultant has and will enjoy with Company and the relationship with the
clients, customers, members, and employees of Company and its affiliates, and
recognizing both the access to confidential financial and other information
which Consultant has had and will have pursuant to Consultant's
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engagement and the fact that Parent and Merger Sub would not have entered into
the Merger Agreement or purchased the capital stock of Company without
Consultant's covenants in this Agreement, Consultant expressly acknowledges that
the restrictive covenants set forth in this Section 4 are reasonable and
necessary in order to protect and maintain the proprietary interests and other
legitimate business interests of Company and its affiliates. Consultant further
acknowledges that (i) it would be difficult to calculate damages to Company and
its affiliates from any breach of Consultant's obligations under this Section 4,
(ii) that injury to Company and its affiliates from any such breach would be
irreparable and impossible to measure, and (iii) that the remedy at law for any
breach or threatened breach of this Section 4 would therefore be an inadequate
remedy and, accordingly, Company shall, in addition to all other available
remedies (including without limitation seeking such damages as it can show it
and its affiliates has sustained by reason of such breach and/or the exercise of
all other rights it has under this Agreement), be entitled to injunctive and
other similar equitable remedies without the necessity of showing actual damages
or posting bond.
4.9 THIRD PARTY BENEFICIARIES. The parties hereto acknowledge
that any breach of any of the provisions of this Agreement would be damaging to
the Affiliates as well as Company and the Affiliates shall therefore have the
right, as third party beneficiaries, to pursue any and all remedies for any
breach of the provisions of this Agreement by Consultant, including but not
limited to the remedies provided for in Section 4.8 hereof, as though the
Affiliates are a party to this Agreement.
SECTION 5. REPRESENTATIONS BY CONSULTANT.
Consultant represents and warrants that Consultant is free to enter
into and perform each of the terms and conditions of this Agreement; that
Consultant is not a party to any confidentiality, non-compete or other agreement
that restricts the services that may be rendered by Consultant for Company; and
that Consultant's execution and/or performance of all Consultant's obligations
under this Agreement does not and will not violate or breach any other agreement
between Consultant and any other person or entity. Consultant acknowledges that
but for this representation and warranty, Company would not agree to enter into
this Agreement.
SECTION 6. ASSIGNABILITY.
This Agreement is binding upon and inures to the benefit of the
parties and their respective heirs, executors, administrators, personal
representatives, successors, and permitted assigns. Company may assign its
rights or delegate its duties under this Agreement at any time and from time to
time and upon any such assignment all references herein to Company shall include
any assignee of Company. The parties acknowledge that this Agreement is
personal to Consultant and that the availability of Consultant to perform
services and the covenants provided by Consultant hereunder have been a material
consideration for Company to enter into this Agreement. Accordingly, Consultant
may not assign any of Consultant's rights or delegate any of Consultant's duties
under this Agreement, either voluntarily or by operation of law, without
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the prior written consent of Company, which may be given or withheld by Company
in its sole and absolute discretion.
SECTION 7. NOTICES.
All notices, requests, demands or other communications hereunder
shall be deemed to have been duly given when delivered, addressed as follows (or
at such other address as the addressed party may have substituted by notice
pursuant to this Section 7):
If to Consultant: Richard A. Niglio
68 Via La Cumbre
Greenbrae, California 94904
If to Company: Children's Discovery Centers of America, Inc.
851 Irwin Street, Suite 200
San Rafael, California 94901
Attention: Chief Executive Officer
With a copy to: Stanley E. Maron, Esq.
Maron & Sandler
844 Moraga Drive
Los Angeles, CA 90049
SECTION 8. MISCELLANEOUS.
8.1 INDEPENDENT CONTRACTOR. Consultant agrees that the payments
to be made by Company to Consultant are not for services as an employee but as
an independent contractor and Company is interested only in the results obtained
by Consultant. The specific manner and means of performing consulting services
shall be under the sole control of Consultant. Consultant agrees that inasmuch
as Consultant is an independent contractor and not an employee of Company,
Consultant is not entitled to participate in any Company sponsored employee
benefit plans, including but not limited to, Company's health and life insurance
plans. Moreover, Company will not deduct any amounts for withholding tax,
social security taxes or otherwise and Company will remit no monies to the State
of California or the United States Government from the payments to be made to
Consultant pursuant to this Agreement. Consultant represents that Consultant
will report all amounts received under this Agreement as ordinary income for
State and Federal income tax purposes and, based upon such representation,
Company will be taking a corresponding deduction for the payments made to
Consultant hereunder. If any payments to Consultant are not deductible by
Company pursuant to Section 280G of the Internal Revenue Code of 1986, as
amended, Consultant shall upon demand of Company immediately reimburse Company
an appropriate amount so that the net cost to Company of all payments made to
Consultant shall be the same as if such payments had been deductible by Company.
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8.2 ENTIRE AGREEMENT. This Agreement and the exhibits hereto
embodies the entire representations, warranties, covenants and agreements in
relation to the subject matter hereof. No other representations, warranties,
covenants, understandings or agreements in relation hereto exist between the
parties except as otherwise expressly provided herein. This Agreement
supersedes any previous employment, consulting or similar agreement between
Company and Consultant including, without limitation, that certain Employment
Agreement entered into as of January 15, 1998.
8.3 AMENDMENT. This Agreement may not be amended except by an
instrument in writing duly executed by the Company, Consultant and Parent.
8.4 APPLICABLE LAW; ARBITRATION. This Agreement has been made
and executed under, and will be construed and interpreted in accordance with,
the laws of the State of California. Any dispute, controversy or claim arising
out of this Agreement or the performance, breach or termination thereof shall be
settled by binding arbitration in accordance with the Commercial Arbitration
Rules of the American Arbitration Association. The place of arbitration shall
be San Francisco, California. The arbitration shall be conducted by a neutral
arbitrator selected by mutual agreement of the parties within ten (10) days
after notice by either party to the other requesting such arbitration. If the
parties fail to agree within ten (10) days on the selection of the arbitrator,
an arbitrator shall be promptly appointed by the American Arbitration
Association from its Large, Complex Case Panel. Judgment upon the award
rendered may be entered in any court having jurisdiction. The prevailing party
shall be entitled to be awarded all costs of arbitration including, but not
limited to, attorneys' fees. All information resulting from or otherwise
pertaining to any dispute shall be nonpublic and handled by Company, Consultant
and their respective agents in such a way as to prevent the public disclosure of
such information.
8.5 PROVISIONS SEVERABLE. Every provision of this Agreement is
intended to be severable from every other provision of this Agreement. If any
provision of this Agreement is held to be void or unenforceable, in whole or in
part, the remaining provisions will remain in full force and effect, unless the
remaining provisions are so eviscerated by such holding that they do not reflect
the intent of the parties in entering into this Agreement. If any provision of
this Agreement is held to be unreasonable or excessive in scope or duration,
that provision will be deemed to be reformed and enforced to the maximum extent
permitted by law.
8.6 NON-WAIVER OF RIGHTS AND BREACHES. Any waiver by a party of
any breach of any provision of this Agreement will not be deemed to be a waiver
of any subsequent breach of that provision, or of any breach of any other
provision of this Agreement. No failure or delay in exercising any right,
power, or privilege granted to a party under any provision of this Agreement
will be deemed a waiver of that or any other right, power, or privilege. No
single or partial exercise of any right, power, or privilege granted to a party
under any provision of this Agreement will preclude any other or further
exercise of that or any other right, power, or privilege.
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8.7 INTERPRETATION OF AGREEMENT. Each of the parties has had
the opportunity to be represented by counsel in the negotiation and preparation
of this Agreement. The parties agree that this Agreement is to be construed as
jointly drafted. Accordingly, this Agreement will be construed according to the
fair meaning of its language, and the rule of construction that ambiguities are
to be resolved against the drafting party will not be employed in the
interpretation of this Agreement.
8.8 GENDER AND NUMBER. Concerning the words used in this
Agreement, the singular form shall include the plural form, the masculine gender
shall include the feminine or neuter gender, and vice versa, as the context
requires, and the word "person" shall include any natural person, partnership,
corporation, limited liability company, association, trust, estate or other
legal entity.
8.9 HEADINGS. The headings of the Sections and Paragraphs of
this Agreement are inserted for ease of reference only, and will have no effect
in the construction or interpretation of this Agreement.
8.10 COUNTERPARTS. This Agreement and any amendment or
supplement to this Agreement may be executed in two or more counterparts, each
of which will constitute an original but all of which will together constitute a
single instrument. Transmission by facsimile of an executed counterpart
signature page hereof by a party hereto shall constitute due execution and
delivery of this Agreement by such party.
SECTION 9. EFFECTIVE DATE.
Anything contained in this Agreement to the contrary
notwithstanding, the effectiveness of this Agreement is contingent upon the
consummation of the Offer (as defined in the Merger Agreement) in accordance
with the Merger Agreement. As used herein, the "Effective Date" shall mean a
date designated by Parent which such date shall be on or after the date of
consummation of the Offer and on or before the date of the Closing of the Merger
(as defined in the Merger Agreement) in accordance with the Merger Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed and delivered as of the date first above written.
"Consultant"
/s/ Richard A. Niglio
-------------------------------------
RICHARD A. NIGLIO
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"Company"
CHILDREN'S DISCOVERY CENTERS OF AMERICA, INC.,
a Delaware corporation
By: /s/ Elanna S. Yalow
--------------------------------
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EXCESS PAYMENT AGREEMENT
This Excess Payment Agreement ("Agreement") is entered into as of March 27,
1998 between Children's Discovery Centers of America, Inc., a Delaware
corporation (the "Company") and Elanna S. Yalow ("Yalow").
WHEREAS, Yalow is the President and Chief Operating Officer of the Company;
WHEREAS, the Company, KBI Acquisition Corp., a Delaware corporation
("Purchaser") and Knowledge Beginnings, Inc., a Delaware corporation ("Parent")
have entered into an Agreement and Plan of Merger dated as of March 27, 1998
(the "Merger Agreement") with respect to the proposed acquisition of the Company
by a merger of Purchaser, which, is a wholly-owned subsidiary of Parent, with
and into the Company;
WHEREAS, in connection with the proposed acquisition, the Board of
Directors of the Company took action on March 18, 1998 so that, subject to
consummation of the merger, the vesting date would be accelerated for all
options to purchase common stock, par value $.01 per share, of the Company
("Options") held by Yalow which were not yet fully vested, and the Company would
offer to repurchase the same and all other Options held by Yalow which were
already fully vested (collectively, the "Yalow Options"); and
WHEREAS, Yalow does not wish to receive from the Company any compensation,
benefit or other amount that would be an "excess parachute payment" under
Section 280G of the Internal Revenue Code of 1986, as amended (an "Excess
Payment").
NOW, THEREFORE, the parties agree as follows:
1. If and to the extent that the repurchase by the Company of any one or
more of the Yalow Options would cause Yalow to receive an Excess Payment, Yalow
hereby surrenders and relinquishes such Yalow Option or Options to the extent
necessary to avoid the receipt of such Excess Payment.
2. The Company agrees not to repurchase any Yalow Options if such
repurchase would cause Yalow to receive an Excess Payment, and agrees instead to
cancel such Yalow Option to the extent necessary to avoid the receipt by Yalow
of an Excess Payment.
3. The parties will work together and cooperate so as to determine
whether and to what extent the repurchase of any Yalow Options will cause Yalow
to receive any Excess Payment.
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IN WITNESS WHEREOF, the parties have executed by this Agreement as of the date
first written above.
CHILDREN'S DISCOVERY CENTERS OF
AMERICA, INC., a Delaware corporation
By: /s/ Randall J. Truelove
-------------------------
Its: Vice President
-------------------------
/s/ Elanna S. Yalow
-------------------------
Elanna S. Yalow
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EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement"), dated as of March 27, 1998
and effective as of the Effective Date (as defined in Section 9), is made
between KNOWLEDGE BEGINNINGS, INC., a Delaware corporation ("Company"), and
ELANNA YALOW ("Executive").
RECITALS:
WHEREAS, pursuant to an Agreement and Plan of Merger (the "Merger
Agreement"), dated as of March 27, 1998, by and among Company, KBI Acquisition
Corp. ("Merger Sub") and Children's Discovery Centers of America, Inc. ("CDCR"),
Company proposes to acquire not less than a majority of the outstanding shares
of capital stock of CDCR;
WHEREAS, Executive has been a key employee of CDCR and Company and
Merger Sub deem Executive's services with Company during the term of this
Agreement and Executive's covenants contained herein to be material and
significant to Company's success and desire to ensure that the skills and
experience of Executive will remain available to Company;
WHEREAS, without Executive's agreement to become employed with
Company and to provide the covenants contained herein, Company and Merger Sub
would not have entered into the Merger Agreement or agreed to consummate the
transactions contemplated thereby; and
WHEREAS, the parties hereto desire to enter into this Agreement
providing for the employment of Executive with Company and Executive's other
covenants contained herein on the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual promises and subject
to the terms and conditions set forth herein, the parties hereto agree as
follows:
SECTION 1. EMPLOYMENT.
1.1 RESPONSIBILITIES. Effective as of the Effective Date
without further action of Company or Executive, Company employs Executive, and
Executive accepts employment with Company, on the terms and conditions contained
in this Agreement, which such terms and conditions shall supersede the terms and
conditions of Executive's employment with CDCR. Executive shall serve in such
executive capacity and agrees to hold such office(s) with Company and/or its
subsidiaries or affiliates as Company's Board of Directors shall from time to
time designate. Executive shall carry out such responsibilities and duties as
are commensurate with such position and as otherwise required hereunder in an
efficient trustworthy, effective and businesslike manner. Executive's primary
place of employment shall be located in the State of
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California unless strong business reasons require that the place of employment
be located outside of the State of California.
1.2 EXCLUSIVE EMPLOYMENT. During the Employment Term, Executive
shall devote Executive's full business time to Executive's responsibilities
under this Agreement. Without limiting the generality of the foregoing, during
the Employment Term Executive shall not, without the prior written approval of
Company's Board of Directors, render services of a business, professional or
commercial nature to any other person, firm or corporation, whether for
compensation or otherwise, except that Executive may engage in civic,
philanthropic and community service activities so long as such activities do not
interfere with Executive's ability to comply with this Agreement and are not
otherwise in conflict with the policies or interests of Company.
