<PAGE>
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
SCHEDULE 14D-1
TENDER OFFER STATEMENT
(PURSUANT TO SECTION 14(D)(1) OF THE SECURITIES EXCHANGE ACT OF 1934)
CHILDREN'S DISCOVERY CENTERS OF AMERICA, INC.
(Name of Subject Company)
KNOWLEDGE BEGINNINGS, INC.
KBI ACQUISITION CORP.
(Bidders)
COMMON STOCK, PAR VALUE $.01 PER SHARE
(Title of Class of Securities)
168757201
(CUSIP Number of Class of Securities)
------------------------------
RONALD J. PACKARD
TREASURER AND SECRETARY
KNOWLEDGE BEGINNINGS, INC.
844 MORAGA DRIVE
LOS ANGELES, CALIFORNIA 90049-1639
(310) 440-3657
(Name, Address and Telephone Number of Persons Authorized
to Receive Notices and Communications on Behalf of Bidders)
COPIES TO:
MARK D. GERSTEIN, ESQ.
LATHAM & WATKINS
SEARS TOWER, SUITE 5800
CHICAGO, ILLINOIS 60606-6401
(312) 876-7700
JOHN J. HUBER, ESQ.
LATHAM & WATKINS
1001 PENNSYLVANIA AVENUE, N.W., SUITE 1300
WASHINGTON, D.C. 20004-2505
(202) 637-2200
CALCULATION OF FILING FEE:
<TABLE>
<CAPTION>
TRANSACTION VALUATION* AMOUNT OF FILING FEE**
<S> <C>
$93,995,034 $18,800
</TABLE>
* For the purpose of calculating the fee only, this amount assumes the
purchase of 7,673,064 shares of common stock, par value $.01 per share, of
Children's Discovery Centers of America, Inc. at $12.25 per share. Such
number of shares consists of (i) 6,744,499 shares issued and outstanding as
of March 27, 1998 and (ii) 928,565 shares reserved for issuance upon the
exercise of outstanding options as of such date.
** The amount of the filing fee calculated in accordance with Regulation
240.0-11 of the Securities Exchange Act of 1934 equals 1/50th of one percent
of the value of the shares to be purchased.
/ / Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the Form
or Schedule and the date of its filing.
<TABLE>
<S> <C> <C> <C>
Not Filing Not
Amount Previously Paid: applicable. Party: applicable.
Form or Registration Not Not
No.: applicable. Date Filed: applicable.
</TABLE>
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(CONTINUED ON FOLLOWING PAGE(S))
(Page 1 of 7 Pages)
<PAGE>
SCHEDULE 14D-1
CUSIP NO. 168757201 Page 2 of 7 Pages
- --------------------------------------------------------------------------------
(1) Name of Reporting Persons: Knowledge Beginnings, Inc.
I.R.S. Identification No. of above person (Entities Only): 95-4672767
- --------------------------------------------------------------------------------
(2) Check the appropriate box if a member of a group (See instructions):
(a) / /
(b) / /
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(3) SEC Use Only
- --------------------------------------------------------------------------------
(4) Source of funds (See instructions):
WC
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(5) Check box if disclosure of legal proceedings is required pursuant to Items
2(e) or 2(f):
/X/
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(6) Citizenship or place of organization:
Delaware
- --------------------------------------------------------------------------------
(7) Aggregate amount beneficially owned by each reporting person:
0
- --------------------------------------------------------------------------------
(8) Check box if the aggregate amount in row (7) excludes certain shares (See
instructions):
/ /
- --------------------------------------------------------------------------------
(9) Percent of class represented to amount in row (7):
0%
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(10) Type of reporting person (See instructions):
CO
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<PAGE>
SCHEDULE 14D-1
CUSIP NO. 168757201 Page 3 of 7 Pages
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(1) Name of Reporting Persons: KBI Acquisition Corp.
I.R.S. Identification No. of above person (Entities Only): 95-4679455
- --------------------------------------------------------------------------------
(2) Check the appropriate box if a member of a group (See instructions):
(a) / /
(b) / /
- --------------------------------------------------------------------------------
(3) SEC Use Only
- --------------------------------------------------------------------------------
(4) Source of funds (See instructions):
AF
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(5) Check box if disclosure of legal proceedings is required pursuant to Items
2(e) or 2(f):
/X/
- --------------------------------------------------------------------------------
(6) Citizenship or place of organization:
Delaware
- --------------------------------------------------------------------------------
(7) Aggregate amount beneficially owned by each reporting person:
0
- --------------------------------------------------------------------------------
(8) Check box if the aggregate amount in row (7) excludes certain shares (See
instructions):
/ /
- --------------------------------------------------------------------------------
(9) Percent of class represented to amount in row (7):
0%
- --------------------------------------------------------------------------------
(10) Type of reporting person (See instructions):
CO
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<PAGE>
TENDER OFFER
This Tender Offer Statement on Schedule 14D-1 (this "Schedule 14D-1")
relates to a tender offer by KBI Acquisition Corp., a Delaware corporation
("Purchaser") and a wholly owned subsidiary of Knowledge Beginnings, Inc., a
Delaware corporation ("Parent"), to purchase any and all outstanding shares of
common stock, par value $.01 per share, of Children's Discovery Centers of
America, Inc., a Delaware corporation (the "Company"), for a purchase price of
$12.25 per share, net to the seller in cash, without interest thereon, upon the
terms and subject to the conditions set forth in the Offer to Purchase dated
April 3, 1998 (the "Offer to Purchase") and in the related Letter of Transmittal
(the "Letter of Transmittal" and together with the Offer to Purchase, as amended
and supplemented from time to time, the "Offer"), and is intended to satisfy the
reporting requirements of Section 14(d) of the Securities Exchange Act of 1934,
as amended. Copies of the Offer to Purchase and the related Letter of
Transmittal are filed with this Schedule 14D-1 as Exhibits (a)(1) and (a)(2)
hereto, respectively.
ITEM 1. SECURITY AND SUBJECT COMPANY.
(a) The name of the subject company is Children's Discovery Centers of
America, Inc., a Delaware corporation, which has its principal executive and
operating offices at 851 Irwin Street, Suite 200, San Rafael, California 94901.
(b) The title of the securities which are the subject of the Offer is the
Company's common stock, par value $.01 per share (the "Shares"), and the Offer
is for any and all outstanding Shares at a price of $12.25 per Share, net to the
seller in cash, without interest thereon. The information set forth in the
"Introduction" to the Offer to Purchase is incorporated herein by reference.
(c) The information set forth in Section 6 of the Offer to Purchase is
incorporated herein by reference.
ITEM 2. IDENTITY AND BACKGROUND.
(a)-(d) and (g) This Schedule 14D-1 is being filed jointly by Purchaser and
Parent. The information set forth in the "Introduction" to the Offer to
Purchase, in Section 9 of the Offer to Purchase and in Annex I to the Offer to
Purchase is incorporated herein by reference.
(e)-(f) The information set forth in Annex I to the Offer to Purchase is
incorporated herein by reference.
ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS WITH THE SUBJECT COMPANY.
(a)-(b) The information set forth in the "Introduction" to the Offer to
Purchase and in Sections 9, 11, 12 and 13 of the Offer to Purchase is
incorporated herein by reference.
ITEM 4. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
(a)-(c) The information set forth in Section 10 of the Offer to Purchase is
incorporated herein by reference.
ITEM 5. PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS OF THE BIDDER.
(a)-(g) The information set forth in the "Introduction" to the Offer to
Purchase and in Sections 7, 12 and 13 of the Offer to Purchase is incorporated
herein by reference.
ITEM 6. INTEREST IN SECURITIES OF THE SUBJECT COMPANY.
The information set forth in the "Introduction" to the Offer to Purchase and
in Sections 9 and 13 of the Offer to Purchase is incorporated herein by
reference.
<PAGE>
ITEM 7. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO
THE SUBJECT COMPANY'S SECURITIES.
The information set forth in the "Introduction" to the Offer to Purchase and
in Sections 9 and 13 of the Offer to Purchase is incorporated herein by
reference.
ITEM 8. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
The information set forth in the "Introduction" to the Offer to Purchase and
in Section 17 of the Offer to Purchase is incorporated herein by reference.
ITEM 9. FINANCIAL STATEMENTS OF CERTAIN BIDDERS.
Not applicable.
ITEM 10. ADDITIONAL INFORMATION.
(a) The information set forth in Sections 7, 11, 12 and 13 of the Offer
to Purchase is incorporated herein by reference.
(b)-(c) The information set forth in Section 16 of the Offer to Purchase is
incorporated herein by reference.
(d) The information set forth in Sections 7 and 16 of the Offer to
Purchase is incorporated herein by reference.
(e) Not applicable.
(f) The information set forth in the entire Offer to Purchase and the
Letter of Transmittal, copies of which are filed with this Schedule 14D-1 as
Exhibits (a)(1) and (a)(2), respectively, is incorporated herein by reference.
ITEM 11. MATERIAL TO BE FILED AS EXHIBITS.
(a)(1) Offer to Purchase.
(a)(2) Letter of Transmittal.