SECTION 2. COMPENSATION AND OTHER BENEFITS.
2.1 COMPENSATION/DEDUCTIONS. In consideration of Executive's
employment, and except as otherwise provided herein, Executive shall receive
from Company the compensation and benefits described in this Section 2 as full
and complete satisfaction of all of Company's obligations to Executive arising
from Executive's employment. The compensation and employee benefits payable to
Executive pursuant to this Agreement may be changed only by the written
agreement of the parties. Executive authorizes Company to deduct and withhold
from all compensation to be paid to Executive any and all sums required to be
deducted or withheld by Company pursuant to the provisions of any federal,
state, or local law, regulation, ruling, or ordinance, including, but not
limited to, income tax withholding and payroll taxes.
2.2 BASE COMPENSATION. So long as Executive remains employed
with Company and fully and timely performs her responsibilities to Company,
Company shall pay to Executive, and Executive shall be entitled to receive from
Company, as a fixed base salary for the full time employment referred to in
Section 1 hereof and all other obligations of Executive hereunder, compensation
("Base Compensation") at the rate of Two Hundred Thousand Dollars ($200,000) per
annum.
2.3 BONUS. Executive shall be eligible to receive a bonus
("Bonus") of up to 50% of Executive's Base Compensation, in Company's sole and
absolute discretion, for each fiscal year of Company during the Employment Term
in accordance with Company bonus policy in effect from time to time.
2.4 VACATION. Executive shall be entitled to paid vacation in
each fiscal year of Company during the Employment Term in accordance with
Company vacation policy. Said vacation time shall be planned consistent with
Executive's duties and obligations hereunder.
2.5 AUTO ALLOWANCE. Executive shall receive an automobile
allowance of up to five hundred dollars ($500) per month during the Employment
Term.
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2.6 EQUITY PARTICIPATION. At such time as Company or CDCR
adopts an employee equity participation program, Executive shall be eligible to
be granted rights under said program during the Employment Term in an amount, at
a stated price, on a vesting schedule and on such other terms and conditions as
shall be determined by Company's Board of Directors, or Compensation Committee,
as applicable. Upon mutual agreement of Company and Executive, Executive shall
invest and/or rollover $300,000 to $500,000 in equity in Company or CDCR on
mutually agreeable terms. Executive currently holds options to purchase 10,000
shares of common stock of CDCR at $4.88 per share (subject to a vesting
schedule). These options will be canceled effective as of the Closing of the
Merger (as defined in the Merger Agreement) and will be replaced with options,
stock appreciation or other rights (with the same vesting schedule) that will
result in Executive realizing an economic benefit substantially similar to the
canceled options (provided that such economic benefit does not constitute an
"excess parachute payment" under Section 280G of the Internal Revenue Code of
1986, as amended).
2.7 OTHER BENEFITS. Executive shall be entitled to specific and
applicable employee benefits as granted to Company's employees in general all in
accordance with Company's policies and guidelines as in effect from time to
time.
2.8 BUSINESS EXPENSES. The Company shall pay for or reimburse
Executive for all reasonable business expenses incurred by Executive in the
performance of Executives's duties hereunder, upon submission to Company in
accordance with Company policy of a written accounting of such expenses, which
accounting shall include an itemized list of all expenses incurred, the business
purposes for which such expenses were incurred, and appropriate receipts and
supporting documentation.
SECTION 3. EMPLOYMENT TERM AND TERMINATION.
3.1 TERM. Executive's term of employment shall commence as of
the Effective Date and shall terminate on the date that is three (3) years after
the Effective Date, unless terminated earlier as provided in Section 3.2, 3.3,
3.4 or 3.5 below (the "Employment Term"). Upon termination of employment,
Executive shall not be entitled to receive any compensation or benefits other
than as specifically provided in Section 3.2, 3.3, 3.4 or 3.5 below.
3.2 TERMINATION UPON DEATH. Executive's term of employment
shall terminate upon the death of Executive; provided that Company shall pay to
the estate of Executive any unpaid Base Compensation (to the extent earned as of
the date of termination).
3.3 TERMINATION UPON DISABILITY. Executive's term of employment
shall terminate upon the "disability" of Executive. As used herein, the term
"disability" shall mean a physical or mental disability that renders Executive
unable to perform Executive's normal duties for Company for a period of 90 or
more days as determined in the good faith judgment of the Board of Directors of
Company. Upon termination for disability, Company shall pay to Executive any
unpaid Base Compensation (to the extent earned as of the date of termination).
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3.4 TERMINATION FOR CAUSE. Company shall have the right to
terminate Executive's term of employment for "Cause" by written notice to
Executive. For purposes of this Agreement, a termination shall be for Cause if
Executive shall (i) commit an act of fraud, embezzlement or misappropriation
involving Company, (ii) be convicted of, or enter a plea of guilty or no contest
to, any crime involving moral turpitude or dishonesty, (iii) commit an act, or
fail to commit an act, involving Company which amounts to, or with the passage
of time would amount to, willful misconduct, wanton misconduct, gross negligence
or a breach of this Agreement, or (iv) willfully fail or habitually neglect to
perform Executive's responsibilities and duties under this Agreement. Upon
termination for Cause, Company shall pay to Executive any unpaid Base
Compensation (to the extent earned as of the date of termination).
3.5 TERMINATION WITHOUT CAUSE. In the event Company terminates
Executive's employment prior to the expiration of the Employment Term for other
than death, disability or Cause, which Company shall have the absolute right to
do, Company shall continue to pay to Executive, as severance pay, Executive's
Base Compensation in accordance with Section 2.2 for a period of one (1) year
after the date of termination of employment.
SECTION 4. COVENANTS OF EMPLOYEE.
4.1 ACKNOWLEDGMENTS. Executive acknowledges the following:
4.1.1 ACCESS TO CONFIDENTIAL INFORMATION. Executive's
services previously rendered to CDCR and to be rendered hereunder have placed
Executive and shall continue to place Executive in a position of confidence and
trust which shall allow Executive access to Confidential Information. As used
herein, "Confidential Information" shall mean information and compilations of
information relating to the business of CDCR, Company, Merger Sub and/or the
affiliates of CDCR, Company and/or Merger Sub (collectively, the "Affiliates")
including, but not limited to, information regarding any trade secrets,
proprietary knowledge, operating procedures, finances, financial condition,
projections, organization, employees, suppliers, customers, clients, agents, and
other personnel, business activities, budgets, strategic or financial plans,
objectives, marketing plans, prices and price lists, customer and supplier
lists, operating and training materials, data bases and analyses, designs,
formulaes, test data, and all strategies, documents and computer databases
relating to any of the foregoing.
4.1.2 FAIR AND REASONABLE COVENANT. The type and period
of restrictions imposed by the covenants in this Section 4 are fair and
reasonable and such restrictions will not prevent Executive from earning a
livelihood.
4.2 COVENANT AS TO NONDISCLOSURE OR USE OF CONFIDENTIAL
INFORMATION. Executive agrees that at all times during and after the term of
Executive's employment hereunder, Executive will maintain the Confidential
Information in strictest confidence and will not, unless required to do so in
the conduct of Company's operations, disclose to any individual or business
enterprise of any nature, or use for Executive's own personal use or financial
gain,
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whether individually or on behalf of another person, firm, corporation or
entity, any Confidential Information. Without limiting the generality of the
foregoing, Executive agrees that Company's agreements with other persons may
include agreements that impose obligations or restrictions regarding inventions
that occur in connection with work relating to such an agreement, or regarding
the confidential nature of work pursuant to such an agreement. Executive agrees
to be bound by all such obligations and restrictions, and to do whatever is
reasonably necessary to satisfy the obligations of Company.
4.3 ASSIGNMENT OF INVENTIONS. To the maximum extent permitted
by law, Executive shall assign and transfer to Company and does hereby assign
and transfer to Company Executive's entire right, title and interest in and to
all inventions including, but not limited to, designs, discoveries, inventions,
improvements, formulas, ideas, devices, techniques, processes, writings, trade
secrets, trademarks, trademark applications, patents, copyrights and all other
intellectual property rights including but not limited to notes, records,
reports, software, plans, memoranda and other tangible information relating to
such intellectual property, whether or not subject to protection under
applicable laws, which Executive solely or jointly with others conceives, makes,
acquires or suggests at any time during Executive's past employment with CDCR or
present or future employment with Company and which relate in any manner to the
actual or demonstrably anticipated business, products, processes, work,
operations, research and development or other activities of Company, or result
from or are suggested by any task assigned to Executive or any work performed by
Executive for or on behalf of Company ("Inventions"). All Inventions are and
shall be the sole property of Company.
4.4 DISCLOSURE OF INVENTIONS, PATENTS, COPYRIGHTS AND MASK WORK
RIGHTS. Executive agrees:
4.4.1 To keep and maintain adequate and current written
records of all Inventions made by Executive (in the form of notes, sketches,
drawings and other forms specified by Company) while employed by Company. These
records shall be available to Company and shall be and remain the sole property
of Company at all times. Executive will disclose such Inventions promptly in
writing to the Chief Executive Officer of Company.
4.4.2 Upon request, to promptly execute a written
assignment of title to Company for any Invention required to be assigned by
Section 4.3 ("assignable invention") and Executive will preserve any such
assignable invention as Confidential Information.
4.4.3 Upon request, to assist Company or its nominee
during and at any time subsequent to Executive's employment in every reasonable
way to obtain for Company's or its nominee's benefit, patents, copyrights, mask
work rights and other statutory rights ("Statutory Rights") for such assignable
inventions in any and all countries, which inventions shall be and remain the
sole and exclusive property of Company or its nominee whether or not patented,
copyrighted or the subject of a mask work right. Executive shall execute such
papers and
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perform such lawful acts as Company deems necessary to exercise all rights,
title and interest in such Statutory Rights.
4.4.4 To execute and deliver to Company or its nominee
upon request all documents, including applications for and assignments of
Statutory Rights to be issued therefor, as Company determines are necessary or
desirable to apply for and obtain Statutory Rights on such assignable inventions
in any and all countries and/or to protect the interest of Company or its
nominee in Statutory Rights and to vest title thereto in Company or its nominee.
4.5 RETURN OF RECORDS, EQUIPMENT AND CONFIDENTIAL INFORMATION.
Upon the earlier of termination of Executive's employment hereunder or request
by Company, Executive shall promptly return to Company: (i) all Confidential
Information and all documents, records, procedures, books, notebooks, and any
other documentation in any form whatsoever (including, but not limited to,
written, audio, video or electronic) containing any information pertaining to
Company which includes Confidential Information, including any and all copies of
such documentation then in Executive's possession or control regardless of
whether such documentation was prepared or compiled by Executive, Company, other
employees of Company, representatives, agents, or independent contractors, and
(ii) all equipment or tangible personal property entrusted to Executive by
Company. Executive will not retain any original, copy, description, document,
data base or other form of media that contains or relates to any Confidential
Information whether produced by Executive or otherwise. Without limiting the
generality of the foregoing, Executive shall permanently delete all Confidential
Information from all computers, disks, CD-ROMS, tapes, and other media owned or
used by or accessible to Executive, other than from any of the foregoing owned,
used or controlled by Company. Executive acknowledges that all Confidential
Information and all such documentation, copies of such documentation, equipment,
and tangible personal property are and shall at all times remain the sole and
exclusive property of Company.
4.6 ADDITIONAL COVENANTS PROTECTING THE INTERESTS OF COMPANY.
Executive agrees as follows:
4.6.1 That at all times during Executive's employment
hereunder, Executive shall comply with Company's employee manual and other
policies and procedures reasonably established by Company from time to time
concerning matters such as management, supervision, recruiting, diversity, and
sexual harassment.
4.6.2 That during Executive's employment hereunder,
Executive shall not directly or indirectly, individually or together or through
any affiliate or other person, firm, corporation, or entity engage in any other
business activity which would interfere with the performance of Executive's
duties hereunder including, but not limited to, engaging in any business
competitive with that conducted by Company.
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4.6.3 That for the period commencing on the Effective
Date and ending two (2) years after the date of termination of Executive's
employment with Company and irrespective of the duration of the Employment Term,
Executive shall not directly or indirectly, individually, or together with, or
through any other person, firm, corporation, or entity: (i) in any manner
discourage any person or entity which is or has been a customer or supplier of
Company from continuing its business relationship with Company, (ii) approach,
counsel, or attempt to induce any person who is then in the employ of or an
independent contractor of Company, to leave their employ or engagement, or
employ, engage or attempt to employ or engage any such person, or (iii) aid or
counsel any other person, firm, corporation, or entity to do any of the above.
4.6.4 That during the Covenant Term and irrespective of
the duration of the Employment Term, Executive will not directly or indirectly
on Executive's own behalf or on behalf of any other person, firm or entity (a)
engage in; (b) own or control any interest in (except as a passive investor of
less than 5% of the publicly traded stock of a publicly held company); (c) act
as a director, officer, manager, employee, trustee, agent, partner, joint
venturer, participant, consultant of or be obligated to, or be connected in any
advisory, business or ownership capacity with; (d) lend credit or money for the
purpose of the establishing or operating; or (e) allow Executive's name or
reputation to be used by any firm, corporation, partnership, trust or other
business enterprise directly or indirectly engaged in, any Competitive Business.
As used herein, the "Covenant Term" shall mean (i) the period commencing on the
Effective Date and ending one (1) year after the date of termination of
Executive's employment with Company in the event of termination pursuant to
Section 3.5 above, or (ii) the period commencing on the Effective Date and
ending one (1) year after the date of termination of Executive's employment with
Company upon expiration of the term of this Agreement, if Company offers to
continue to employ Executive for an additional year at Executive's then current
level of Base Compensation and Executive fails to accept such offer, or (iii)
the period commencing on the Effective Date and ending on the date of
termination of Executive's employment with Company upon expiration of the term
of this Agreement, if Company does not offer to continue to employ Executive for
an additional year at Executive's then current level of Base Compensation, or
(iv) the period commencing on the Effective Date and ending two (2) years after
the date of termination of Executive's employment with Company under any
circumstances other than as set forth in clauses (i), (ii), or (iii) above. As
used herein, "Competitive Business" shall mean (x) under the circumstances
governed by clause (ii) above only, any business (including any non-profit
business) that operates preschools or elementary schools anywhere in the world,
or (y) under all other circumstances, any competitive business (including any
non-profit business) that involves any form of early childhood or elementary
education or that otherwise competes with Company anywhere in the world.
Executive has carefully considered the nature and extent of the restrictions
upon competition set forth herein and agrees that the same are reasonable with
respect to duration and territory.
4.7 POST-EMPLOYMENT COOPERATION. Executive agrees that
following Executive's termination of employment under this Agreement, Executive
shall, upon Company's
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reasonable request, in good faith and with Executive's best efforts, subject to
Executive's reasonable availability, cooperate and assist Company in any
dispute, controversy, or litigation in which Company may be involved and with
respect to which Executive obtained knowledge while employed by Company or any
of its predecessors, affiliates, successors, or assigns, including, but not
limited to, Executive's participation in any court or arbitration proceedings,
giving of testimony, signing of affidavits, or such other personal cooperation
as counsel for Company shall request. Any such activities shall be scheduled,
to the extent reasonably possible, to accommodate Executive's business and
personal obligations at the time. Company shall pay Executive's reasonable
travel and incidental out-of-pocket expenses incurred in connection with any
such cooperation.
4.8 REMEDIES. In view of the position of confidence which
Executive has and will enjoy with Company and the relationship with the clients,
customers, members, and employees of Company and its affiliates pursuant to
Executive's employment with Company, and recognizing both the access to
confidential financial and other information which Executive has had and will
have pursuant to Executive's employment and the fact that Company and Merger Sub
would not have entered into the Merger Agreement or purchased the capital stock
of CDCR without Executive's covenants in this Agreement, Executive expressly
acknowledges that the restrictive covenants set forth in this Section 4 are
reasonable and necessary in order to protect and maintain the proprietary
interests and other legitimate business interests of Company and its affiliates.
Executive further acknowledges that (i) it would be difficult to calculate
damages to Company and its affiliates from any breach of Executive's obligations
under this Section 4, (ii) that injury to Company and its affiliates from any
such breach would be irreparable and impossible to measure, and (iii) that the
remedy at law for any breach or threatened breach of this Section 4 would
therefore be an inadequate remedy and, accordingly, Company shall, in addition
to all other available remedies (including without limitation seeking such
damages as it can show it and its affiliates has sustained by reason of such
breach and/or the exercise of all other rights it has under this Agreement), be
entitled to injunctive and other similar equitable remedies without the
necessity of showing actual damages or posting bond.
4.9 THIRD PARTY BENEFICIARIES. The parties hereto acknowledge
that any breach of any of the provisions of this Agreement would be damaging to
the Affiliates as well as Company and the Affiliates shall therefore have the
right, as third party beneficiaries, to pursue any and all remedies for any
breach of the provisions of this Agreement by Executive, including but not
limited to the remedies provided for in Section 4.8 hereof, as though the
Affiliates are a party to this Agreement.
SECTION 5. REPRESENTATIONS BY EMPLOYEE.
Executive represents and warrants that Executive is free to enter
into and perform each of the terms and conditions of this Agreement; that
Executive is not a party to any confidentiality, non-compete or other agreement
that restricts the services that may be rendered by Executive for Company; and
that Executive's execution and/or performance of all Executive's
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obligations under this Agreement does not and will not violate or breach any
other agreement between Executive and any other person or entity. Executive
acknowledges that but for this representation and warranty, Company would not
agree to enter into this Agreement.
SECTION 6. ASSIGNABILITY.
This Agreement is binding upon and inures to the benefit of the
parties and their respective heirs, executors, administrators, personal
representatives, successors, and permitted assigns. Company may assign its
rights or delegate its duties under this Agreement at any time and from time to
time and upon any such assignment all references herein to Company shall include
any assignee of Company. The parties acknowledge that this Agreement is
personal to Executive and that the availability of Executive to perform services
and the covenants provided by Executive hereunder have been a material
consideration for Company to enter into this Agreement. Accordingly, Executive
may not assign any of Executive's rights or delegate any of Executive's duties
under this Agreement, either voluntarily or by operation of law, without the
prior written consent of Company, which may be given or withheld by Company in
its sole and absolute discretion.
SECTION 7. NOTICES.
All notices, requests, demands or other communications hereunder
shall be deemed to have been duly given when delivered, addressed as follows (or
at such other address as the addressed party may have substituted by notice
pursuant to this Section 7):
If to Executive: Elanna Yalow
427 Holcomb Ave.
Larkspur, CA 94939
If to Company: Knowledge Beginnings, Inc.
844 Moraga Drive
Los Angeles, CA 90049
Attention: Chief Executive Officer
With a copy to: Stanley E. Maron, Esq.
Maron & Sandler
844 Moraga Drive
Los Angeles, CA 90049
SECTION 8. MISCELLANEOUS.
8.1 ENTIRE AGREEMENT. This Agreement and the exhibits hereto
embodies the entire representations, warranties, covenants and agreements in
relation to the subject matter hereof. No other representations, warranties,
covenants, understandings or agreements in relation
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hereto exist between the parties except as otherwise expressly provided herein.
This Agreement supersedes any previous employment, consulting or similar
agreement between CDCR and Executive.
8.2 AMENDMENT. This Agreement may not be amended except by an
instrument in writing duly executed by the parties hereto.
8.3 APPLICABLE LAW; ARBITRATION. This Agreement has been made
and executed under, and will be construed and interpreted in accordance with,
the laws of the State of California. Any dispute, controversy or claim arising
out of this Agreement or the performance, breach or termination thereof shall be
settled by binding arbitration in accordance with the Commercial Arbitration
Rules of the American Arbitration Association. The place of arbitration shall
be Los Angeles, California. The arbitration shall be conducted by a neutral
arbitrator selected by mutual agreement of the parties within ten (10) days
after notice by either party to the other requesting such arbitration. If the
parties fail to agree within ten (10) days on the selection of the arbitrator,
an arbitrator shall be promptly appointed by the American Arbitration
Association from its Large, Complex Case Panel. Judgment upon the award
rendered may be entered in any court having jurisdiction. The prevailing party
shall be entitled to be awarded all costs of arbitration including, but not
limited to, attorneys' fees. All information resulting from or otherwise
pertaining to any dispute shall be nonpublic and handled by Company, Executive
and their respective agents in such a way as to prevent the public disclosure of
such information.
8.5 PROVISIONS SEVERABLE. Every provision of this Agreement is
intended to be severable from every other provision of this Agreement. If any
provision of this Agreement is held to be void or unenforceable, in whole or in
part, the remaining provisions will remain in full force and effect, unless the
remaining provisions are so eviscerated by such holding that they do not reflect
the intent of the parties in entering into this Agreement. If any provision of
this Agreement is held to be unreasonable or excessive in scope or duration,
that provision will be deemed to be reformed and enforced to the maximum extent
permitted by law.
8.6 NON-WAIVER OF RIGHTS AND BREACHES. Any waiver by a party of
any breach of any provision of this Agreement will not be deemed to be a waiver
of any subsequent breach of that provision, or of any breach of any other
provision of this Agreement. No failure or delay in exercising any right,
power, or privilege granted to a party under any provision of this Agreement
will be deemed a waiver of that or any other right, power, or privilege. No
single or partial exercise of any right, power, or privilege granted to a party
under any provision of this Agreement will preclude any other or further
exercise of that or any other right, power, or privilege.
8.7 INTERPRETATION OF AGREEMENT. Each of the parties has had
the opportunity to be represented by counsel in the negotiation and preparation
of this Agreement. The parties agree that this Agreement is to be construed as
jointly drafted. Accordingly, this Agreement will be construed according to the
fair meaning of its language, and the rule of construction that
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ambiguities are to be resolved against the drafting party will not be employed
in the interpretation of this Agreement.
8.8 GENDER AND NUMBER. Concerning the words used in this
Agreement, the singular form shall include the plural form, the masculine gender
shall include the feminine or neuter gender, and vice versa, as the context
requires, and the word "person" shall include any natural person, partnership,
corporation, limited liability company, association, trust, estate or other
legal entity.
8.9 HEADINGS. The headings of the Sections and Paragraphs of
this Agreement are inserted for ease of reference only, and will have no effect
in the construction or interpretation of this Agreement.
8.10 COUNTERPARTS. This Agreement and any amendment or
supplement to this Agreement may be executed in two or more counterparts, each
of which will constitute an original but all of which will together constitute a
single instrument. Transmission by facsimile of an executed counterpart
signature page hereof by a party hereto shall constitute due execution and
delivery of this Agreement by such party.
SECTION 9. EFFECTIVE DATE.
Anything contained in this Agreement to the contrary
notwithstanding, the effectiveness of this Agreement is contingent upon the
consummation of the Offer (as defined in the Merger Agreement) in accordance
with the Merger Agreement. As used herein, the "Effective Date" shall mean a
date designated by Company which such date shall be on or after the date of
consummation of the Offer and on or before the date of the Closing of the Merger
(as defined in the Merger Agreement) in accordance with the Merger Agreement.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed and delivered as of the date first above written.
"Executive"
/s/ Elanna S. Yalow
-------------------------------
ELANNA S. YALOW
"Company"
KNOWLEDGE BEGINNINGS, INC.,
a Delaware corporation
By: /s/ Ronald J. Packard
--------------------------
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EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement"), dated as of March 27, 1998
and effective as of the Effective Date (as defined in Section 9), is made
between CHILDREN'S DISCOVERY CENTERS OF AMERICA, INC., a Delaware corporation
("Company"), and RANDY TRUELOVE ("Executive").
RECITALS:
WHEREAS, pursuant to an Agreement and Plan of Merger, dated as of
March 27, 1998, by and among Knowledge Beginnings, Inc. ("Parent"), KBI
Acquisition Corp. ("Merger Sub") and Company (the "Merger Agreement"), Parent
proposes to acquire not less than a majority of the outstanding shares of
capital stock of Company;
WHEREAS, Executive has been a key employee of Company and Parent,
Merger Sub and Company deem Executive's continued services with Company during
the term of this Agreement and Executive's covenants contained herein to be
material and significant to Company's success and desire to ensure that the
skills and experience of Executive will remain available to Company;
WHEREAS, without Executive's agreement to continue employment with
Company and to provide the covenants contained herein, Parent and Merger Sub
would not have entered into the Merger Agreement or agreed to consummate the
transactions contemplated thereby; and
WHEREAS, the parties hereto desire to enter into this Agreement
providing for the continued employment of Executive with Company and Executive's
other covenants contained herein on the terms and conditions hereinafter set
forth.
NOW, THEREFORE, in consideration of the mutual promises and subject
to the terms and conditions set forth herein, the parties hereto agree as
follows:
SECTION 1. EMPLOYMENT.
1.1 RESPONSIBILITIES. Effective as of the Effective Date
without further action of Company or Executive, Company and Executive agree that
Executive's employment with Company shall continue during the Employment Term on
the terms and conditions set forth in this Agreement, which such terms and
conditions shall supersede the terms and conditions of Executive's employment
with Company in effect prior to the Effective Date. Executive shall serve in
such executive capacity and agrees to hold such office(s) as Company's Board of
Directors shall from time to time designate. Executive shall carry out such
responsibilities and
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duties as are commensurate with such position and as otherwise required
hereunder in an efficient trustworthy, effective and businesslike manner.
1.2 EXCLUSIVE EMPLOYMENT. During the Employment Term, Executive
shall devote Executive's full business time to Executive's responsibilities
under this Agreement. Without limiting the generality of the foregoing, during
the Employment Term Executive shall not, without the prior written approval of
Company's Board of Directors, render services of a business, professional or
commercial nature to any other person, firm or corporation, whether for
compensation or otherwise, except that Executive may engage in civic,
philanthropic and community service activities so long as such activities do not
interfere with Executive's ability to comply with this Agreement and are not
otherwise in conflict with the policies or interests of Company.
SECTION 2. COMPENSATION AND OTHER BENEFITS.
2.1 COMPENSATION/DEDUCTIONS. In consideration of Executive's
employment, and except as otherwise provided herein, Executive shall receive
from Company the compensation and benefits described in this Section 2 as full
and complete satisfaction of all of Company's obligations to Executive arising
from Executive's employment. The compensation and employee benefits payable to
Executive pursuant to this Agreement may be changed only by the written
agreement of the parties. Executive authorizes Company to deduct and withhold
from all compensation to be paid to Executive any and all sums required to be
deducted or withheld by Company pursuant to the provisions of any federal,
state, or local law, regulation, ruling, or ordinance, including, but not
limited to, income tax withholding and payroll taxes.
2.2 BASE COMPENSATION. So long as Executive remains employed
with Company and fully and timely performs his responsibilities to Company,
Company shall pay to Executive, and Executive shall be entitled to receive from
Company, as a fixed base salary for the full time employment referred to in
Section 1 hereof and all other obligations of Executive hereunder, compensation
("Base Compensation") at the rate of One Hundred Ten Thousand Dollars ($110,000)
per annum.
2.3 BONUS. Executive shall be eligible to receive a bonus
("Bonus") of up to thirty percent (30%) of Executive's Base Compensation, in
Company's sole and absolute discretion, for each fiscal year of Company during
the Employment Term in accordance with Company bonus policy in effect from time
to time.
2.4 VACATION. Executive shall be entitled to paid vacation in
each fiscal year of Company during the Employment Term in accordance with
Company vacation policy. Said vacation time shall be planned consistent with
Executive's duties and obligations hereunder.
2.5 AUTO ALLOWANCE. Executive shall receive an automobile
allowance of up to four hundred dollars ($400) per month during the Employment
Term.
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2.6 EQUITY PARTICIPATION. At such time as Company adopts a new
employee equity participation program, Executive shall be eligible to be granted
rights under said program during the Employment Term in an amount, at a stated
price, on a vesting schedule and on such other terms and conditions as shall be
determined by Company's Board of Directors, or Compensation Committee, as
applicable.
2.7 OTHER BENEFITS. Executive shall be entitled to specific and
applicable employee benefits as granted to Company's employees in general all in
accordance with Company's policies and guidelines as in effect from time to
time.