(a)(3) Notice of Guaranteed Delivery.
(a)(4) Letter to Brokers, Dealers, Commercial Banks, Trust Companies and
Other Nominees.
(a)(5) Letter to Clients for use by Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees.
(a)(6) Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9.
(a)(7) Text of Press Release jointly issued by Parent, Purchaser and the
Company dated March 30, 1998.
(a)(8) Summary Advertisement dated April 3, 1998.
(b)(1) Promissory Note dated April 2, 1998 by Parent in favor of Knowledge
University Holdings, L.L.C.
(c)(1) Agreement and Plan of Merger by and among Parent, Purchaser and the
Company, dated as of March 27, 1998.
(c)(2) Option and Support Agreement by and among Parent, the Company and
certain stockholders of the Company, dated as of March 27, 1998.
(c)(3) Employment Agreement by and between Parent and Elanna S. Yalow,
dated as of March 27, 1998.
(d) Not applicable.
(e) Not applicable.
<PAGE>
(f) Not applicable.
<PAGE>
SIGNATURE
After due inquiry and to the best of our knowledge and belief, we certify
that the information set forth in this statement is true, complete and correct.
<TABLE>
<S> <C> <C>
Dated: April 3, 1998 KBI ACQUISITION CORP.
By: /s/ RONALD J. PACKARD
--------------------------------------
Name: Ronald J. Packard
Title: Treasurer and Secretary
KNOWLEDGE BEGINNINGS, INC.
By: /s/ RONALD J. PACKARD
--------------------------------------
Name: Ronald J. Packard
Title: Treasurer and Secretary
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- --------------------------------------------------------------------------------------------------------
<S> <C>
(a)(1) Offer to Purchase.
(a)(2) Letter of Transmittal.
(a)(3) Notice of Guaranteed Delivery.
(a)(4) Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees.
(a)(5) Letter to Clients for use by Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees.
(a)(6) Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9.
(a)(7) Text of Press Release jointly issued by Parent, Purchaser and the Company dated March 30, 1998.
(a)(8) Summary Advertisement dated April 3, 1998.
(b)(1) Promissory Note dated April 2, 1998 by Parent in favor of Knowledge University Holdings, L.L.C.
(c)(1) Agreement and Plan of Merger by and among Parent, Purchaser and the Company, dated as of March 27, 1998.
(c)(2) Option and Support Agreement by and among Parent, the Company and certain stockholders of the Company,
dated as of March 27, 1998.
(c)(3) Employment Agreement by and between Parent and Elanna S. Yalow, dated as of March 27, 1998.
(d) Not applicable.
(e) Not applicable.
(f) Not applicable.
</TABLE>
<PAGE>
OFFER TO PURCHASE FOR CASH
ANY AND ALL OUTSTANDING SHARES OF COMMON STOCK
OF
CHILDREN'S DISCOVERY CENTERS OF AMERICA, INC.
AT
$12.25 NET PER SHARE
BY
KBI ACQUISITION CORP.
A WHOLLY OWNED SUBSIDIARY OF
KNOWLEDGE BEGINNINGS, INC.
- ----------------------------------------------------------------
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON FRIDAY, MAY 1, 1998, UNLESS THE OFFER IS EXTENDED.
- --------------------------------------------------------------------------------
THE OFFER IS BEING MADE PURSUANT TO AN AGREEMENT AND PLAN OF MERGER, DATED
AS OF MARCH 27, 1998, BY AND AMONG KNOWLEDGE BEGINNINGS, INC. ("PARENT"), KBI
ACQUISITION CORP. ("PURCHASER") AND CHILDREN'S DISCOVERY CENTERS OF AMERICA,
INC. (THE "COMPANY"). THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, (1)
THERE HAVING BEEN VALIDLY TENDERED PURSUANT TO THE OFFER, AND NOT VALIDLY
WITHDRAWN, A MINIMUM OF A MAJORITY OF THE SHARES OF COMMON STOCK, PAR VALUE $.01
PER SHARE (THE "SHARES"), OF THE COMPANY (DETERMINED ON A FULLY DILUTED BASIS),
(2) THE EXPIRATION OR TERMINATION OF ANY APPLICABLE WAITING PERIOD UNDER THE
HART-SCOTT-RODINO ANTITRUST IMPROVEMENTS ACT OF 1976, AS AMENDED, AND THE
PASSAGE OF CERTAIN STATUTORY WAITING PERIODS RELATING TO THE COMPANY'S OPERATING
LICENSES, (3) CERTAIN ANCILLARY AGREEMENTS AND INSTRUMENTS HAVING BEEN OBTAINED
BY THE COMPANY AND PARENT, AND (4) THE SATISFACTION OF CERTAIN OTHER TERMS AND
CONDITIONS. SEE SECTION 15 OF THIS OFFER TO PURCHASE.
THE BOARD OF DIRECTORS OF THE COMPANY HAS, BY A VOTE OF ALL DIRECTORS AT A
MEETING DULY CALLED AND HELD, UNANIMOUSLY (1) DETERMINED THAT EACH OF THE OFFER
AND THE MERGER IS FAIR TO, AND IN THE BEST INTERESTS OF, THE COMPANY'S
STOCKHOLDERS, (2) APPROVED AND ADOPTED THE MERGER AGREEMENT AND THE OPTION AND
SUPPORT AGREEMENT (EACH AS DEFINED HEREIN) AND THE TRANSACTIONS CONTEMPLATED
THEREBY, INCLUDING THE OFFER AND THE MERGER (EACH AS DEFINED HEREIN), (3)
RECOMMENDED THAT THE COMPANY'S STOCKHOLDERS ACCEPT THE OFFER AND TENDER THEIR
SHARES PURSUANT TO THE OFFER, AND (4) TAKEN ALL ACTION NECESSARY TO RENDER
SECTION 203 OF THE GENERAL CORPORATION LAW OF THE STATE OF DELAWARE AND OTHER
STATE TAKEOVER STATUTES INAPPLICABLE TO THE OFFER, THE MERGER AND THE OPTION AND
SUPPORT AGREEMENT.
THE COMPANY HAS GRANTED PARENT AN IRREVOCABLE OPTION TO PURCHASE NEWLY
ISSUED SHARES REPRESENTING UP TO 19.9% OF THE OUTSTANDING SHARES PURSUANT TO AND
UPON THE TERMS SET FORTH IN THE OPTION AND SUPPORT AGREEMENT. IN ADDITION,
PURSUANT TO THE OPTION AND SUPPORT AGREEMENT, CERTAIN STOCKHOLDERS OF THE
COMPANY (THE "SELLING STOCKHOLDERS"), OWNING IN THE AGGREGATE APPROXIMATELY
20.2% OF THE OUTSTANDING SHARES, HAVE AGREED TO TENDER AND SELL ALL OF THEIR
SHARES TO PURCHASER PURSUANT TO THE OFFER AND HAVE GRANTED TO PARENT AN
IRREVOCABLE OPTION TO PURCHASE ALL OF SUCH SELLING STOCKHOLDERS' SHARES UPON THE
TERMS SET FORTH IN THE OPTION AND SUPPORT AGREEMENT. SEE SECTION 13 OF THIS
OFFER TO PURCHASE.
IMPORTANT
Any stockholder desiring to tender all or a portion of such stockholder's
Shares should either (i) complete and sign the Letter of Transmittal or a
facsimile thereof in accordance with the instructions set forth in the Letter of
Transmittal, have such stockholder's signature thereon guaranteed if required by
Instruction 1 to the Letter of Transmittal, and mail or deliver the Letter of
Transmittal together with the certificate(s) representing tendered Shares and
all other required documents to IBJ Schroder Bank & Trust Company, the
Depositary for the Offer, or tender such Shares pursuant to the procedure for
book-entry transfer set forth in Section 3 of this Offer to Purchase or (ii)
request such stockholder's broker, dealer, commercial bank, trust company or
other nominee to effect the transaction for such stockholder. Stockholders
having Shares registered in the name of a broker, dealer, commercial bank, trust
company or other nominee must contact such person or entity if they desire to
tender their Shares. Any stockholder who desires to tender Shares and whose
certificates representing such Shares are not immediately available, or who
cannot comply with the procedures for book-entry transfer on a timely basis, may
tender such Shares pursuant to the guaranteed delivery procedure set forth in
Section 3 of this Offer to Purchase.
Questions and requests for assistance may be directed to the Information
Agent or to Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), as
Dealer Manager (the "Dealer Manager"), at their respective addresses and
telephone numbers set forth on the back cover of this Offer to Purchase.
Additional copies of this Offer to Purchase, the Letter of Transmittal, the
Notice of Guaranteed Delivery and other related materials may be obtained from
the Information Agent or from brokers, dealers, commercial banks and trust
companies.