2.8 BUSINESS EXPENSES. The Company shall pay for or reimburse
Executive for all reasonable business expenses incurred by Executive in the
performance of Executives's duties hereunder, upon submission to Company in
accordance with Company policy of a written accounting of such expenses, which
accounting shall include an itemized list of all expenses incurred, the business
purposes for which such expenses were incurred, and appropriate receipts and
supporting documentation.
SECTION 3. EMPLOYMENT TERM AND TERMINATION.
3.1 TERM. Executive's term of employment shall commence as of
the Effective Date and shall terminate on the date that is two (2) years after
the Effective Date, unless terminated earlier as provided in Section 3.2, 3.3,
3.4, 3.5 or 3.6 below (the "Employment Term"). Upon termination of employment,
Executive shall not be entitled to receive any compensation or benefits other
than as specifically provided in Section 3.2, 3.3, 3.4, 3.5 or 3.6 below.
3.2 TERMINATION UPON DEATH. Executive's term of employment
shall terminate upon the death of Executive; provided that Company shall pay to
the estate of Executive any unpaid Base Compensation and Bonus (to the extent
earned as of the date of termination).
3.3 TERMINATION UPON DISABILITY. Executive's term of employment
shall terminate upon the "disability" of Executive. As used herein, the term
"disability" shall mean a physical or mental disability that renders Executive
unable to perform Executive's normal duties for Company for a period of ninety
(90) or more days as determined in the good faith judgment of the Board of
Directors of Company. Upon termination for disability, Company shall pay to
Executive any unpaid Base Compensation and Bonus (to the extent earned as of the
date of termination).
3.4 TERMINATION FOR CAUSE. Company shall have the right to
terminate Executive's term of employment for "Cause" by written notice to
Executive. For purposes of this Agreement, a termination shall be for Cause if
Executive shall (i) commit an act of fraud, embezzlement or misappropriation
involving Company, (ii) be convicted of, or enter a plea of guilty or no contest
to, any crime involving moral turpitude or dishonesty, (iii) commit an act, or
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fail to commit an act, involving Company which amounts to, or with the passage
of time would amount to, willful misconduct, wanton misconduct, gross negligence
or a breach of this Agreement, or (iv) willfully fail or habitually neglect to
perform Executive's responsibilities and duties under this Agreement. Upon
termination for Cause, Company shall pay to Executive any unpaid Base
Compensation (to the extent earned as of the date of termination).
3.5 TERMINATION WITHOUT CAUSE. In the event Company terminates
Executive's employment prior to the expiration of the Employment Term for other
than death, disability or Cause, which Company shall have the absolute right to
do, Company shall continue to pay to Executive, as severance pay, Executive's
Base Compensation in accordance with Section 2.2 for a period of one (1) year
after the date of termination of employment or the balance of the Employment
Term, whichever is less.
3.6 RESIGNATION. Subject to the last sentence of this Section
3.6, Executive may terminate his employment with Company by resigning under
either of the following provisions:
(a) Executive may terminate his employment with Company
upon sixty (60) days' prior written notice given and effective during the first
year of the Employment Term, in which event Company shall continue to pay to
Executive, as severance pay, Executive's Base Compensation in accordance with
Section 2.2 for a period of four (4) months after the date that Executive
submits his written resignation; or
(b) In the event Company advises Executive in writing
during the Employment Term that Executive's primary place of employment is being
relocated to outside of the San Francisco Bay Area (a "Relocation Notice") and
Executive does not agree to relocate, Executive may terminate his employment
with Company by written resignation given and effective within sixty (60) days
after the date of the Relocation Notice. In such event, Company shall continue
to pay to Executive, as severance pay, Executive's Base Compensation in
accordance with Section 2.2 for a period of six (6) months after the date that
Executive submits his written resignation or the balance of the Employment Term,
whichever is less.
Executive's right to receive severance payments under this Section 3.6 is
subject to and conditioned upon Executive's performance of his responsibilities
under this Agreement and Executive's continuing cooperation with Company in the
transition of Executive's responsibilities to a successor to Executive.
SECTION 4. COVENANTS OF EMPLOYEE.
4.1 ACKNOWLEDGMENTS. Executive acknowledges the following:
4.1.1 ACCESS TO CONFIDENTIAL INFORMATION. Executive's
services previously rendered to Company and to be rendered hereunder have placed
Executive and shall continue to
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place Executive in a position of confidence and trust which shall allow
Executive access to Confidential Information. As used herein, "Confidential
Information" shall mean information and compilations of information relating to
the business of Company, Parent, Merger Sub and/or the affiliates of Company,
Parent and/or Merger Sub (collectively, the "Affiliates") including, but not
limited to, information regarding any trade secrets, proprietary knowledge,
operating procedures, finances, financial condition, projections, organization,
employees, suppliers, customers, clients, agents, and other personnel, business
activities, budgets, strategic or financial plans, objectives, marketing plans,
prices and price lists, customer and supplier lists, operating and training
materials, data bases and analyses, designs, formulaes, test data, and all
strategies, documents and computer databases relating to any of the foregoing.
4.1.2 FAIR AND REASONABLE COVENANT. The type and period
of restrictions imposed by the covenants in this Section 4 are fair and
reasonable and such restrictions will not prevent Executive from earning a
livelihood.
4.2 COVENANT AS TO NONDISCLOSURE OR USE OF CONFIDENTIAL
INFORMATION. Executive agrees that at all times during and after the term of
Executive's employment hereunder, Executive will maintain the Confidential
Information in strictest confidence and will not, unless required to do so in
the conduct of Company's operations, disclose to any individual or business
enterprise of any nature, or use for Executive's own personal use or financial
gain, whether individually or on behalf of another person, firm, corporation or
entity, any Confidential Information. Without limiting the generality of the
foregoing, Executive agrees that Company's agreements with other persons may
include agreements that impose obligations or restrictions regarding inventions
that occur in connection with work relating to such an agreement, or regarding
the confidential nature of work pursuant to such an agreement. Executive agrees
to be bound by all such obligations and restrictions, and to do whatever is
reasonably necessary to satisfy the obligations of Company.
4.3 ASSIGNMENT OF INVENTIONS. To the maximum extent permitted
by law, Executive shall assign and transfer to Company and does hereby assign
and transfer to Company Executive's entire right, title and interest in and to
all inventions including, but not limited to, designs, discoveries, inventions,
improvements, formulas, ideas, devices, techniques, processes, writings, trade
secrets, trademarks, trademark applications, patents, copyrights and all other
intellectual property rights including but not limited to notes, records,
reports, software, plans, memoranda and other tangible information relating to
such intellectual property, whether or not subject to protection under
applicable laws, which Executive solely or jointly with others conceives, makes,
acquires or suggests at any time during Executive's past, present or future
employment with Company and which relate in any manner to the actual or
demonstrably anticipated business, products, processes, work, operations,
research and development or other activities of Company, or result from or are
suggested by any task assigned to Executive or any work performed by Executive
for or on behalf of Company ("Inventions"). All Inventions are and shall be the
sole property of Company.
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4.4 DISCLOSURE OF INVENTIONS, PATENTS, COPYRIGHTS AND MASK WORK
RIGHTS. Executive agrees:
4.4.1 To keep and maintain adequate and current written
records of all Inventions made by Executive (in the form of notes, sketches,
drawings and other forms specified by Company) while employed by Company. These
records shall be available to Company and shall be and remain the sole property
of Company at all times. Executive will disclose such Inventions promptly in
writing to the Chief Executive Officer of Company.
4.4.2 Upon request, to promptly execute a written
assignment of title to Company for any Invention required to be assigned by
Section 4.3 ("assignable invention") and Executive will preserve any such
assignable invention as Confidential Information.
4.4.3 Upon request, to assist Company or its nominee
during and at any time subsequent to Executive's employment in every reasonable
way to obtain for Company's or its nominee's benefit, patents, copyrights, mask
work rights and other statutory rights ("Statutory Rights") for such assignable
inventions in any and all countries, which inventions shall be and remain the
sole and exclusive property of Company or its nominee whether or not patented,
copyrighted or the subject of a mask work right. Executive shall execute such
papers and perform such lawful acts as Company deems necessary to exercise all
rights, title and interest in such Statutory Rights.
4.4.4 To execute and deliver to Company or its nominee
upon request all documents, including applications for and assignments of
Statutory Rights to be issued therefor, as Company determines are necessary or
desirable to apply for and obtain Statutory Rights on such assignable inventions
in any and all countries and/or to protect the interest of Company or its
nominee in Statutory Rights and to vest title thereto in Company or its nominee.
4.5 RETURN OF RECORDS, EQUIPMENT AND CONFIDENTIAL INFORMATION.
Upon the earlier of termination of Executive's employment hereunder or request
by Company, Executive shall promptly return to Company: (i) all Confidential
Information and all documents, records, procedures, books, notebooks, and any
other documentation in any form whatsoever (including, but not limited to,
written, audio, video or electronic) containing any information pertaining to
Company which includes Confidential Information, including any and all copies of
such documentation then in Executive's possession or control regardless of
whether such documentation was prepared or compiled by Executive, Company, other
employees of Company, representatives, agents, or independent contractors, and
(ii) all equipment or tangible personal property entrusted to Executive by
Company. Executive will not retain any original, copy, description, document,
data base or other form of media that contains or relates to any Confidential
Information whether produced by Executive or otherwise. Without limiting the
generality of the foregoing, Executive shall permanently delete all Confidential
Information from all computers, disks, CD-ROMS, tapes, and other media owned or
used by or accessible to Executive, other than from any of the foregoing owned,
used or controlled by Company.
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Executive acknowledges that all Confidential Information and all such
documentation, copies of such documentation, equipment, and tangible personal
property are and shall at all times remain the sole and exclusive property of
Company.
4.6 ADDITIONAL COVENANTS PROTECTING THE INTERESTS OF COMPANY.
Executive agrees as follows:
4.6.1 That at all times during Executive's employment
hereunder, Executive shall comply with Company's employee manual and other
policies and procedures reasonably established by Company from time to time
concerning matters such as management, supervision, recruiting, diversity, and
sexual harassment.
4.6.2 That during Executive's employment hereunder,
Executive shall not directly or indirectly, individually or together or through
any affiliate or other person, firm, corporation, or entity engage in any other
business activity which would interfere with the performance of Executive's
duties hereunder including, but not limited to, engaging in any business
competitive with that conducted by Company.
4.6.3 That for the period commencing on the Effective
Date and ending two (2) years after the date of termination of Executive's
employment with the Company and irrespective of the duration of the Employment
Term, Executive shall not directly or indirectly, individually, or together
with, or through any other person, firm, corporation, or entity: (i) in any
manner discourage any person or entity which is or has been a customer or
supplier of Company from continuing its business relationship with Company, (ii)
approach, counsel, or attempt to induce any person who is then in the employ of
or an independent contractor of Company, to leave their employ or engagement, or
employ, engage or attempt to employ or engage any such person, or (iii) aid or
counsel any other person, firm, corporation, or entity to do any of the above.
4.6.4 That for the period commencing on the Effective
Date and ending two (2) years after the date of termination of Executive's
employment with the Company and irrespective of the duration of the Employment
Term, Executive will not directly or indirectly on Executive's own behalf or on
behalf of any other person, firm or entity (a) engage in; (b) own or control any
interest in (except as a passive investor of less than 5% of the publicly traded
stock of a publicly held company); (c) act as a director, officer, manager,
employee, trustee, agent, partner, joint venturer, participant, consultant of or
be obligated to, or be connected in any advisory, business or ownership capacity
with; (d) lend credit or money for the purpose of the establishing or operating;
or (e) allow Executive's name or reputation to be used by any firm, corporation,
partnership, trust or other business enterprise directly or indirectly engaged
in, any business (including any non-profit business) that involves any form of
early childhood or elementary education or that otherwise competes with Company
anywhere in the world. Executive has carefully considered the nature and extent
of the restrictions upon competition set forth herein and agrees that the same
are reasonable with respect to duration and territory.
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4.7 POST-EMPLOYMENT COOPERATION. Executive agrees that
following Executive's termination of employment under this Agreement, Executive
shall, upon Company's reasonable request, in good faith and with Executive's
best efforts, subject to Executive's reasonable availability, cooperate and
assist Company in any dispute, controversy, or litigation in which Company may
be involved and with respect to which Executive obtained knowledge while
employed by Company or any of its predecessors, affiliates, successors, or
assigns, including, but not limited to, Executive's participation in any court
or arbitration proceedings, giving of testimony, signing of affidavits, or such
other personal cooperation as counsel for Company shall request. Any such
activities shall be scheduled, to the extent reasonably possible, to accommodate
Executive's business and personal obligations at the time. Company shall pay
Executive's reasonable travel and incidental out-of-pocket expenses incurred in
connection with any such cooperation.
4.8 REMEDIES. In view of the position of confidence which
Executive has and will enjoy with Company and the relationship with the clients,
customers, members, and employees of Company and its affiliates pursuant to
Executive's employment with Company, and recognizing both the access to
confidential financial and other information which Executive has had and will
have pursuant to Executive's employment and the fact that Parent and Merger Sub
would not have entered into the Merger Agreement or purchased the capital stock
of Company without Executive's covenants in this Agreement, Executive expressly
acknowledges that the restrictive covenants set forth in this Section 4 are
reasonable and necessary in order to protect and maintain the proprietary
interests and other legitimate business interests of Company and its affiliates.
Executive further acknowledges that (i) it would be difficult to calculate
damages to Company and its affiliates from any breach of Executive's obligations
under this Section 4, (ii) that injury to Company and its affiliates from any
such breach would be irreparable and impossible to measure, and (iii) that the
remedy at law for any breach or threatened breach of this Section 4 would
therefore be an inadequate remedy and, accordingly, Company shall, in addition
to all other available remedies (including without limitation seeking such
damages as it can show it and its affiliates has sustained by reason of such
breach and/or the exercise of all other rights it has under this Agreement), be
entitled to injunctive and other similar equitable remedies without the
necessity of showing actual damages or posting bond.
4.9 THIRD PARTY BENEFICIARIES. The parties hereto acknowledge
that any breach of any of the provisions of this Agreement would be damaging to
the Affiliates as well as Company and the Affiliates shall therefore have the
right, as third party beneficiaries, to pursue any and all remedies for any
breach of the provisions of this Agreement by Executive, including but not
limited to the remedies provided for in Section 4.8 hereof, as though the
Affiliates are a party to this Agreement.
SECTION 5. REPRESENTATIONS BY EMPLOYEE.
Executive represents and warrants that Executive is free to enter
into and perform each of the terms and conditions of this Agreement; that
Executive is not a party to any
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confidentiality, non-compete or other agreement that restricts the services that
may be rendered by Executive for Company; and that Executive's execution and/or
performance of all Executive's obligations under this Agreement does not and
will not violate or breach any other agreement between Executive and any other
person or entity. Executive acknowledges that but for this representation and
warranty, Company would not agree to enter into this Agreement.
SECTION 6. ASSIGNABILITY.
This Agreement is binding upon and inures to the benefit of the
parties and their respective heirs, executors, administrators, personal
representatives, successors, and permitted assigns. Company may assign its
rights or delegate its duties under this Agreement at any time and from time to
time and upon any such assignment all references herein to Company shall include
any assignee of Company. The parties acknowledge that this Agreement is
personal to Executive and that the availability of Executive to perform services
and the covenants provided by Executive hereunder have been a material
consideration for Company to enter into this Agreement. Accordingly, Executive
may not assign any of Executive's rights or delegate any of Executive's duties
under this Agreement, either voluntarily or by operation of law, without the
prior written consent of Company, which may be given or withheld by Company in
its sole and absolute discretion.
SECTION 7. NOTICES.
All notices, requests, demands or other communications hereunder
shall be deemed to have been duly given when delivered, addressed as follows (or
at such other address as the addressed party may have substituted by notice
pursuant to this Section 7):
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If to Executive: Randy Truelove
15 Miwok Dr.
San Anselmo, CA 94960
If to Company: Children's Discovery Centers of America, Inc.
851 Irwin Street, Suite 200
San Rafael, California 94901
Attention: Chief Executive Officer
With a copy to: Stanley E. Maron, Esq.
Maron & Sandler
844 Moraga Drive
Los Angeles, CA 90049
SECTION 8. MISCELLANEOUS.
8.1 ENTIRE AGREEMENT. This Agreement and the exhibits hereto
embodies the entire representations, warranties, covenants and agreements in
relation to the subject matter hereof. No other representations, warranties,
covenants, understandings or agreements in relation hereto exist between the
parties except as otherwise expressly provided herein. This Agreement
supersedes any previous employment agreement between Company and Executive.
8.2 AMENDMENT. This Agreement may not be amended except by an
instrument in writing duly executed by the Company, Executive and Parent.
8.3 APPLICABLE LAW; ARBITRATION. This Agreement has been made
and executed under, and will be construed and interpreted in accordance with,
the laws of the State of California. Any dispute, controversy or claim arising
out of this Agreement or the performance, breach or termination thereof shall be
settled by binding arbitration in accordance with the Commercial Arbitration
Rules of the American Arbitration Association. The place of arbitration shall
be San Francisco, California. The arbitration shall be conducted by a neutral
arbitrator selected by mutual agreement of the parties within ten (10) days
after notice by either party to the other requesting such arbitration. If the
parties fail to agree within ten (10) days on the selection of the arbitrator,
an arbitrator shall be promptly appointed by the American Arbitration
Association from its Large, Complex Case Panel. Judgment upon the award
rendered may be entered in any court having jurisdiction. The prevailing party
shall be entitled to be awarded all costs of arbitration including, but not
limited to, attorneys' fees. All information resulting from or otherwise
pertaining to any dispute shall be nonpublic and handled by Company, Executive
and their respective agents in such a way as to prevent the public disclosure of
such information.
8.5 PROVISIONS SEVERABLE. Every provision of this Agreement is
intended to be severable from every other provision of this Agreement. If any
provision of this Agreement is held to be void or unenforceable, in whole or in
part, the remaining provisions will remain in full
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force and effect, unless the remaining provisions are so eviscerated by such
holding that they do not reflect the intent of the parties in entering into this
Agreement. If any provision of this Agreement is held to be unreasonable or
excessive in scope or duration, that provision will be deemed to be reformed and
enforced to the maximum extent permitted by law.
8.6 NON-WAIVER OF RIGHTS AND BREACHES. Any waiver by a party of
any breach of any provision of this Agreement will not be deemed to be a waiver
of any subsequent breach of that provision, or of any breach of any other
provision of this Agreement. No failure or delay in exercising any right,
power, or privilege granted to a party under any provision of this Agreement
will be deemed a waiver of that or any other right, power, or privilege. No
single or partial exercise of any right, power, or privilege granted to a party
under any provision of this Agreement will preclude any other or further
exercise of that or any other right, power, or privilege.
8.7 INTERPRETATION OF AGREEMENT. Each of the parties has had
the opportunity to be represented by counsel in the negotiation and preparation
of this Agreement. The parties agree that this Agreement is to be construed as
jointly drafted. Accordingly, this Agreement will be construed according to the
fair meaning of its language, and the rule of construction that ambiguities are
to be resolved against the drafting party will not be employed in the
interpretation of this Agreement.
8.8 GENDER AND NUMBER. Concerning the words used in this
Agreement, the singular form shall include the plural form, the masculine gender
shall include the feminine or neuter gender, and vice versa, as the context
requires, and the word "person" shall include any natural person, partnership,
corporation, limited liability company, association, trust, estate or other
legal entity.
8.9 HEADINGS. The headings of the Sections and Paragraphs of
this Agreement are inserted for ease of reference only, and will have no effect
in the construction or interpretation of this Agreement.
8.10 COUNTERPARTS. This Agreement and any amendment or
supplement to this Agreement may be executed in two or more counterparts, each
of which will constitute an original but all of which will together constitute a
single instrument. Transmission by facsimile of an executed counterpart
signature page hereof by a party hereto shall constitute due execution and
delivery of this Agreement by such party.
SECTION 9. EFFECTIVE DATE.
Anything contained in this Agreement to the contrary
notwithstanding, the effectiveness of this Agreement is contingent upon the
consummation of the Offer (as defined in the Merger Agreement) in accordance
with the Merger Agreement. As used herein, the "Effective Date" shall mean a
date designated by Parent which such date shall be on or after the
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date of consummation of the Offer and on or before the date of the Closing of
the Merger (as defined in the Merger Agreement) in accordance with the Merger
Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed and delivered as of the date first above written.
"Executive"
/s/ Randall Truelove
--------------------------------
RANDY TRUELOVE
"Company"
CHILDREN'S DISCOVERY CENTERS OF AMERICA, INC.,
a Delaware corporation
By: /s/ Elanna S. Yalow
---------------------------
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EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement"), dated as of March 27, 1998
and effective as of the Effective Date (as defined in Section 9), is made
between CHILDREN'S DISCOVERY CENTERS OF AMERICA, INC., a Delaware corporation
("Company"), and FRANK DEVINE ("Executive").
RECITALS:
WHEREAS, pursuant to an Agreement and Plan of Merger, dated as of
March 27, 1998, by and among Knowledge Beginnings, Inc. ("Parent"), KBI
Acquisition Corp. ("Merger Sub") and Company (the "Merger Agreement"), Parent
proposes to acquire not less than a majority of the outstanding shares of
capital stock of Company;
WHEREAS, Executive has been a key employee of Company and Parent,
Merger Sub and Company deem Executive's continued services with Company during
the term of this Agreement and Executive's covenants contained herein to be
material and significant to Company's success and desire to ensure that the
skills and experience of Executive will remain available to Company;
WHEREAS, without Executive's agreement to continue employment with
Company and to provide the covenants contained herein, Parent and Merger Sub
would not have entered into the Merger Agreement or agreed to consummate the
transactions contemplated thereby; and
WHEREAS, the parties hereto desire to enter into this Agreement
providing for the continued employment of Executive with Company and Executive's
other covenants contained herein on the terms and conditions hereinafter set
forth.
NOW, THEREFORE, in consideration of the mutual promises and subject
to the terms and conditions set forth herein, the parties hereto agree as
follows:
SECTION 1. EMPLOYMENT.
1.1 RESPONSIBILITIES. Effective as of the Effective Date
without further action of Company or Executive, Company and Executive agree that
Executive's employment with Company shall continue during the Employment Term on
the terms and conditions set forth in this Agreement, which such terms and
conditions shall supersede the terms and conditions of Executive's employment
with Company in effect prior to the Effective Date. Executive shall serve in
such executive capacity and agrees to hold such office(s) as Company's Board of
Directors shall from time to time designate. Executive shall carry out such
responsibilities and
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duties as are commensurate with such position and as otherwise required
hereunder in an efficient trustworthy, effective and businesslike manner.
1.2 EXCLUSIVE EMPLOYMENT. During the Employment Term, Executive
shall devote Executive's full business time to Executive's responsibilities
under this Agreement. Without limiting the generality of the foregoing, during
the Employment Term Executive shall not, without the prior written approval of
Company's Board of Directors, render services of a business, professional or
commercial nature to any other person, firm or corporation, whether for
compensation or otherwise, except that Executive may engage in civic,
philanthropic and community service activities so long as such activities do not
interfere with Executive's ability to comply with this Agreement and are not
otherwise in conflict with the policies or interests of Company.
SECTION 2. COMPENSATION AND OTHER BENEFITS.
2.1 COMPENSATION/DEDUCTIONS. In consideration of Executive's
employment, and except as otherwise provided herein, Executive shall receive
from Company the compensation and benefits described in this Section 2 as full
and complete satisfaction of all of Company's obligations to Executive arising
from Executive's employment. The compensation and employee benefits payable to
Executive pursuant to this Agreement may be changed only by the written
agreement of the parties. Executive authorizes Company to deduct and withhold
from all compensation to be paid to Executive any and all sums required to be
deducted or withheld by Company pursuant to the provisions of any federal,
state, or local law, regulation, ruling, or ordinance, including, but not
limited to, income tax withholding and payroll taxes.
2.2 BASE COMPENSATION. So long as Executive remains employed
with Company and fully and timely performs his responsibilities to Company,
Company shall pay to Executive, and Executive shall be entitled to receive from
Company, as a fixed base salary for the full time employment referred to in
Section 1 hereof and all other obligations of Executive hereunder, compensation
("Base Compensation") at the rate of One Hundred Ten Thousand Dollars ($110,000)
per annum.
2.3 BONUS. Executive shall be eligible to receive a bonus
("Bonus") of up to thirty percent (30%) of Executive's Base Compensation, in
Company's sole and absolute discretion, for each fiscal year of Company during
the Employment Term in accordance with Company bonus policy in effect from time
to time.
2.4 VACATION. Executive shall be entitled to paid vacation in
each fiscal year of Company during the Employment Term in accordance with
Company vacation policy. Said vacation time shall be planned consistent with
Executive's duties and obligations hereunder.
2.5 AUTO ALLOWANCE. Executive shall receive an automobile
allowance of up to four hundred dollars ($400) per month during the Employment
Term.
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2.6 EQUITY PARTICIPATION. At such time as Company adopts a new
employee equity participation program, Executive shall be eligible to be granted
rights under said program during the Employment Term in an amount, at a stated
price, on a vesting schedule and on such other terms and conditions as shall be
determined by Company's Board of Directors, or Compensation Committee, as
applicable.
2.7 OTHER BENEFITS. Executive shall be entitled to specific and
applicable employee benefits as granted to Company's employees in general all in
accordance with Company's policies and guidelines as in effect from time to
time.
2.8 BUSINESS EXPENSES. The Company shall pay for or reimburse
Executive for all reasonable business expenses incurred by Executive in the
performance of Executives's duties hereunder, upon submission to Company in
accordance with Company policy of a written accounting of such expenses, which
accounting shall include an itemized list of all expenses incurred, the business
purposes for which such expenses were incurred, and appropriate receipts and
supporting documentation.
SECTION 3. EMPLOYMENT TERM AND TERMINATION.
3.1 TERM. Executive's term of employment shall commence as of
the Effective Date and shall terminate on the date that is two (2) years after
the Effective Date, unless terminated earlier as provided in Section 3.2, 3.3,
3.4, 3.5 or 3.6 below (the "Employment Term"). Upon termination of employment,
Executive shall not be entitled to receive any compensation or benefits other
than as specifically provided in Section 3.2, 3.3, 3.4, 3.5 or 3.6 below.
3.2 TERMINATION UPON DEATH. Executive's term of employment
shall terminate upon the death of Executive; provided that Company shall pay to
the estate of Executive any unpaid Base Compensation and Bonus (to the extent
earned as of the date of termination).
3.3 TERMINATION UPON DISABILITY. Executive's term of employment
shall terminate upon the "disability" of Executive. As used herein, the term
"disability" shall mean a physical or mental disability that renders Executive
unable to perform Executive's normal duties for Company for a period of ninety
(90) or more days as determined in the good faith judgment of the Board of
Directors of Company. Upon termination for disability, Company shall pay to
Executive any unpaid Base Compensation and Bonus (to the extent earned as of the
date of termination).
3.4 TERMINATION FOR CAUSE. Company shall have the right to
terminate Executive's term of employment for "Cause" by written notice to
Executive. For purposes of this Agreement, a termination shall be for Cause if
Executive shall (i) commit an act of fraud, embezzlement or misappropriation
involving Company, (ii) be convicted of, or enter a plea of guilty or no contest
to, any crime involving moral turpitude or dishonesty, (iii) commit an act, or
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fail to commit an act, involving Company which amounts to, or with the passage
of time would amount to, willful misconduct, wanton misconduct, gross negligence
or a breach of this Agreement, or (iv) willfully fail or habitually neglect to
perform Executive's responsibilities and duties under this Agreement. Upon
termination for Cause, Company shall pay to Executive any unpaid Base
Compensation (to the extent earned as of the date of termination).
3.5 TERMINATION WITHOUT CAUSE. In the event Company terminates
Executive's employment prior to the expiration of the Employment Term for other
than death, disability or Cause, which Company shall have the absolute right to
do, Company shall continue to pay to Executive, as severance pay, Executive's
Base Compensation in accordance with Section 2.2 for a period of one (1) year
after the date of termination of employment or the balance of the Employment
Term, whichever is less.