THE DEALER MANAGER FOR THE OFFER IS:
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
APRIL 3, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<C> <S> <C>
INTRODUCTION................................................................................ 1
1. Terms of the Offer............................................................... 3
2. Acceptance for Payment and Payment for Shares.................................... 5
3. Procedure for Tendering Shares................................................... 6
4. Withdrawal Rights................................................................ 8
5. Certain United States Federal Income Tax Consequences............................ 9
6. Price Range of Shares; Dividends................................................. 11
7. Certain Effects of the Transaction............................................... 11
8. Certain Information Concerning the Company....................................... 13
9. Certain Information Concerning Parent and Purchaser.............................. 15
10. Source and Amount of Funds....................................................... 16
Background of the Offer; Past Contacts, Transactions or Negotiations with the
11. Company........................................................................ 16
12. Purpose of the Offer and the Merger; Plans for the Company....................... 19
13. Merger Agreement and Option and Support Agreement................................ 21
14. Dividends and Distributions...................................................... 34
15. Certain Conditions of the Offer.................................................. 34
16. Certain Regulatory and Legal Matters............................................. 36
17. Fees and Expenses................................................................ 39
18. Miscellaneous.................................................................... 40
ANNEX I-- Certain Information Concerning Certain Entities and Certain of their Directors and Executive
Officers
ANNEX II-- Section 262 of the General Corporation Law of the State of Delaware
</TABLE>
i
<PAGE>
To the Holders of Common Stock of
Children's Discovery Centers of America, Inc.:
INTRODUCTION
KBI Acquisition Corp., a Delaware corporation ("Purchaser") and a wholly
owned subsidiary of Knowledge Beginnings, Inc., a Delaware corporation
("Parent"), hereby offers to purchase any and all outstanding shares of common
stock, par value $.01 per share (the "Shares"), of Children's Discovery Centers
of America, Inc., a Delaware corporation (the "Company"), at a purchase price of
$12.25 per Share (the "Offer Price"), net to the seller in cash, without
interest thereon, upon the terms and subject to the conditions set forth in this
Offer to Purchase and in the related Letter of Transmittal (which, as amended
and supplemented from time to time, together constitute the "Offer").
THE BOARD OF DIRECTORS OF THE COMPANY (THE "COMPANY BOARD") 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 (AS HEREINAFTER DEFINED) IS FAIR TO, AND
IN THE BEST INTERESTS OF, THE COMPANY'S STOCKHOLDERS, (II) APPROVED AND ADOPTED
THE MERGER AGREEMENT (AS HEREINAFTER DEFINED) AND THE OPTION AND SUPPORT
AGREEMENT (AS HEREINAFTER DEFINED) AND THE TRANSACTIONS CONTEMPLATED THEREBY,
INCLUDING THE OFFER AND THE MERGER, (III) RECOMMENDED THAT THE COMPANY'S
STOCKHOLDERS ACCEPT THE OFFER AND TENDER THEIR SHARES PURSUANT TO THE OFFER, AND
(IV) TAKEN ALL ACTION NECESSARY TO RENDER SECTION 203 OF THE GENERAL CORPORATION
LAW OF THE STATE OF DELAWARE (THE "DGCL") AND OTHER STATE TAKEOVER STATUTES
INAPPLICABLE TO THE OFFER, THE MERGER AND THE OPTION AND SUPPORT AGREEMENT.
The Offer is conditioned upon, among other things, (i) 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"), (ii) the expiration or termination of any applicable waiting period
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act"), and the passage of certain statutory waiting periods relating to the
Company's operating licenses, (iii) certain ancillary agreements and instruments
having been obtained by the Company and Parent, and (iv) the satisfaction of
certain other terms and conditions. See Section 15 of this Offer to Purchase.
In order to induce Parent and Purchaser to enter into the Merger Agreement,
the Company has granted Parent an irrevocable option to purchase, under certain
conditions, newly issued Shares representing up to 19.9% of the outstanding
Shares pursuant to and upon the terms set forth in an 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"). In addition, pursuant to the Option and Support Agreement, the
Selling Stockholders, owning in the aggregate approximately 20.2% of the issued
and outstanding Shares, have agreed to tender and sell all of their Shares to
Purchaser pursuant to the Offer and have granted Parent an irrevocable option to
purchase, under certain conditions, all of the Shares owned by such Selling
Stockholders upon the terms set forth in the Option and Support Agreement. See
Section 13 of this Offer to Purchase.
Advest, Inc. ("Advest") has delivered to the Company Board its opinion that,
as of the date of such opinion, the consideration to be received by the
stockholders of the Company in the Offer and the Merger is fair to the Company
and its stockholders from a financial point of view. A copy of such opinion is
contained in the Company's Solicitation/Recommendation Statement on Schedule
14D-9 (the "Company's Schedule 14D-9") which is being distributed to the
Company's stockholders. Stockholders are urged to read the written opinion of
Advest, dated March 18, 1998 in its entirety and the discussion thereof in the
Company's Schedule 14D-9, which sets forth the procedures followed, assumptions
and qualifications made, matters considered and limitations of the review
undertaken by Advest in connection with the opinion.
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 Parent, Purchaser
and the Company. The Merger Agreement provides that, among other things, as soon
as practicable after the purchase of Shares pursuant to the Offer and the
satisfaction or waiver of the conditions set forth in the Merger Agreement and
in accordance with the relevant provisions of the DGCL, Purchaser (or such other
subsidiary of Parent as described below)
<PAGE>
will be merged with the Company (the "Merger"). See Section 13 of this Offer to
Purchase. Following consummation of the Merger, 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. At
the effective time of the Merger (the "Effective Time"), by virtue of the Merger
and without any action on the part of the Company, Purchaser or the Surviving
Corporation, each issued and outstanding Share (other than Shares owned by the
Company, Parent, Purchaser or any direct or indirect wholly owned subsidiary of
the Company, Parent or Purchaser, or Shares with respect to which appraisal
rights are properly exercised under the DGCL) will be converted into and
represent 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"). As of the Effective Time, all such converted
Shares shall no longer be outstanding and will automatically be canceled and
retired and will cease to exist, and each holder of a certificate representing
any such Shares will, to the extent such certificate represents such Shares,
cease to have any rights with respect thereto, except the right to receive the
Merger Consideration in cash in consideration therefor upon surrender of such
certificate. Pursuant to the Merger Agreement, no Shares held by the Company or
any of its wholly owned subsidiaries will be tendered in the Offer. All Shares
that are owned by the Company, Parent, Purchaser or any direct or indirect
wholly owned subsidiary of the Company, Parent or Purchaser immediately prior to
the Effective Time will be canceled and retired at the Effective Time, and no
consideration will be delivered in exchange therefor. See Section 5 of this
Offer to Purchase for a description of certain tax consequences of the Offer and
the Merger and Section 13 of this Offer to Purchase with respect to the Merger
Agreement.
The Company has advised Parent and Purchaser that, as of March 27, 1998, (i)
6,744,499 Shares were validly issued and outstanding, fully paid and
non-assessable and no Shares were held in the Company's treasury; (ii) no shares
of preferred stock were issued and outstanding; and (iii) 928,565 Shares were
reserved for issuance upon the exercise of outstanding options (the "Options")
granted under the Company's stock option plans or otherwise. As of the date
hereof, neither Parent nor Purchaser beneficially owns any Shares.
Based on the foregoing and the expected tender of 1,363,700 Shares by the
Selling Stockholders pursuant to the Option and Support Agreement, the Minimum
Condition will be satisfied if 2,472,833 other Shares are validly tendered, and
not validly withdrawn, prior to the Expiration Date. The number of Shares
required to be validly tendered (and not validly withdrawn) in order to satisfy
the Minimum Condition will increase to the extent additional Shares are deemed
to be outstanding on a fully diluted basis under the Merger Agreement. For
purposes of the Merger Agreement, "on a fully diluted basis" means, as of any
date, the number of Shares outstanding, together with Shares issuable upon
exercise of outstanding Options.
Upon the satisfaction of the Minimum Condition, Purchaser will have the
ability to acquire and control a majority of the outstanding Shares and will
thus be able to approve the Merger without the vote of any other stockholder. In
the event Purchaser acquires 90% or more of the outstanding Shares through the
Offer or otherwise, Purchaser and Parent would be able to effect the Merger
pursuant to the "short-form" merger provisions of the DGCL, without prior notice
to, or any action by, any other stockholder of the Company. See Section 12 of
this Offer to Purchase.
Purchaser is not offering to acquire outstanding Options in the Offer.
Pursuant to the Merger Agreement, the Company Board will, prior to the
consummation of the Offer, cause all Options to become exercisable immediately
prior to the Effective Time, subject to the consummation of the Merger. Further,
prior to the consummation of the Offer, the Company will offer (the "Option
Offer") to pay, subject to the consummation of the Merger, each holder of
Options an amount equal to the aggregate Merger Consideration into which Shares
issuable upon exercise of such holder's Options would have been
2
<PAGE>
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.
In accordance with the Merger Agreement, the Option Offer must be accepted, if
at all, irrevocably by the holders of 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. It is a condition
to the Offer that all holders of Options shall have irrevocably agreed to cancel
such Options in return for the payment of consideration pursuant to the Option
Offer. See Section 15 of this Offer to Purchase.
THIS OFFER TO PURCHASE AND RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT
INFORMATION WHICH SHOULD BE READ BEFORE ANY DECISION IS MADE WITH RESPECT TO THE
OFFER.