3.6 RESIGNATION. Subject to the last sentence of this Section
3.6, Executive may terminate his employment with Company by resigning under
either of the following provisions:
(a) Executive may terminate his employment with Company
upon sixty (60) days' prior written notice given and effective during the first
year of the Employment Term, in which event Company shall continue to pay to
Executive, as severance pay, Executive's Base Compensation in accordance with
Section 2.2 for a period of four (4) months after the date that Executive
submits his written resignation; or
(b) In the event Company advises Executive in writing
during the Employment Term that Executive's primary place of employment is being
relocated to outside of the San Francisco Bay Area (a "Relocation Notice") and
Executive does not agree to relocate, Executive may terminate his employment
with Company by written resignation given and effective within sixty (60) days
after the date of the Relocation Notice. In such event, Company shall continue
to pay to Executive, as severance pay, Executive's Base Compensation in
accordance with Section 2.2 for a period of six (6) months after the date that
Executive submits his written resignation or the balance of the Employment Term,
whichever is less.
Executive's right to receive severance payments under this Section 3.6 is
subject to and conditioned upon Executive's performance of his responsibilities
under this Agreement and Executive's continuing cooperation with Company in the
transition of Executive's responsibilities to a successor to Executive.
SECTION 4. COVENANTS OF EMPLOYEE.
4.1 ACKNOWLEDGMENTS. Executive acknowledges the following:
4.1.1 ACCESS TO CONFIDENTIAL INFORMATION. Executive's
services previously rendered to Company and to be rendered hereunder have placed
Executive and shall continue to
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place Executive in a position of confidence and trust which shall allow
Executive access to Confidential Information. As used herein, "Confidential
Information" shall mean information and compilations of information relating to
the business of Company, Parent, Merger Sub and/or the affiliates of Company,
Parent and/or Merger Sub (collectively, the "Affiliates") including, but not
limited to, information regarding any trade secrets, proprietary knowledge,
operating procedures, finances, financial condition, projections, organization,
employees, suppliers, customers, clients, agents, and other personnel, business
activities, budgets, strategic or financial plans, objectives, marketing plans,
prices and price lists, customer and supplier lists, operating and training
materials, data bases and analyses, designs, formulaes, test data, and all
strategies, documents and computer databases relating to any of the foregoing.
4.1.2 FAIR AND REASONABLE COVENANT. The type and period
of restrictions imposed by the covenants in this Section 4 are fair and
reasonable and such restrictions will not prevent Executive from earning a
livelihood.
4.2 COVENANT AS TO NONDISCLOSURE OR USE OF CONFIDENTIAL
INFORMATION. Executive agrees that at all times during and after the term of
Executive's employment hereunder, Executive will maintain the Confidential
Information in strictest confidence and will not, unless required to do so in
the conduct of Company's operations, disclose to any individual or business
enterprise of any nature, or use for Executive's own personal use or financial
gain, whether individually or on behalf of another person, firm, corporation or
entity, any Confidential Information. Without limiting the generality of the
foregoing, Executive agrees that Company's agreements with other persons may
include agreements that impose obligations or restrictions regarding inventions
that occur in connection with work relating to such an agreement, or regarding
the confidential nature of work pursuant to such an agreement. Executive agrees
to be bound by all such obligations and restrictions, and to do whatever is
reasonably necessary to satisfy the obligations of Company.
4.3 ASSIGNMENT OF INVENTIONS. To the maximum extent permitted
by law, Executive shall assign and transfer to Company and does hereby assign
and transfer to Company Executive's entire right, title and interest in and to
all inventions including, but not limited to, designs, discoveries, inventions,
improvements, formulas, ideas, devices, techniques, processes, writings, trade
secrets, trademarks, trademark applications, patents, copyrights and all other
intellectual property rights including but not limited to notes, records,
reports, software, plans, memoranda and other tangible information relating to
such intellectual property, whether or not subject to protection under
applicable laws, which Executive solely or jointly with others conceives, makes,
acquires or suggests at any time during Executive's past, present or future
employment with Company and which relate in any manner to the actual or
demonstrably anticipated business, products, processes, work, operations,
research and development or other activities of Company, or result from or are
suggested by any task assigned to Executive or any work performed by Executive
for or on behalf of Company ("Inventions"). All Inventions are and shall be the
sole property of Company.
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4.4 DISCLOSURE OF INVENTIONS, PATENTS, COPYRIGHTS AND MASK WORK
RIGHTS. Executive agrees:
4.4.1 To keep and maintain adequate and current written
records of all Inventions made by Executive (in the form of notes, sketches,
drawings and other forms specified by Company) while employed by Company. These
records shall be available to Company and shall be and remain the sole property
of Company at all times. Executive will disclose such Inventions promptly in
writing to the Chief Executive Officer of Company.
4.4.2 Upon request, to promptly execute a written
assignment of title to Company for any Invention required to be assigned by
Section 4.3 ("assignable invention") and Executive will preserve any such
assignable invention as Confidential Information.
4.4.3 Upon request, to assist Company or its nominee
during and at any time subsequent to Executive's employment in every reasonable
way to obtain for Company's or its nominee's benefit, patents, copyrights, mask
work rights and other statutory rights ("Statutory Rights") for such assignable
inventions in any and all countries, which inventions shall be and remain the
sole and exclusive property of Company or its nominee whether or not patented,
copyrighted or the subject of a mask work right. Executive shall execute such
papers and perform such lawful acts as Company deems necessary to exercise all
rights, title and interest in such Statutory Rights.
4.4.4 To execute and deliver to Company or its nominee
upon request all documents, including applications for and assignments of
Statutory Rights to be issued therefor, as Company determines are necessary or
desirable to apply for and obtain Statutory Rights on such assignable inventions
in any and all countries and/or to protect the interest of Company or its
nominee in Statutory Rights and to vest title thereto in Company or its nominee.
4.5 RETURN OF RECORDS, EQUIPMENT AND CONFIDENTIAL INFORMATION.
Upon the earlier of termination of Executive's employment hereunder or request
by Company, Executive shall promptly return to Company: (i) all Confidential
Information and all documents, records, procedures, books, notebooks, and any
other documentation in any form whatsoever (including, but not limited to,
written, audio, video or electronic) containing any information pertaining to
Company which includes Confidential Information, including any and all copies of
such documentation then in Executive's possession or control regardless of
whether such documentation was prepared or compiled by Executive, Company, other
employees of Company, representatives, agents, or independent contractors, and
(ii) all equipment or tangible personal property entrusted to Executive by
Company. Executive will not retain any original, copy, description, document,
data base or other form of media that contains or relates to any Confidential
Information whether produced by Executive or otherwise. Without limiting the
generality of the foregoing, Executive shall permanently delete all Confidential
Information from all computers, disks, CD-ROMS, tapes, and other media owned or
used by or accessible to Executive, other than from any of the foregoing owned,
used or controlled by Company.
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Executive acknowledges that all Confidential Information and all such
documentation, copies of such documentation, equipment, and tangible personal
property are and shall at all times remain the sole and exclusive property of
Company.
4.6 ADDITIONAL COVENANTS PROTECTING THE INTERESTS OF COMPANY.
Executive agrees as follows:
4.6.1 That at all times during Executive's employment
hereunder, Executive shall comply with Company's employee manual and other
policies and procedures reasonably established by Company from time to time
concerning matters such as management, supervision, recruiting, diversity, and
sexual harassment.
4.6.2 That during Executive's employment hereunder,
Executive shall not directly or indirectly, individually or together or through
any affiliate or other person, firm, corporation, or entity engage in any other
business activity which would interfere with the performance of Executive's
duties hereunder including, but not limited to, engaging in any business
competitive with that conducted by Company.
4.6.3 That for the period commencing on the Effective Date
and ending two (2) years after the date of termination of Executive's employment
with the Company and irrespective of the duration of the Employment Term,
Executive shall not directly or indirectly, individually, or together with, or
through any other person, firm, corporation, or entity: (i) in any manner
discourage any person or entity which is or has been a customer or supplier of
Company from continuing its business relationship with Company, (ii) approach,
counsel, or attempt to induce any person who is then in the employ of or an
independent contractor of Company, to leave their employ or engagement, or
employ, engage or attempt to employ or engage any such person, or (iii) aid or
counsel any other person, firm, corporation, or entity to do any of the above.
4.6.4 That for the period commencing on the Effective
Date and ending two (2) years after the date of termination of Executive's
employment with the Company and irrespective of the duration of the Employment
Term, Executive will not directly or indirectly on Executive's own behalf or on
behalf of any other person, firm or entity (a) engage in; (b) own or control any
interest in (except as a passive investor of less than 5% of the publicly traded
stock of a publicly held company); (c) act as a director, officer, manager,
employee, trustee, agent, partner, joint venturer, participant, consultant of or
be obligated to, or be connected in any advisory, business or ownership capacity
with; (d) lend credit or money for the purpose of the establishing or operating;
or (e) allow Executive's name or reputation to be used by any firm, corporation,
partnership, trust or other business enterprise directly or indirectly engaged
in, any business (including any non-profit business) that involves any form of
early childhood or elementary education or that otherwise competes with Company
anywhere in the world. Executive has carefully considered the nature and extent
of the restrictions upon competition set forth herein and agrees that the same
are reasonable with respect to duration and territory.
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4.7 POST-EMPLOYMENT COOPERATION. Executive agrees that
following Executive's termination of employment under this Agreement, Executive
shall, upon Company's reasonable request, in good faith and with Executive's
best efforts, subject to Executive's reasonable availability, cooperate and
assist Company in any dispute, controversy, or litigation in which Company may
be involved and with respect to which Executive obtained knowledge while
employed by Company or any of its predecessors, affiliates, successors, or
assigns, including, but not limited to, Executive's participation in any court
or arbitration proceedings, giving of testimony, signing of affidavits, or such
other personal cooperation as counsel for Company shall request. Any such
activities shall be scheduled, to the extent reasonably possible, to accommodate
Executive's business and personal obligations at the time. Company shall pay
Executive's reasonable travel and incidental out-of-pocket expenses incurred in
connection with any such cooperation.
4.8 REMEDIES. In view of the position of confidence which
Executive has and will enjoy with Company and the relationship with the clients,
customers, members, and employees of Company and its affiliates pursuant to
Executive's employment with Company, and recognizing both the access to
confidential financial and other information which Executive has had and will
have pursuant to Executive's employment and the fact that Parent and Merger Sub
would not have entered into the Merger Agreement or purchased the capital stock
of Company without Executive's covenants in this Agreement, Executive expressly
acknowledges that the restrictive covenants set forth in this Section 4 are
reasonable and necessary in order to protect and maintain the proprietary
interests and other legitimate business interests of Company and its affiliates.
Executive further acknowledges that (i) it would be difficult to calculate
damages to Company and its affiliates from any breach of Executive's obligations
under this Section 4, (ii) that injury to Company and its affiliates from any
such breach would be irreparable and impossible to measure, and (iii) that the
remedy at law for any breach or threatened breach of this Section 4 would
therefore be an inadequate remedy and, accordingly, Company shall, in addition
to all other available remedies (including without limitation seeking such
damages as it can show it and its affiliates has sustained by reason of such
breach and/or the exercise of all other rights it has under this Agreement), be
entitled to injunctive and other similar equitable remedies without the
necessity of showing actual damages or posting bond.
4.9 THIRD PARTY BENEFICIARIES. The parties hereto acknowledge
that any breach of any of the provisions of this Agreement would be damaging to
the Affiliates as well as Company and the Affiliates shall therefore have the
right, as third party beneficiaries, to pursue any and all remedies for any
breach of the provisions of this Agreement by Executive, including but not
limited to the remedies provided for in Section 4.8 hereof, as though the
Affiliates are a party to this Agreement.
SECTION 5. REPRESENTATIONS BY EMPLOYEE.
Executive represents and warrants that Executive is free to enter
into and perform each of the terms and conditions of this Agreement; that
Executive is not a party to any
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confidentiality, non-compete or other agreement that restricts the services that
may be rendered by Executive for Company; and that Executive's execution and/or
performance of all Executive's obligations under this Agreement does not and
will not violate or breach any other agreement between Executive and any other
person or entity. Executive acknowledges that but for this representation and
warranty, Company would not agree to enter into this Agreement.
SECTION 6. ASSIGNABILITY.
This Agreement is binding upon and inures to the benefit of the
parties and their respective heirs, executors, administrators, personal
representatives, successors, and permitted assigns. Company may assign its
rights or delegate its duties under this Agreement at any time and from time to
time and upon any such assignment all references herein to Company shall include
any assignee of Company. The parties acknowledge that this Agreement is
personal to Executive and that the availability of Executive to perform services
and the covenants provided by Executive hereunder have been a material
consideration for Company to enter into this Agreement. Accordingly, Executive
may not assign any of Executive's rights or delegate any of Executive's duties
under this Agreement, either voluntarily or by operation of law, without the
prior written consent of Company, which may be given or withheld by Company in
its sole and absolute discretion.
SECTION 7. NOTICES.
All notices, requests, demands or other communications hereunder
shall be deemed to have been duly given when delivered, addressed as follows (or
at such other address as the addressed party may have substituted by notice
pursuant to this Section 7):
If to Executive: Frank Devine
8425 Petaluma Valley Ford Highway
Petaluma, California 94952
If to Company: Children's Discovery Centers of America, Inc.
851 Irwin Street, Suite 200
San Rafael, California 94901
Attention: Chief Executive Officer
With a copy to: Stanley E. Maron, Esq.
Maron & Sandler
844 Moraga Drive
Los Angeles, CA 90049
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SECTION 8. MISCELLANEOUS.
8.1 ENTIRE AGREEMENT. This Agreement and the exhibits hereto
embodies the entire representations, warranties, covenants and agreements in
relation to the subject matter hereof. No other representations, warranties,
covenants, understandings or agreements in relation hereto exist between the
parties except as otherwise expressly provided herein. This Agreement
supersedes any previous employment agreement between Company and Executive.
8.2 AMENDMENT. This Agreement may not be amended except by an
instrument in writing duly executed by the Company, Executive and Parent.