1. TERMS OF THE OFFER
Upon the terms and subject to the conditions of the Offer (including, if the
Offer is extended or amended, the terms and conditions of any extension or
amendment), Purchaser will accept for payment and pay for all Shares validly
tendered prior to the Expiration Date, and not theretofore withdrawn in
accordance with Section 4 of this Offer to Purchase, as soon as legally
permitted and practicable after the commencement of the Offer. The term
"Expiration Date" means 12:00 Midnight, New York City time, on Friday, May 1,
1998, unless Purchaser shall have extended the period of time for which the
Offer is open, in which event the term "Expiration Date" shall mean the latest
time and date as of which the Offer, as so extended by Purchaser, shall expire.
UNDER NO CIRCUMSTANCES WILL ANY INTEREST BE PAID ON THE OFFER PRICE FOR TENDERED
SHARES, REGARDLESS OF ANY EXTENSION OF THE OFFER OR ANY DELAY IN MAKING SUCH
PAYMENT.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, SATISFACTION OF THE
MINIMUM CONDITION. SEE SECTIONS 13 AND 15 OF THIS OFFER TO PURCHASE. THE OFFER
IS ALSO SUBJECT TO OTHER TERMS AND CONDITIONS, INCLUDING THE EXPIRATION OR
TERMINATION OF ANY APPLICABLE WAITING PERIOD UNDER THE HSR ACT, THE PASSAGE OF
CERTAIN STATUTORY WAITING PERIODS RELATING TO THE COMPANY'S OPERATING LICENSES
AND THE COMPANY AND PARENT HAVING OBTAINED CERTAIN ANCILLARY AGREEMENTS AND
INSTRUMENTS. SEE SECTIONS 15 AND 16 OF THIS OFFER TO PURCHASE.
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 in Section 15 of this Offer to Purchase,
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. Subject to the terms of the Merger
Agreement and the applicable rules and regulations of the United States
Securities and Exchange Commission (the "Commission"), Purchaser expressly
reserves the right to modify the terms of the Offer, including, without
limitation, to extend the period of time during which the Offer is open 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 in Section 15 of this Offer to Purchase), and thereby
delay acceptance for payment of and the payment for any Shares, by giving oral
or written notice of such extension to IBJ Schroder Bank and Trust Company, as
Depositary (the "Depositary"). Notwithstanding the foregoing, the Minimum
Condition may not be waived without the written consent of the Company. In
addition, pursuant to the terms of the Merger Agreement, Purchaser may not,
without the written consent of the Company, amend the Offer to decrease the
Offer Price, decrease the number of Shares being sought in the Offer, change the
form of consideration payable in the Offer or impose conditions to the Offer in
addition to the conditions described in the Merger Agreement and in Section 15
of this Offer to Purchase.
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Subject to the applicable rules and regulations of the Commission and
notwithstanding any other provisions of the Offer or the Merger Agreement,
Purchaser shall not be required to accept for payment or pay for any Shares
tendered pursuant to the Offer and may terminate, withdraw or amend the Offer
and may postpone acceptance of, and payment for, Shares, upon the occurrence of
any of the conditions set forth in Section 15 of this Offer to Purchase, by
giving oral or written notice of such delay or termination to the Depositary.
Purchaser's right to delay payment for any Shares or not to pay for any Shares
theretofore accepted for payment is subject to the applicable rules and
regulations of the Commission, including Rule 14e-1(c) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), relating to Purchaser's
obligation to pay for or return tendered Shares promptly after the termination
or withdrawal of the Offer.
If by 12:00 Midnight, New York City time, on Friday, May 1, 1998 (or any
other date or time then set as the Expiration Date), any or all conditions to
the Offer have not been satisfied or waived, Purchaser reserves the right (but
shall not be obligated), subject to the terms and conditions contained in the
Merger Agreement and to the applicable rules and regulations of the Commission,
to (i) terminate the Offer and not accept for payment any Shares and return all
tendered Shares to tendering stockholders, (ii) waive all the unsatisfied
conditions to the Offer (other than the Minimum Condition, which may not be
waived without the Company's consent) and, subject to complying with the terms
of the Merger Agreement and the applicable rules and regulations of the
Commission, accept for payment and pay for all Shares validly tendered prior to
the Expiration Date and not theretofore withdrawn, (iii) extend the Offer and,
subject to the right of stockholders to withdraw Shares until the Expiration
Date, retain the Shares that have been tendered during the period or periods for
which the Offer is extended, or (iv) amend the Offer.
There can be no assurance that Purchaser will exercise its right to extend
the Offer (including the right to extend the Offer pursuant to the Merger
Agreement for up to 20 business days beyond the initial scheduled Expiration
Date notwithstanding the satisfaction of the conditions set forth in Section 15
of this Offer to Purchase). See Section 15 of this Offer to Purchase. Any
extension of the period during which the Offer is open, delay in acceptance for
payment or payment, termination or amendment of the Offer will be followed, as
promptly as practicable, by public announcement thereof, such announcement, in
the case of an extension, to be issued not later than 9:00 a.m., New York City
time, on the next business day after the previously scheduled Expiration Date in
accordance with the public announcement requirements of Rules 14d-4(c), 14d-6(d)
and 14e-1 under the Exchange Act (which, among other things, require that any
material change in the information published, sent or given to stockholders in
connection with the Offer be promptly disseminated to stockholders in a manner
reasonably designed to inform stockholders of such change). Without limiting the
obligations of Purchaser under such rules or the manner in which Purchaser may
choose to make any public announcement, Purchaser currently intends to make
announcements by issuing a press release to the Dow Jones News Service and
making any appropriate filing with the Commission. As used in this Offer to
Purchase, "business day" has the meaning set forth in Rule 14d-1 of the Exchange
Act.
If Purchaser makes a material change in the terms of the Offer or the
information concerning the Offer, or if it waives a material condition of the
Offer, Purchaser will disseminate additional tender offer materials and extend
the Offer if and to the extent required by Rules 14d-4(c), 14d-6(d) and 14e-1
under the Exchange Act or otherwise. The minimum period during which a tender
offer must remain open following material changes in the terms thereof or the
information concerning such tender offer, other than a change in price or a
change in percentage of securities sought, will depend upon the facts and
circumstances, including the relative materiality of the terms or information
changes. With respect to a change in price or a change in percentage of
securities sought, a minimum ten business day period is generally required to
allow for adequate dissemination to stockholders and investor response.
The Company has provided Purchaser with the Company's list of stockholders
and security position listings for the purpose of disseminating the Offer to
holders of Shares. This Offer to Purchase and the Letter of Transmittal will be
mailed to record holders of Shares and will be furnished to brokers, dealers,
commercial banks, trust companies and similar persons whose names, or the names
of whose nominees,
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appear on the list of stockholders or, if applicable, who are listed as
participants in a clearing agency's security position listing for subsequent
transmittal to beneficial owners of Shares. Parent and Purchaser have been
advised that each of the directors on the Company Board intend to tender all
Shares beneficially owned or owned of record by such directors pursuant to the
Offer.
2. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR SHARES
Upon the terms and subject to the conditions of the Offer (including, if the
Offer is extended or amended, the terms and conditions of any such extension or
amendment), Purchaser will accept for payment and will pay for, all Shares
validly tendered prior to the Expiration Date, and not theretofore withdrawn in
accordance with Section 4 of this Offer to Purchase, promptly after the later to
occur of (a) the Expiration Date and (b) subject to compliance with the
applicable rules and regulations of the Commission, including Rule 14e-1(c)
under the Exchange Act, the satisfaction or waiver of the conditions set forth
in Section 15 of this Offer to Purchase. Subject to such compliance, Purchaser
expressly reserves the right to delay payment for Shares in order to comply in
whole or in part with any applicable law, including the satisfaction of the
statutory requirements with respect to the Pennsylvania Waiting Period (as
defined in paragraph (c) of Section 15 of this Offer to Purchase). In all cases,
payment for Shares accepted for payment pursuant to the Offer will be made only
after timely receipt by the Depositary of (i) certificates for such Shares or
timely confirmation (a "Book-Entry Confirmation") of a book-entry transfer of
such Shares into the Depositary's account at The Depository Trust Company
(hereinafter referred to as the "Book-Entry Transfer Facility"), pursuant to the
procedures set forth in Section 3 of this Offer to Purchase, (ii) a properly
completed and duly executed Letter of Transmittal (or a manually signed
facsimile thereof) with all required signature guarantees or, in the case of a
book-entry transfer, an Agent's Message and (iii) any other documents required
by the Letter of Transmittal. The term "Agent's Message" means a message
transmitted by the Book-Entry Transfer Facility to, and received by, the
Depositary and forming a part of a Book-Entry Confirmation, which states that
such Book-Entry Transfer Facility has received an express acknowledgment from
the participant in such Book-Entry Transfer Facility tendering the Shares that
are the subject of the Book-Entry Confirmation that such participant has
received and agrees to be bound by the terms of the Letter of Transmittal and
that Purchaser may enforce such agreement against the participant. See Section 3
of this Offer to Purchase.
For purposes of the Offer, Purchaser will be deemed to have accepted for
payment, and thereby purchased, Shares validly tendered, and not validly
withdrawn, as, if and when Purchaser gives oral or written notice to the
Depositary of Purchaser's acceptance of such Shares for payment. In all cases,
payment for Shares purchased pursuant to the Offer will be made by deposit of
the purchase price with the Depositary, which will act as agent for tendering
stockholders for the purpose of receiving payment from Purchaser and
transmitting such payment to tendering stockholders. Upon the deposit of funds
with the Depositary for the purpose of making payments to tendering
stockholders, Purchaser's obligation to make such payment shall be satisfied,
and tendering stockholders must thereafter look solely to the Depositary for
payment of amounts owed to them by reason of the acceptance for payment of
Shares pursuant to the Offer. If, for any reason whatsoever, acceptance for
payment of any Shares tendered pursuant to the Offer is delayed, or Purchaser is
unable to accept for payment Shares tendered pursuant to the Offer, then,
without prejudice to Purchaser's rights under this Offer to Purchase, the
Depositary may nevertheless, on behalf of Purchaser, retain tendered Shares,
and, subject to compliance with the applicable rules and regulations of the
Commission, including Rule 14e-1(c) under the Exchange Act, such Shares may not
be withdrawn, except to the extent that the tendering stockholders are entitled
to withdrawal rights as described in Section 4 of this Offer to Purchase. UNDER
NO CIRCUMSTANCES WILL INTEREST BE PAID BY PURCHASER, REGARDLESS OF ANY EXTENSION
OF THE OFFER OR ANY DELAY IN MAKING SUCH PAYMENT.
If any tendered Shares are not accepted for payment pursuant to the terms
and conditions of the Offer for any reason, or if certificates are submitted
representing more Shares than are tendered, certificates representing such
unpurchased or untendered Shares will be returned, without expense to the
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tendering stockholder (or, in the case of Shares delivered by book-entry
transfer to the Book-Entry Transfer Facility, such Shares will be credited to an
account maintained within such Book-Entry Transfer Facility), as promptly as
practicable after the expiration, termination or withdrawal of the Offer.
If, prior to the Expiration Date, Purchaser increases the price being paid
for Shares accepted for payment pursuant to the Offer, such increased
consideration will be paid to all stockholders whose Shares are purchased
pursuant to the Offer.
Purchaser reserves the right to transfer or assign, in whole or from time to
time in part, to one or more of its affiliates the right to purchase Shares
tendered pursuant to the Offer, but any such transfer or assignment will not
relieve Purchaser of its obligations under the Offer or prejudice the rights of
tendering stockholders to receive payment for Shares validly tendered and
accepted for payment.
3. PROCEDURE FOR TENDERING SHARES
VALID TENDERS. For Shares to be validly tendered pursuant to the Offer, a
properly completed and duly executed Letter of Transmittal (or a manually signed
facsimile thereof), with any required signature guarantees, or, in the case of a
book-entry transfer, an Agent's Message, and any other required documents, must
be received by the Depositary at one of its addresses set forth on the back
cover of this Offer to Purchase prior to the Expiration Date, or the tendering
stockholder must comply with the guaranteed delivery procedures set forth below.
In addition, either (i) certificates representing such Shares must be received
by the Depositary along with the Letter of Transmittal or such Shares must be
tendered pursuant to the procedure for book-entry transfer set forth below, and
a Book-Entry Confirmation must be received by the Depositary, in each case prior
to the Expiration Date or (ii) the guaranteed delivery procedure set forth below
must be complied with. No alternative, conditional or contingent tenders will be
accepted. DELIVERY OF DOCUMENTS TO THE BOOK-ENTRY TRANSFER FACILITY IN
ACCORDANCE WITH SUCH BOOK-ENTRY TRANSFER FACILITY'S PROCEDURES DOES NOT
CONSTITUTE DELIVERY TO THE DEPOSITARY.
BOOK-ENTRY TRANSFER. The Depositary will make a request to establish an
account with respect to the Shares at the Book-Entry Transfer Facility for
purposes of the Offer within two business days after the date of this Offer to
Purchase. Any financial institution that is a participant in the Book-Entry
Transfer Facility's system may make book-entry delivery of Shares by causing the
Book-Entry Transfer Facility to transfer such Shares into the Depositary's
account at the Book-Entry Transfer Facility in accordance with such Book-Entry
Transfer Facility's procedures for transfer. Although delivery of Shares may be
effected through book-entry at the Book-Entry Transfer Facility prior to the
Expiration Date, (i) the Letter of Transmittal (or a manually signed facsimile
thereof), properly completed and duly executed, with any required signature
guarantees, or an Agent's Message in connection with a book-entry transfer, and
any other required documents, must, in any case, be transmitted to and received
by the Depositary at one of its addresses set forth on the back cover of this
Offer to Purchase prior to the Expiration Date or (ii) the guaranteed delivery
procedure described below must be complied with.
SIGNATURE GUARANTEE. Signatures on the Letter of Transmittal must be
guaranteed by a member in good standing of the Securities Transfer Agents
Medallion Program, or by any other bank, broker, dealer, credit union, savings
association or other entity which is an "eligible guarantor institution," as
such term is defined in Rule 17Ad-15 under the Exchange Act (each of the
foregoing being referred to as an "Eligible Institution" and, collectively, as
"Eligible Institutions"), unless the Shares tendered thereby are tendered (i) by
a registered holder of Shares who has not completed either the box labeled
"Special Delivery Instructions" or the box labeled "Special Payment
Instructions" on the Letter of Transmittal or (ii) for the account of any
Eligible Institution. If the certificates evidencing Shares are registered in
the name of a person or persons other than the signer of the Letter of
Transmittal, or if payment is to be made, or delivered to, or certificates for
unpurchased Shares are to be issued or returned to, a person other than the
registered owner or owners, then the tendered certificates must be endorsed or
accompanied by duly executed stock powers, in either case signed exactly as the
name or names of the registered owner or
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owners appear on the certificates, with the signatures on the certificates or
stock powers guaranteed by an Eligible Institution as provided in the Letter of
Transmittal. See Instructions 1 and 5 to the Letter of Transmittal.
GUARANTEED DELIVERY. If a stockholder desires to tender Shares pursuant to
the Offer and such stockholder's certificates for Shares are not immediately
available or time will not permit all required documents to reach the Depositary
prior to the Expiration Date or the procedure for book-entry transfer cannot be
completed on a timely basis, such Shares may nevertheless be tendered if all of
the following guaranteed delivery procedures are duly complied with:
(i) the tender is made by or through an Eligible Institution;
(ii) a properly completed and duly executed Notice of Guaranteed
Delivery, substantially in the form provided by Purchaser herewith, is
received by the Depositary, as provided below, prior to the Expiration Date;
and
(iii) the certificates for all tendered Shares, in proper form for
transfer (or a Book-Entry Confirmation), together with a properly completed
and duly executed Letter of Transmittal (or a manually signed facsimile
thereof), and any required signature guarantees, or, in the case of a book-
entry transfer, an Agent's Message, and any other documents required by the
Letter of Transmittal are received by the Depositary within three Nasdaq
National Market ("NNM") trading days after the date of execution of such
Notice of Guaranteed Delivery. A "trading day" is any day on which NNM is
open for business.
The Notice of Guaranteed Delivery may be delivered by hand or transmitted by
telegram, facsimile transmission or mail to the Depositary and must include a
guarantee by an Eligible Institution in the form set forth in the Notice of
Guaranteed Delivery.
THE METHOD OF DELIVERY OF SHARES, THE LETTER OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH THE BOOK-ENTRY TRANSFER FACILITY,
IS AT THE OPTION AND RISK OF THE STOCKHOLDER TENDERING SUCH SHARES. IF DELIVERY
IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS
RECOMMENDED.
Notwithstanding any other provision hereof, payment for Shares accepted for
payment pursuant to the Offer will in all cases be made only after timely
receipt by the Depositary of (i) certificates for such Shares or a Book-Entry
Confirmation, (ii) a properly completed and duly executed Letter of Transmittal
(or a manually signed facsimile thereof), with all required signature
guarantees, or, in the case of a book-entry transfer, an Agent's Message and
(iii) any other documents required by the Letter of Transmittal.
BACKUP FEDERAL INCOME TAX WITHHOLDING. To prevent backup federal income tax
withholding with respect to the payment of the Offer Price for Shares purchased
pursuant to the Offer, each tendering stockholder must generally provide the
Depositary with his or her correct taxpayer identification number ("TIN") and
certify that such stockholder is not subject to backup federal income tax
withholding by completing the Substitute Form W-9 included in the Letter of
Transmittal. See Section 5 of this Offer to Purchase and Instruction 8 to the
Letter of Transmittal. If the stockholder is a nonresident alien or foreign
entity not subject to back-up withholding, the stockholder must give the
Depositary a completed Form W-8 Certificate of Foreign Status prior to receipt
of any payments.