8.3 APPLICABLE LAW; ARBITRATION. This Agreement has been made
and executed under, and will be construed and interpreted in accordance with,
the laws of the State of California. Any dispute, controversy or claim arising
out of this Agreement or the performance, breach or termination thereof shall be
settled by binding arbitration in accordance with the Commercial Arbitration
Rules of the American Arbitration Association. The place of arbitration shall
be San Francisco, California. The arbitration shall be conducted by a neutral
arbitrator selected by mutual agreement of the parties within ten (10) days
after notice by either party to the other requesting such arbitration. If the
parties fail to agree within ten (10) days on the selection of the arbitrator,
an arbitrator shall be promptly appointed by the American Arbitration
Association from its Large, Complex Case Panel. Judgment upon the award
rendered may be entered in any court having jurisdiction. The prevailing party
shall be entitled to be awarded all costs of arbitration including, but not
limited to, attorneys' fees. All information resulting from or otherwise
pertaining to any dispute shall be nonpublic and handled by Company, Executive
and their respective agents in such a way as to prevent the public disclosure of
such information.
8.5 PROVISIONS SEVERABLE. Every provision of this Agreement is
intended to be severable from every other provision of this Agreement. If any
provision of this Agreement is held to be void or unenforceable, in whole or in
part, the remaining provisions will remain in full force and effect, unless the
remaining provisions are so eviscerated by such holding that they do not reflect
the intent of the parties in entering into this Agreement. If any provision of
this Agreement is held to be unreasonable or excessive in scope or duration,
that provision will be deemed to be reformed and enforced to the maximum extent
permitted by law.
8.6 NON-WAIVER OF RIGHTS AND BREACHES. Any waiver by a party of
any breach of any provision of this Agreement will not be deemed to be a waiver
of any subsequent breach of that provision, or of any breach of any other
provision of this Agreement. No failure or delay in exercising any right,
power, or privilege granted to a party under any provision of this Agreement
will be deemed a waiver of that or any other right, power, or privilege. No
single or partial exercise of any right, power, or privilege granted to a party
under any provision of this Agreement will preclude any other or further
exercise of that or any other right, power, or privilege.
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8.7 INTERPRETATION OF AGREEMENT. Each of the parties has had
the opportunity to be represented by counsel in the negotiation and preparation
of this Agreement. The parties agree that this Agreement is to be construed as
jointly drafted. Accordingly, this Agreement will be construed according to the
fair meaning of its language, and the rule of construction that ambiguities are
to be resolved against the drafting party will not be employed in the
interpretation of this Agreement.
8.8 GENDER AND NUMBER. Concerning the words used in this
Agreement, the singular form shall include the plural form, the masculine gender
shall include the feminine or neuter gender, and vice versa, as the context
requires, and the word "person" shall include any natural person, partnership,
corporation, limited liability company, association, trust, estate or other
legal entity.
8.9 HEADINGS. The headings of the Sections and Paragraphs of
this Agreement are inserted for ease of reference only, and will have no effect
in the construction or interpretation of this Agreement.
8.10 COUNTERPARTS. This Agreement and any amendment or
supplement to this Agreement may be executed in two or more counterparts, each
of which will constitute an original but all of which will together constitute a
single instrument. Transmission by facsimile of an executed counterpart
signature page hereof by a party hereto shall constitute due execution and
delivery of this Agreement by such party.
SECTION 9. EFFECTIVE DATE.
Anything contained in this Agreement to the contrary
notwithstanding, the effectiveness of this Agreement is contingent upon the
consummation of the Offer (as defined in the Merger Agreement) in accordance
with the Merger Agreement. As used herein, the "Effective Date" shall mean a
date designated by Parent which such date shall be on or after the date of
consummation of the Offer and on or before the date of the Closing of the Merger
(as defined in the Merger Agreement) in accordance with the Merger Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed and delivered as of the date first above written.
"Executive"
/s/ Frank Devine
------------------------------
FRANK DEVINE
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"Company"
CHILDREN'S DISCOVERY CENTERS OF
AMERICA, INC.,
a Delaware corporation
By: /s/ Elanna S. Yalow
-------------------------
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EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement"), dated as of March 27, 1998
and effective as of the Effective Date (as defined in Section 9), is made
between CHILDREN'S DISCOVERY CENTERS OF AMERICA, INC., a Delaware corporation
("Company"), and JANE DELANEY ("Executive").
RECITALS:
WHEREAS, pursuant to an Agreement and Plan of Merger, dated as of
March 27, 1998, by and among Knowledge Beginnings, Inc. ("Parent"), KBI
Acquisition Corp. ("Merger Sub") and Company (the "Merger Agreement"), Parent
proposes to acquire not less than a majority of the outstanding shares of
capital stock of Company;
WHEREAS, Executive has been a key employee of Company and Parent,
Merger Sub and Company deem Executive's continued services with Company during
the term of this Agreement and Executive's covenants contained herein to be
material and significant to Company's success and desire to ensure that the
skills and experience of Executive will remain available to Company;
WHEREAS, without Executive's agreement to continue employment with
Company and to provide the covenants contained herein, Parent and Merger Sub
would not have entered into the Merger Agreement or agreed to consummate the
transactions contemplated thereby; and
WHEREAS, the parties hereto desire to enter into this Agreement
providing for the continued employment of Executive with Company and Executive's
other covenants contained herein on the terms and conditions hereinafter set
forth.
NOW, THEREFORE, in consideration of the mutual promises and subject
to the terms and conditions set forth herein, the parties hereto agree as
follows:
SECTION 1. EMPLOYMENT.
1.1 RESPONSIBILITIES. Effective as of the Effective Date
without further action of Company or Executive, Company and Executive agree that
Executive's employment with Company shall continue during the Employment Term on
the terms and conditions set forth in this Agreement, which such terms and
conditions shall supersede the terms and conditions of Executive's employment
with Company in effect prior to the Effective Date. Executive shall serve in
such executive capacity and agrees to hold such office(s) as Company's Board of
Directors shall from time to time designate. Executive shall carry out such
responsibilities and duties as are commensurate with such position and as
otherwise required hereunder in an
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efficient trustworthy, effective and businesslike manner.
1.2 EXCLUSIVE EMPLOYMENT. During the Employment Term, Executive
shall devote Executive's full business time to Executive's responsibilities
under this Agreement. Without limiting the generality of the foregoing, during
the Employment Term Executive shall not, without the prior written approval of
Company's Board of Directors, render services of a business, professional or
commercial nature to any other person, firm or corporation, whether for
compensation or otherwise, except that Executive may engage in civic,
philanthropic and community service activities so long as such activities do not
interfere with Executive's ability to comply with this Agreement and are not
otherwise in conflict with the policies or interests of Company.
SECTION 2. COMPENSATION AND OTHER BENEFITS.
2.1 COMPENSATION/DEDUCTIONS. In consideration of Executive's
employment, and except as otherwise provided herein, Executive shall receive
from Company the compensation and benefits described in this Section 2 as full
and complete satisfaction of all of Company's obligations to Executive arising
from Executive's employment. The compensation and employee benefits payable to
Executive pursuant to this Agreement may be changed only by the written
agreement of the parties. Executive authorizes Company to deduct and withhold
from all compensation to be paid to Executive any and all sums required to be
deducted or withheld by Company pursuant to the provisions of any federal,
state, or local law, regulation, ruling, or ordinance, including, but not
limited to, income tax withholding and payroll taxes.
2.2 BASE COMPENSATION. So long as Executive remains employed
with Company and fully and timely performs her responsibilities to Company,
Company shall pay to Executive, and Executive shall be entitled to receive from
Company, as a fixed base salary for the full time employment referred to in
Section 1 hereof and all other obligations of Executive hereunder, compensation
("Base Compensation") at the rate of Ninety Thousand Dollars ($90,000) per
annum.
2.3 BONUS. Executive shall be eligible to receive a bonus
("Bonus") of up to thirty percent (30%) of Executive's Base Compensation, in
Company's sole and absolute discretion, for each fiscal year of Company during
the Employment Term in accordance with Company bonus policy in effect from time
to time.
2.4 VACATION. Executive shall be entitled to paid vacation in
each fiscal year of Company during the Employment Term in accordance with
Company vacation policy. Said vacation time shall be planned consistent with
Executive's duties and obligations hereunder.
2.5 EQUITY PARTICIPATION. At such time as Company adopts a new
employee equity participation program, Executive shall be eligible to be granted
rights under said program during the Employment Term in an amount, at a stated
price, on a vesting schedule and on such
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other terms and conditions as shall be determined by Company's Board of
Directors, or Compensation Committee, as applicable.
2.6 OTHER BENEFITS. Executive shall be entitled to specific and
applicable employee benefits as granted to Company's employees in general all in
accordance with Company's policies and guidelines as in effect from time to
time.
2.7 BUSINESS EXPENSES. The Company shall pay for or reimburse
Executive for all reasonable business expenses incurred by Executive in the
performance of Executives's duties hereunder, upon submission to Company in
accordance with Company policy of a written accounting of such expenses, which
accounting shall include an itemized list of all expenses incurred, the business
purposes for which such expenses were incurred, and appropriate receipts and
supporting documentation.
SECTION 3. EMPLOYMENT TERM AND TERMINATION.
3.1 TERM. Executive's term of employment shall commence as of
the Effective Date and shall terminate on the date that is two (2) years after
the Effective Date, unless terminated earlier as provided in Section 3.2, 3.3,
3.4, 3.5 or 3.6 below (the "Employment Term"). Upon termination of employment,
Executive shall not be entitled to receive any compensation or benefits other
than as specifically provided in Section 3.2, 3.3, 3.4, 3.5 or 3.6 below.
3.2 TERMINATION UPON DEATH. Executive's term of employment
shall terminate upon the death of Executive; provided that Company shall pay to
the estate of Executive any unpaid Base Compensation and Bonus (to the extent
earned as of the date of termination).
3.3 TERMINATION UPON DISABILITY. Executive's term of employment
shall terminate upon the "disability" of Executive. As used herein, the term
"disability" shall mean a physical or mental disability that renders Executive
unable to perform Executive's normal duties for Company for a period of ninety
(90) or more days as determined in the good faith judgment of the Board of
Directors of Company. Upon termination for disability, Company shall pay to
Executive any unpaid Base Compensation and Bonus (to the extent earned as of the
date of termination).
3.4 TERMINATION FOR CAUSE. Company shall have the right to
terminate Executive's term of employment for "Cause" by written notice to
Executive. For purposes of this Agreement, a termination shall be for Cause if
Executive shall (i) commit an act of fraud, embezzlement or misappropriation
involving Company, (ii) be convicted of, or enter a plea of guilty or no contest
to, any crime involving moral turpitude or dishonesty, (iii) commit an act, or
fail to commit an act, involving Company which amounts to, or with the passage
of time would amount to, willful misconduct, wanton misconduct, gross negligence
or a breach of this Agreement, or (iv) willfully fail or habitually neglect to
perform Executive's responsibilities and
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duties under this Agreement. Upon termination for Cause, Company shall pay to
Executive any unpaid Base Compensation (to the extent earned as of the date of
termination).
3.5 TERMINATION WITHOUT CAUSE. In the event Company terminates
Executive's employment prior to the expiration of the Employment Term for other
than death, disability or Cause, which Company shall have the absolute right to
do, Company shall continue to pay to Executive, as severance pay, Executive's
Base Compensation in accordance with Section 2.2 for a period of six (6) months
after the date of termination of employment or the balance of the Employment
Term, whichever is less.
SECTION 4. COVENANTS OF EMPLOYEE.
4.1 ACKNOWLEDGMENTS. Executive acknowledges the following:
4.1.1 ACCESS TO CONFIDENTIAL INFORMATION. Executive's
services previously rendered to Company and to be rendered hereunder have placed
Executive and shall continue to place Executive in a position of confidence and
trust which shall allow Executive access to Confidential Information. As used
herein, "Confidential Information" shall mean information and compilations of
information relating to the business of Company, Parent, Merger Sub and/or the
affiliates of Company, Parent and/or Merger Sub (collectively, the "Affiliates")
including, but not limited to, information regarding any trade secrets,
proprietary knowledge, operating procedures, finances, financial condition,
projections, organization, employees, suppliers, customers, clients, agents, and
other personnel, business activities, budgets, strategic or financial plans,
objectives, marketing plans, prices and price lists, customer and supplier
lists, operating and training materials, data bases and analyses, designs,
formulaes, test data, and all strategies, documents and computer databases
relating to any of the foregoing.
4.1.2 FAIR AND REASONABLE COVENANT. The type and period
of restrictions imposed by the covenants in this Section 4 are fair and
reasonable and such restrictions will not prevent Executive from earning a
livelihood.
4.2 COVENANT AS TO NONDISCLOSURE OR USE OF CONFIDENTIAL
INFORMATION. Executive agrees that at all times during and after the term of
Executive's employment hereunder, Executive will maintain the Confidential
Information in strictest confidence and will not, unless required to do so in
the conduct of Company's operations, disclose to any individual or business
enterprise of any nature, or use for Executive's own personal use or financial
gain, whether individually or on behalf of another person, firm, corporation or
entity, any Confidential Information. Without limiting the generality of the
foregoing, Executive agrees that Company's agreements with other persons may
include agreements that impose obligations or restrictions regarding inventions
that occur in connection with work relating to such an agreement, or regarding
the confidential nature of work pursuant to such an agreement. Executive agrees
to be bound by all such obligations and restrictions, and to do whatever is
reasonably necessary to satisfy the obligations of Company.
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4.3 ASSIGNMENT OF INVENTIONS. To the maximum extent permitted
by law, Executive shall assign and transfer to Company and does hereby assign
and transfer to Company Executive's entire right, title and interest in and to
all inventions including, but not limited to, designs, discoveries, inventions,
improvements, formulas, ideas, devices, techniques, processes, writings, trade
secrets, trademarks, trademark applications, patents, copyrights and all other
intellectual property rights including but not limited to notes, records,
reports, software, plans, memoranda and other tangible information relating to
such intellectual property, whether or not subject to protection under
applicable laws, which Executive solely or jointly with others conceives, makes,
acquires or suggests at any time during Executive's past, present or future
employment with Company and which relate in any manner to the actual or
demonstrably anticipated business, products, processes, work, operations,
research and development or other activities of Company, or result from or are
suggested by any task assigned to Executive or any work performed by Executive
for or on behalf of Company ("Inventions"). All Inventions are and shall be the
sole property of Company.