DETERMINATION OF VALIDITY. All questions as to the form of documents and
the validity, eligibility (including time of receipt) and acceptance for payment
of any tender of Shares will be determined by Purchaser, in its sole discretion,
and its determination will be final and binding on all parties. Purchaser
reserves the absolute right to reject any or all tenders of any Shares that are
determined by it not to be in proper form or the acceptance of or payment for
which may, in the opinion of Purchaser, be unlawful. Purchaser also reserves the
absolute right to waive any of the conditions of the Offer, or any defect or
irregularity in the tender of any Shares. Purchaser's interpretation of the
terms and conditions of the Offer
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(including the Letter of Transmittal and the Instructions to the Letter of
Transmittal) will be final and binding on all parties. No tender of Shares will
be deemed to have been validly made until all defects and irregularities have
been cured or waived. None of Purchaser, Parent, the Dealer Manager, the
Depositary, the Information Agent or any other person will be under any duty to
give notification of any defects or irregularities in tenders or incur any
liability for failure to give any such notification.
APPOINTMENT. By executing the Letter of Transmittal as set forth above
(including through delivery of an Agent's Message), a tendering stockholder
irrevocably appoints designees of Purchaser as such stockholder's
attorneys-in-fact and proxies, each with full power of substitution, in the
manner set forth in the Letter of Transmittal, to the full extent of such
stockholder's right with respect to the Shares tendered by such stockholder and
accepted for payment by Purchaser (and any and all other Shares or other
securities or rights issued or issuable in respect of such Shares on or after
March 27, 1998). All such powers of attorney and proxies shall be considered
coupled with an interest in the tendered Shares. This appointment is effective
upon the acceptance for payment of the Shares by Purchaser. Upon acceptance for
payment, all prior powers of attorney and proxies given by the stockholder with
respect to such Shares or other securities or rights will, without further
action, be revoked and no subsequent proxies may be given or written consent
executed (and, if given or executed, will not be deemed effective). The
designees of Purchaser will, with respect to the Shares and other securities or
rights, be empowered to exercise all voting and other rights of such stockholder
as they in their sole judgment deem proper in respect of any annual or special
meeting of the Company's stockholders, any adjournment or postponement thereof,
actions by written consent in lieu of such meeting or otherwise. Purchaser
reserves the right to require that, in order for Shares to be deemed validly
tendered, immediately upon Purchaser's acceptance for payment of such Shares,
Purchaser must be able to exercise full voting, consent and other rights with
respect to such Shares and the other securities or rights issued or issuable in
respect of such Shares, including voting at any meeting of stockholders (whether
annual or special or whether or not adjourned) or acting by written consent
without a meeting in respect of such Shares.
A tender of Shares pursuant to any one of the procedures described above
will constitute the tendering stockholder's acceptance of the terms and
conditions of the Offer, as well as the tendering stockholder's representation
and warranty that (i) such stockholder has the full power and authority to
tender, sell, assign and transfer the tendered Shares (and any and all other
Shares or other securities issued or issuable in respect of such Shares on or
after March 27, 1998), and (ii) when the same are accepted for payment by
Purchaser, Purchaser will acquire good and unencumbered title thereto, free and
clear of all liens, restrictions, charges and encumbrances and not subject to
any adverse claims. Purchaser's acceptance for payment of Shares tendered
pursuant to the Offer will constitute a binding agreement between the tendering
stockholder and Purchaser upon the terms and subject to the conditions of the
Offer.
4. WITHDRAWAL RIGHTS
Except as otherwise provided in this section, tenders of Shares made
pursuant to the Offer are irrevocable. Shares tendered pursuant to the Offer may
be withdrawn at any time prior to the Expiration Date and, unless theretofore
accepted for payment pursuant to the Offer, may also be withdrawn at any time
after June 1, 1998. If purchase of or payment for Shares is delayed for any
reason or if Purchaser is unable to purchase or pay for Shares for any reason,
then, without prejudice to Purchaser's rights under the Offer, tendered Shares
may be retained by the Depositary on behalf of Purchaser and may not be
withdrawn except to the extent that tendering stockholders are entitled to
withdrawal rights as set forth in this section, subject to Rule 14e-1(c) under
the Exchange Act which provides that no person who makes a tender offer shall
fail to pay the consideration offered or return the securities deposited by or
on behalf of security holders promptly after the termination or withdrawal of
the Offer.
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For a withdrawal to be effective, a written, telegraphic, telex or facsimile
transmission notice of withdrawal must be timely received by the Depositary at
one of its addresses set forth on the back cover of this Offer to Purchase. Any
notice of withdrawal must specify the name of the person who tendered the Shares
to be withdrawn, the number of Shares to be withdrawn and the name in which the
certificates representing such Shares are registered, if different from that of
the person who tendered the Shares. If certificates for Shares to be withdrawn
have been delivered or otherwise identified to the Depositary, then, prior to
the physical release of such certificates, the serial numbers shown on such
certificates must be submitted to the Depositary and, unless such Shares have
been tendered by an Eligible Institution, the signatures on the notice of
withdrawal must be guaranteed by an Eligible Institution. If Shares have been
tendered pursuant to the procedure for book-entry transfer set forth in Section
3 of this Offer to Purchase, any notice of withdrawal must also specify the name
and number of the account at the Book-Entry Transfer Facility to be credited
with the withdrawn Shares. All questions as to the form and validity (including
time of receipt) of notices of withdrawal will be determined by Purchaser, in
its sole discretion, and its determination will be final and binding on all
parties. None of Purchaser, Parent, the Dealer Manager, the Depositary, the
Information Agent or any other person will be under any duty to give
notification of any defects or irregularities in any notice of withdrawal or
incur any liability for failure to give any such notification.
Any Shares properly withdrawn will be deemed not validly tendered for
purposes of the Offer, but may be retendered at any subsequent time prior to the
Expiration Date by following any of the procedures described in Section 3 of
this Offer to Purchase.
5. CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the principal federal income tax consequences
of the Offer and the Merger to holders whose Shares are purchased pursuant to
the Offer or whose Shares are converted to cash in the Merger (including
pursuant to the exercise of appraisal rights). This summary does not, however,
purport to be a complete analysis of all the potential tax effects of the Offer
and the Merger. This summary is based on current provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), currently applicable Treasury
regulations and judicial and administrative decisions and rulings. There can be
no assurance that the Internal Revenue Service (the "IRS") will not take a
contrary view, and no ruling from the IRS has been or will be sought.
Legislative, judicial or administrative changes may be forthcoming that could
alter or modify the statements and conclusions set forth herein. Any such
changes or interpretations could be retroactive and could affect the tax
consequences to holders whose Shares are purchased pursuant to the Offer. This
discussion does not purport to deal with all aspects of United States federal
income taxation that may affect any particular holder in light of such holder's
individual circumstances, and is not intended for certain types of holders
subject to special treatment under the United States federal income tax law
(e.g., holders of Shares in whose hands Shares are not capital assets, holders
who received their Shares pursuant to the exercise of employee stock options or
otherwise as compensation, financial institutions, broker-dealers, insurance
companies, tax-exempt organizations, non-United States persons or persons who
hold their Shares as part of a hedge, straddle or conversion transaction).
EACH HOLDER OF SHARES SHOULD CONSULT SUCH HOLDER'S OWN TAX ADVISOR TO
DETERMINE THE APPLICABILITY OF THE RULES DISCUSSED BELOW TO SUCH HOLDER AND THE
PARTICULAR TAX EFFECTS OF THE OFFER AND THE MERGER, INCLUDING THE APPLICATION
AND EFFECT OF STATE, LOCAL, FOREIGN AND OTHER INCOME TAX LAWS.
GAIN OR LOSS. The receipt of cash for Shares pursuant to the Offer or the
Merger (including pursuant to the exercise of appraisal rights) will be a
taxable transaction for federal income tax purposes. In general, a holder of
Shares will recognize gain or loss equal to the difference between his or her
adjusted tax basis in the Shares sold pursuant to the Offer or converted to cash
in the Merger and the amount of cash received therefor. Gain or loss should
generally be determined separately for each block of Shares (i.e., Shares
acquired at the same cost in a single transaction) sold pursuant to the Offer or
converted to
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cash in the Merger. Such gain or loss generally will be capital gain or loss
provided the Shares are a capital asset in the hands of the stockholders and
will be long-term capital gain or loss if, on the date of sale (or, if
applicable, the date of the Merger), the Shares were held for more than 12
months. The maximum capital gains tax rate currently applicable to noncorporate
taxpayers is equal to 20% for Shares held more than 18 months at the time of
disposition and is equal to 28% for Shares held more than 12 months but not more
than 18 months. Corporate taxpayers are subject to a 35% capital gains tax rate.
If a holder exercises such holder's appraisal rights and receives an amount
treated as interest for federal income tax purposes, such amount will be taxed
as ordinary income.
BACKUP FEDERAL INCOME TAX WITHHOLDING. Payments in connection with the
Offer or the Merger may be subject to "backup withholding" at a rate of 31%.