4.4 DISCLOSURE OF INVENTIONS, PATENTS, COPYRIGHTS AND MASK WORK
RIGHTS. Executive agrees:
4.4.1 To keep and maintain adequate and current written
records of all Inventions made by Executive (in the form of notes, sketches,
drawings and other forms specified by Company) while employed by Company. These
records shall be available to Company and shall be and remain the sole property
of Company at all times. Executive will disclose such Inventions promptly in
writing to the Chief Executive Officer of Company.
4.4.2 Upon request, to promptly execute a written
assignment of title to Company for any Invention required to be assigned by
Section 4.3 ("assignable invention") and Executive will preserve any such
assignable invention as Confidential Information.
4.4.3 Upon request, to assist Company or its nominee
during and at any time subsequent to Executive's employment in every reasonable
way to obtain for Company's or its nominee's benefit, patents, copyrights, mask
work rights and other statutory rights ("Statutory Rights") for such assignable
inventions in any and all countries, which inventions shall be and remain the
sole and exclusive property of Company or its nominee whether or not patented,
copyrighted or the subject of a mask work right. Executive shall execute such
papers and perform such lawful acts as Company deems necessary to exercise all
rights, title and interest in such Statutory Rights.
4.4.4 To execute and deliver to Company or its nominee
upon request all documents, including applications for and assignments of
Statutory Rights to be issued therefor, as Company determines are necessary or
desirable to apply for and obtain Statutory Rights on such assignable inventions
in any and all countries and/or to protect the interest of Company or its
nominee in Statutory Rights and to vest title thereto in Company or its nominee.
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4.5 RETURN OF RECORDS, EQUIPMENT AND CONFIDENTIAL INFORMATION.
Upon the earlier of termination of Executive's employment hereunder or request
by Company, Executive shall promptly return to Company: (i) all Confidential
Information and all documents, records, procedures, books, notebooks, and any
other documentation in any form whatsoever (including, but not limited to,
written, audio, video or electronic) containing any information pertaining to
Company which includes Confidential Information, including any and all copies of
such documentation then in Executive's possession or control regardless of
whether such documentation was prepared or compiled by Executive, Company, other
employees of Company, representatives, agents, or independent contractors, and
(ii) all equipment or tangible personal property entrusted to Executive by
Company. Executive will not retain any original, copy, description, document,
data base or other form of media that contains or relates to any Confidential
Information whether produced by Executive or otherwise. Without limiting the
generality of the foregoing, Executive shall permanently delete all Confidential
Information from all computers, disks, CD-ROMS, tapes, and other media owned or
used by or accessible to Executive, other than from any of the foregoing owned,
used or controlled by Company. Executive acknowledges that all Confidential
Information and all such documentation, copies of such documentation, equipment,
and tangible personal property are and shall at all times remain the sole and
exclusive property of Company.
4.6 ADDITIONAL COVENANTS PROTECTING THE INTERESTS OF COMPANY.
Executive agrees as follows:
4.6.1 That at all times during Executive's employment
hereunder, Executive shall comply with Company's employee manual and other
policies and procedures reasonably established by Company from time to time
concerning matters such as management, supervision, recruiting, diversity, and
sexual harassment.
4.6.2 That during Executive's employment hereunder,
Executive shall not directly or indirectly, individually or together or through
any affiliate or other person, firm, corporation, or entity engage in any other
business activity which would interfere with the performance of Executive's
duties hereunder including, but not limited to, engaging in any business
competitive with that conducted by Company.
4.6.3 That for the period commencing on the Effective
Date and ending two (2) years after the date of termination of Executive's
employment with the Company and irrespective of the duration of the Employment
Term, Executive shall not directly or indirectly, individually, or together
with, or through any other person, firm, corporation, or entity: (i) in any
manner discourage any person or entity which is or has been a customer or
supplier of Company from continuing its business relationship with Company, (ii)
approach, counsel, or attempt to induce any person who is then in the employ of
or an independent contractor of Company, to leave their employ or engagement, or
employ, engage or attempt to employ or engage any such person, or (iii) aid or
counsel any other person, firm, corporation, or entity to do any of the above.
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4.6.4 That for the period commencing on the Effective
Date and ending six (6) months after the date of termination of Executive's
employment with the Company and irrespective of the duration of the Employment
Term, Executive will not directly or indirectly on Executive's own behalf or on
behalf of any other person, firm or entity (a) engage in; (b) own or control any
interest in (except as a passive investor of less than 5% of the publicly traded
stock of a publicly held company); (c) act as a director, officer, manager,
employee, trustee, agent, partner, joint venturer, participant, consultant of or
be obligated to, or be connected in any advisory, business or ownership capacity
with; (d) lend credit or money for the purpose of the establishing or operating;
or (e) allow Executive's name or reputation to be used by any firm, corporation,
partnership, trust or other business enterprise directly or indirectly engaged
in, any business (including any non-profit business) that involves any form of
early childhood or elementary education or that otherwise competes with Company
anywhere in the world. Executive has carefully considered the nature and extent
of the restrictions upon competition set forth herein and agrees that the same
are reasonable with respect to duration and territory.
4.7 POST-EMPLOYMENT COOPERATION. Executive agrees that
following Executive's termination of employment under this Agreement, Executive
shall, upon Company's reasonable request, in good faith and with Executive's
best efforts, subject to Executive's reasonable availability, cooperate and
assist Company in any dispute, controversy, or litigation in which Company may
be involved and with respect to which Executive obtained knowledge while
employed by Company or any of its predecessors, affiliates, successors, or
assigns, including, but not limited to, Executive's participation in any court
or arbitration proceedings, giving of testimony, signing of affidavits, or such
other personal cooperation as counsel for Company shall request. Any such
activities shall be scheduled, to the extent reasonably possible, to accommodate
Executive's business and personal obligations at the time. Company shall pay
Executive's reasonable travel and incidental out-of-pocket expenses incurred in
connection with any such cooperation.
4.8 REMEDIES. In view of the position of confidence which
Executive has and will enjoy with Company and the relationship with the clients,
customers, members, and employees of Company and its affiliates pursuant to
Executive's employment with Company, and recognizing both the access to
confidential financial and other information which Executive has had and will
have pursuant to Executive's employment and the fact that Parent and Merger Sub
would not have entered into the Merger Agreement or purchased the capital stock
of Company without Executive's covenants in this Agreement, Executive expressly
acknowledges that the restrictive covenants set forth in this Section 4 are
reasonable and necessary in order to protect and maintain the proprietary
interests and other legitimate business interests of Company and its affiliates.
Executive further acknowledges that (i) it would be difficult to calculate
damages to Company and its affiliates from any breach of Executive's obligations
under this Section 4, (ii) that injury to Company and its affiliates from any
such breach would be irreparable and impossible to measure, and (iii) that the
remedy at law for any breach or threatened breach of this Section 4 would
therefore be an inadequate remedy and, accordingly, Company shall, in addition
to all other available remedies (including without limitation seeking
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such damages as it can show it and its affiliates has sustained by reason of
such breach and/or the exercise of all other rights it has under this
Agreement), be entitled to injunctive and other similar equitable remedies
without the necessity of showing actual damages or posting bond.
4.9 THIRD PARTY BENEFICIARIES. The parties hereto acknowledge
that any breach of any of the provisions of this Agreement would be damaging to
the Affiliates as well as Company and the Affiliates shall therefore have the
right, as third party beneficiaries, to pursue any and all remedies for any
breach of the provisions of this Agreement by Executive, including but not
limited to the remedies provided for in Section 4.8 hereof, as though the
Affiliates are a party to this Agreement.
SECTION 5. REPRESENTATIONS BY EMPLOYEE.
Executive represents and warrants that Executive is free to enter
into and perform each of the terms and conditions of this Agreement; that
Executive is not a party to any confidentiality, non-compete or other agreement
that restricts the services that may be rendered by Executive for Company; and
that Executive's execution and/or performance of all Executive's obligations
under this Agreement does not and will not violate or breach any other agreement
between Executive and any other person or entity. Executive acknowledges that
but for this representation and warranty, Company would not agree to enter into
this Agreement.
SECTION 6. ASSIGNABILITY.
This Agreement is binding upon and inures to the benefit of the
parties and their respective heirs, executors, administrators, personal
representatives, successors, and permitted assigns. Company may assign its
rights or delegate its duties under this Agreement at any time and from time to
time and upon any such assignment all references herein to Company shall include
any assignee of Company. The parties acknowledge that this Agreement is
personal to Executive and that the availability of Executive to perform services
and the covenants provided by Executive hereunder have been a material
consideration for Company to enter into this Agreement. Accordingly, Executive
may not assign any of Executive's rights or delegate any of Executive's duties
under this Agreement, either voluntarily or by operation of law, without the
prior written consent of Company, which may be given or withheld by Company in
its sole and absolute discretion.
SECTION 7. NOTICES.
All notices, requests, demands or other communications hereunder
shall be deemed to have been duly given when delivered, addressed as follows (or
at such other address as the addressed party may have substituted by notice
pursuant to this Section 7):
If to Executive: Jane A. Delaney
546 Sussex Road
Wynnewood, PA 19096
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If to Company: Children's Discovery Centers of America, Inc.
851 Irwin Street, Suite 200
San Rafael, California 94901
Attention: Chief Executive Officer
With a copy to: Stanley E. Maron, Esq.
Maron & Sandler
844 Moraga Drive
Los Angeles, CA 90049
SECTION 8. MISCELLANEOUS.
8.1 ENTIRE AGREEMENT. This Agreement and the exhibits hereto
embodies the entire representations, warranties, covenants and agreements in
relation to the subject matter hereof. No other representations, warranties,
covenants, understandings or agreements in relation hereto exist between the
parties except as otherwise expressly provided herein. This Agreement
supersedes any previous employment agreement between Company and Executive.
8.2 AMENDMENT. This Agreement may not be amended except by an
instrument in writing duly executed by the Company, Executive and Parent.
8.3 APPLICABLE LAW; ARBITRATION. This Agreement has been made
and executed under, and will be construed and interpreted in accordance with,
the laws of the State of California. Any dispute, controversy or claim arising
out of this Agreement or the performance, breach or termination thereof shall be
settled by binding arbitration in accordance with the Commercial Arbitration
Rules of the American Arbitration Association. The place of arbitration shall
be San Francisco, California. The arbitration shall be conducted by a neutral
arbitrator selected by mutual agreement of the parties within ten (10) days
after notice by either party to the other requesting such arbitration. If the
parties fail to agree within ten (10) days on the selection of the arbitrator,
an arbitrator shall be promptly appointed by the American Arbitration
Association from its Large, Complex Case Panel. Judgment upon the award
rendered may be entered in any court having jurisdiction. The prevailing party
shall be entitled to be awarded all costs of arbitration including, but not
limited to, attorneys' fees. All information resulting from or otherwise
pertaining to any dispute shall be nonpublic and handled by Company, Executive
and their respective agents in such a way as to prevent the public disclosure of
such information.
8.5 PROVISIONS SEVERABLE. Every provision of this Agreement is
intended to be severable from every other provision of this Agreement. If any
provision of this Agreement is held to be void or unenforceable, in whole or in
part, the remaining provisions will remain in full force and effect, unless the
remaining provisions are so eviscerated by such holding that they do not reflect
the intent of the parties in entering into this Agreement. If any provision of
this
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Agreement is held to be unreasonable or excessive in scope or duration, that
provision will be deemed to be reformed and enforced to the maximum extent
permitted by law.
8.6 NON-WAIVER OF RIGHTS AND BREACHES. Any waiver by a party of
any breach of any provision of this Agreement will not be deemed to be a waiver
of any subsequent breach of that provision, or of any breach of any other
provision of this Agreement. No failure or delay in exercising any right,
power, or privilege granted to a party under any provision of this Agreement
will be deemed a waiver of that or any other right, power, or privilege. No
single or partial exercise of any right, power, or privilege granted to a party
under any provision of this Agreement will preclude any other or further
exercise of that or any other right, power, or privilege.
8.7 INTERPRETATION OF AGREEMENT. Each of the parties has had
the opportunity to be represented by counsel in the negotiation and preparation
of this Agreement. The parties agree that this Agreement is to be construed as
jointly drafted. Accordingly, this Agreement will be construed according to the
fair meaning of its language, and the rule of construction that ambiguities are
to be resolved against the drafting party will not be employed in the
interpretation of this Agreement.
8.8 GENDER AND NUMBER. Concerning the words used in this
Agreement, the singular form shall include the plural form, the masculine gender
shall include the feminine or neuter gender, and vice versa, as the context
requires, and the word "person" shall include any natural person, partnership,
corporation, limited liability company, association, trust, estate or other
legal entity.
8.9 HEADINGS. The headings of the Sections and Paragraphs of
this Agreement are inserted for ease of reference only, and will have no effect
in the construction or interpretation of this Agreement.
8.10 COUNTERPARTS. This Agreement and any amendment or
supplement to this Agreement may be executed in two or more counterparts, each
of which will constitute an original but all of which will together constitute a
single instrument. Transmission by facsimile of an executed counterpart
signature page hereof by a party hereto shall constitute due execution and
delivery of this Agreement by such party.
SECTION 9. EFFECTIVE DATE.
Anything contained in this Agreement to the contrary
notwithstanding, the effectiveness of this Agreement is contingent upon the
consummation of the Offer (as defined in the Merger Agreement) in accordance
with the Merger Agreement. As used herein, the "Effective Date" shall mean a
date designated by Parent which such date shall be on or after the date of
consummation of the Offer and on or before the date of the Closing of the Merger
(as defined in the Merger Agreement) in accordance with the Merger Agreement.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed and delivered as of the date first above written.
"Executive"
/s/ Jane Delaney
----------------------------
JANE DELANEY
"Company"
CHILDREN'S DISCOVERY CENTERS OF AMERICA,
INC.,
a Delaware corporation
By: /s/ Elanna S. Yalow
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