Backup withholding generally applies if the holder (a) fails to furnish such
holder's TIN, (b) furnishes an incorrect TIN, (c) is subject to backup
withholding due to previous failures to file a federal income tax return
including reportable interest or dividend payments, or (d) under certain
circumstances, fails to provide a certified statement, signed under penalties of
perjury, that such holder is not subject to backup withholding due to previous
failures to file a federal income tax return including reportable interest or
dividend payments. Backup withholding is not an additional tax, rather it is an
advance tax payment that is subject to refund if, and to the extent that, it
results in an overpayment of tax. Certain taxpayers are generally exempt from
backup withholding, including corporations and financial institutions. Certain
penalties apply for failure to furnish correct information and for failure to
include reportable payments in income. Each holder of Shares should consult with
his or her own tax advisor as to his or her qualification for exemption from
backup withholding and the procedure for obtaining such exemption. Tendering
holders of Shares may be able to prevent backup withholding by completing the
Substitute Form W-9 included in the Letter of Transmittal. See Section 3 of this
Offer to Purchase and Instruction 8 to the Letter of Transmittal.
QUALIFIED SMALL BUSINESS STOCK. The Company has advised Purchaser that it
believes that Shares issued by it on December 17, 1993 may constitute "qualified
small business stock" under the Code. Qualified small business stock is
generally stock issued after August 10, 1993 that is acquired by certain
taxpayers at its original issue (directly or through an underwriter) from a
corporation that is a "qualified small business" at the time of such issuance.
Qualified small business stock retains its character after certain transfers,
including gifts or transfers by reason of death. In addition, certain
look-through rules apply for taxpayers holding qualified small business stock
through a partnership, regulated investment company or certain other
pass-through entities.
Gain with respect to qualified small business stock held by non-corporate
taxpayers may be eligible for a fifty percent exclusion from gross income (in
addition to certain favorable capital gains rates generally permitted) if held
for more than five years. In addition, such gain may generally be deferred by an
electing individual that has directly held such stock for more than six months
if the amount realized on the sale thereof is used to purchase other qualified
small business stock within 60 days of such sale (but gain will have to be
recognized to the extent that such sales proceeds are not so reinvested). Gain
on Shares constituting qualified small business stock tendered pursuant to the
Offer or converted to cash in the Merger likely will not be eligible for the
fifty percent gross income exclusion, but may be eligible for deferral. If an
individual elects to defer the recognition of gain on the sale of Shares, such
individual will have to reduce such individual's basis in the other qualified
small business stock acquired by the amount of such deferred gain, and the
holding period of the acquired stock will include such individual's holding
period of the Shares. EACH NON-CORPORATE HOLDER OF SHARES ACQUIRED ON ORIGINAL
ISSUANCE ON DECEMBER 17, 1993 AND CERTAIN SUBSEQUENT HOLDERS THEREOF SHOULD
CONSULT THEIR OWN TAX ADVISORS AS TO THE TAX CONSEQUENCES OF SELLING SUCH
SHARES.
10
<PAGE>
6. PRICE RANGE OF SHARES; DIVIDENDS
The Shares are listed and trade on NNM under the symbol "CDCR." The
following table sets forth for the quarterly fiscal periods ended March 31, June
30, September 30 and December 31 the high and low sales prices per Share as
reported by NNM.
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
1996:
First Quarter............................................................. $ 5.75 $ 4.00
Second Quarter............................................................ 8.63 4.63
Third Quarter............................................................. 7.00 5.00
Fourth Quarter............................................................ 8.13 4.75
1997:
First Quarter............................................................. $ 7.00 $ 4.88
Second Quarter............................................................ 7.50 4.63
Third Quarter............................................................. 8.00 6.38
Fourth Quarter............................................................ 9.88 7.13
1998:
First Quarter............................................................. $ 12.50 $ 9.13
Second Quarter through April 2, 1998...................................... 12.06 12.00
</TABLE>
On March 27, 1998, the last full trading day prior to the date of the public
announcement of the Merger Agreement, the last sales price per Share was $10.13.
HOLDERS OF SHARES ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR THE SHARES.
The Company has publicly stated it has not paid, and does not intend to pay,
any cash dividends on the Shares. See Section 14 of this Offer to Purchase.
7. CERTAIN EFFECTS OF THE TRANSACTION
BOARD OF DIRECTORS OF THE COMPANY. The Merger Agreement requires the
Company to use commercially reasonable efforts to obtain the resignation of each
director on the Company Board, other than Dr. Elanna S. Yalow, prior to the
consummation of the Offer, which resignations are to be effective immediately
following the consummation of the Offer. See Section 13 of this Offer to
Purchase. Pursuant to 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 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 accepted for
payment and paid for by Purchaser bears to the number of Shares outstanding. The
Company is further 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. Purchaser and Parent intend to take such steps
as are necessary in accordance with the Merger Agreement to assure that Parent's
designees constitute a majority or more of the directors on the Company Board
immediately following the consummation of the Offer.
EFFECT UPON THE SHARES. The purchase of the Shares by Purchaser pursuant to
the Offer will reduce the number of Shares that might otherwise trade publicly
and will reduce the number of holders of Shares, which could adversely affect
the liquidity and market value of the remaining Shares held by holders of Shares
other than Purchaser. According to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1997 (the "Company's 10-K"), as of March 21,
1998 there were approximately 307 holders of record of the Shares.
11
<PAGE>
Depending upon the number of Shares purchased pursuant to the Offer and the
aggregate market value of any Shares not purchased pursuant to the Offer, the
Shares may no longer meet the standards for continued listing on NNM and may be
delisted from NNM. The published guidelines of NNM indicate that NNM would
consider delisting the Shares if, among other things, either (i) the number of
round lot holders of Shares should fall below 400, the number of publicly held
Shares should fall below 750,000, the aggregate market value of the publicly
held Shares should fall below $5,000,000, the minimum bid price for Shares
should fall below $1 per Share, the net tangible assets of the Company should
fall below $4,000,000 or there should be less than two registered and active
market makers providing quotations for the Shares, or, alternatively, (ii) the
market capitalization of the Company (or the Company's total assets and total
revenue, respectively) should fall below $50,000,000, the number of round lot
holders of Shares should fall below 400, the number of publicly held Shares
should fall below 1,100,000, the aggregate market value of the publicly held
Shares should fall below $15,000,000, the minimum bid price for Shares should
fall below $5 per Share or there should be less than four registered and active
market makers providing quotations for the Shares. If neither of the foregoing
standards are met, the Shares would no longer be admitted to quotation on NNM.
To the extent the Shares are delisted from NNM, the market for Shares could
be adversely affected. If NNM were to delist the Shares, it is possible that the
Shares would continue to trade in the over-the-counter market and that price
quotations for the Shares would be reported by other sources. The extent of the
public market for the Shares and the availability of such quotations would,
however, depend on the number of holders of Shares remaining at such time, the
interest in maintaining a market in the Shares on the part of securities firms,
the possible termination of registration of the Shares under the Exchange Act
(as described below) and other factors. Purchaser cannot predict whether the
reduction in the number of Shares that might otherwise trade publicly, if any,
effected by the Offer would have an adverse or beneficial effect on the market
price for or marketability of the Shares or whether it would cause future market
prices to be greater or less than the Offer Price.
The Shares are currently registered under the Exchange Act. Such
registration may be terminated upon application by the Company to the Commission
if there are fewer than 300 holders of record of Shares. It is the intention of
Purchaser to seek to cause an application for such termination to be made as
soon after consummation of the Offer as the requirements for termination of
registration of the Shares are met. If such registration were terminated, the
Company would no longer legally be required to disclose publicly in proxy
materials distributed to stockholders the information which it now must provide
under the Exchange Act or to make public disclosure of financial and other
information in annual, quarterly and other reports required to be filed with the
Commission under the Exchange Act, and the executive officers and directors of
the Company and beneficial owners of more than 10% of the Shares would no longer
be subject to the "short-swing" insider trading reporting and profit recovery
provisions of the Exchange Act. Furthermore, if such registration were
terminated, "affiliates" of the Company and persons holding "restricted
securities" of the Company may be deprived of their ability to dispose of such
securities under Rule 144 or 144A promulgated under the Securities Act of 1933,
as amended.
If registration of the Shares is not terminated and the Shares are not
delisted prior to the Merger, then the Shares will cease to be listed on NNM and
the registration of the Shares under the Exchange Act will be terminated
following the Merger.
MARGIN REGULATIONS. The Shares are currently "margin securities" as such
term is defined under the regulations of the Board of Governors of the Federal
Reserve System (the "Federal Reserve Board"), which has the effect, among other
things, of allowing brokers to extend credit on the collateral of such
securities. Depending upon factors similar to those described above with respect
to listing and market quotations, it is possible that, following the Offer, the
Shares would no longer constitute "margin securities" for purposes of the margin
regulations of the Federal Reserve Board, in which event such Shares could no
longer be used as collateral for loans made by brokers.
12
<PAGE>
8. CERTAIN INFORMATION CONCERNING THE COMPANY
EXCEPT AS OTHERWISE SET FORTH HEREIN, THE INFORMATION CONCERNING THE COMPANY
CONTAINED IN THIS OFFER TO PURCHASE, INCLUDING FINANCIAL INFORMATION, HAS BEEN
FURNISHED BY THE COMPANY OR HAS BEEN TAKEN FROM OR BASED UPON PUBLICLY AVAILABLE
DOCUMENTS AND RECORDS ON FILE WITH THE COMMISSION AND OTHER PUBLIC SOURCES.
ALTHOUGH NONE OF PARENT, PURCHASER OR THE DEALER MANAGER HAS ANY KNOWLEDGE THAT
WOULD INDICATE THAT STATEMENTS CONTAINED HEREIN BASED UPON SUCH DOCUMENTS ARE
UNTRUE, NONE OF PARENT, PURCHASER OR THE DEALER MANAGER ASSUMES ANY
RESPONSIBILITY FOR THE ACCURACY OR COMPLETENESS OF THE INFORMATION CONCERNING
THE COMPANY, FURNISHED BY THE COMPANY OR CONTAINED IN SUCH DOCUMENTS AND RECORDS
OR FOR ANY FAILURE BY THE COMPANY TO DISCLOSE EVENTS WHICH MAY HAVE OCCURRED OR
MAY AFFECT THE SIGNIFICANCE OR ACCURACY OF ANY SUCH INFORMATION BUT WHICH ARE
UNKNOWN TO PARENT, PURCHASER OR THE DEALER MANAGER.
According to the Company's 10-K, the Company is a leading chain of
preschools in the United States providing educational services for children of
both preschool and elementary school age. As of December 31, 1997, the Company
operated 248 preschools in 22 states and the District of Columbia with an
aggregate licensed capacity of approximately 25,000 children. The Company
provides programs to children primarily between 2 1/2 and six years of age as
well as after school programs for school age children and infant care. The
Company's school age programs include private academic programs for children in
kindergarten through eighth grade, before and after school programs and summer
camps.
Set forth below is certain summary consolidated financial data with respect
to the Company excerpted or derived in part from financial information contained
in the Company's 10-K. More comprehensive financial information is included in
such reports and other documents filed by the Company with the Commission. For
the periods covered by such reports, the following summary is qualified in its
entirety by reference to such reports and such other documents and all the
financial information (including any related notes) contained therein. Such
reports and other documents should be available for inspection and copies
thereof should be obtainable in the manner set forth below.
CHILDREN'S DISCOVERY CENTERS OF AMERICA, INC.
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
(THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
INCOME STATEMENT DATA:
Revenue from Operations............................................................... $ 93,015 $ 87,480
Operating Expenses.................................................................... 88,530 85,037
Income from Operations................................................................ 4,485 2,443
Other Income (Expense)................................................................ (885) (1,317)
Income Before Income Taxes............................................................ 3,600 1,126
Provision for Income Taxes............................................................ 1,100 225
Net Income............................................................................ $ 2,500 $ 901
--------- ---------
--------- ---------
PER SHARE DATA:
Net Income per Share.................................................................. $ 0.37 $ 0.14
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
BALANCE SHEET DATA:
Total Assets.......................................................................... $ 77,740 $ 75,335
Total Liabilities..................................................................... 24,911 25,048
Stockholders' Equity.................................................................. 52,829 50,287
</TABLE>
13
<PAGE>
The Company is subject to the informational requirements of the Exchange Act
and in accordance therewith files periodic reports, proxy statements and other
information with the Commission relating to its business, financial condition
and other matters. The Company is required to disclose in such proxy statements
certain information, as of particular dates, concerning the Company's directors
and officers, their remuneration, stock options granted to them, the principal
holders of the Company's securities and any material interests of such persons
in transactions with the Company. Such reports, proxy statements and other
information may be inspected at the public reference facilities maintained by
the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and
at the regional offices of the Commission located at Seven World Trade Center,
13th Floor, New York, New York 10048 and Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60601. The Commission also
maintains a web site on the Internet at http://www.sec.gov that contains reports
and other information regarding registrants that file electronically with the
Commission.
PROJECTIONS. Parent has received certain non-public information from the
Company (the "Projections"). The non-public information included certain
financial projections for the fiscal year 1998, including income statement and
balance sheet projections which are summarized below. The Projections do not
take into account any of the potential effects of the transactions contemplated
by the Offer and the Merger.
CHILDREN'S DISCOVERY CENTERS OF AMERICA, INC.
BUDGET 1998
(THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL QUARTER ENDING YEAR ENDING
--------------------------------------------------- ------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1998 1998 1998 1998 1998
----------- --------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT:
Revenue from Operations..................... $ 23,862 $ 26,120 $ 25,051 $ 26,155 $ 101,188
Operating Expenses.......................... 20,802 22,351 22,486 22,478 88,116
Income from Operations...................... 3,060 3,769 2,565 3,678 13,072
Other Income (Expense)...................... 1,880 1,990 2,088 2,173 8,131
Income Before Income Taxes.................. 1,180 1,780 476 1,505 4,941
Provision for Income Taxes.................. 389 587 157 496 1,630
Net Income.................................. $ 791 $ 1,193 $ 319 $ 1,008 $ 3,310
----------- --------- ------------- ------------ ------------
----------- --------- ------------- ------------ ------------
Net Income per Share........................ $ 0.11 $ 0.17 $ 0.04 $ 0.14 $ 0.46
</TABLE>
<TABLE>
<CAPTION>
AT JUNE 30, AT SEPTEMBER 30, AT DECEMBER 31,
AT MARCH 31, 1998 1998 1998 1998
----------------- --------------- -------------------- -------------------
<S> <C> <C> <C> <C>
BALANCE SHEET:
Total Assets.................... $ 78,864 $ 81,217 $ 81,396 $ 83,569
Total Liabilities............... $ 25,257 $ 26,418 $ 26,278 $ 27,443
Stockholders' Equity............ $ 53,607 $ 54,799 $ 55,118 $ 56,126
</TABLE>
THE PROJECTIONS SET FORTH ABOVE WERE NOT PREPARED BY PARENT OR PURCHASER OR
WITH A VIEW TO PUBLIC DISCLOSURE OR COMPLIANCE WITH PUBLISHED GUIDELINES OF THE
COMMISSION OR THE AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS REGARDING
PROSPECTIVE FINANCIAL INFORMATION. THE PROJECTIONS REFLECT NUMEROUS ASSUMPTIONS,
ALL MADE BY MANAGEMENT OF THE COMPANY, WITH RESPECT TO INDUSTRY PERFORMANCE,
GENERAL BUSINESS, ECONOMIC, MARKET AND FINANCIAL CONDITIONS AND OTHER MATTERS,
ALL OF WHICH ARE DIFFICULT TO PREDICT, MANY OF WHICH ARE BEYOND THE COMPANY'S
CONTROL AND NONE OF WHICH WERE SUBJECT TO APPROVAL BY PARENT OR PURCHASER.
ACCORDINGLY, THERE CAN BE NO ASSURANCE THAT
14
<PAGE>
THE ASSUMPTIONS MADE IN PREPARING THE PROJECTIONS WILL PROVE ACCURATE, AND
ACTUAL RESULTS MAY BE MATERIALLY GREATER OR LESS THAN THOSE CONTAINED IN THE
PROJECTIONS. THE PROJECTIONS ARE INCLUDED HEREIN SOLELY BECAUSE SUCH INFORMATION
WAS FURNISHED TO PARENT IN JANUARY 1998. ACCORDINGLY, THE INCLUSION OF THE
PROJECTIONS IN THIS OFFER TO PURCHASE SHOULD NOT BE REGARDED AS AN INDICATION
THAT PARENT, PURCHASER OR THE COMPANY OR THEIR RESPECTIVE FINANCIAL ADVISORS, OR
THEIR RESPECTIVE OFFICERS AND DIRECTORS, CONSIDER SUCH INFORMATION TO BE
ACCURATE, RELIABLE OR ACHIEVABLE, AND NONE OF SUCH PERSONS OR ENTITIES ASSUMES
ANY RESPONSIBILITY FOR THE ACCURACY THEREOF.
9. CERTAIN INFORMATION CONCERNING PARENT AND PURCHASER
Purchaser is a Delaware corporation formed for the purpose of acquiring the
Company and is a wholly owned subsidiary of Parent. To date, Purchaser has not
conducted any business other than incident to its formation and the commencement
of the Offer. The principal executive offices of Purchaser are located at 844
Moraga Drive, Los Angeles, California 90049.
Parent is a Delaware corporation whose principal business is to acquire
interests in, and/or operate, other companies and businesses, primarily, but not
limited to, companies and businesses engaged in education. The principal
executive offices of Parent are located at 844 Moraga Drive, Los Angeles,
California 90049. Annex I to this Offer to Purchase sets forth certain
information with respect to the executive officers and directors of Purchaser,
Parent and certain related entities and persons with interests therein and
certain persons who may be deemed to control Purchaser, Parent and such related
entities.
Neither Purchaser nor Parent are subject to the informational requirements
of the Exchange Act and accordingly are not required to, and do not, file
periodic reports and other information with the Commission relating to their
respective businesses, financial condition and other matters. At April 2, 1998,
Parent had in excess of approximately $85,000,000 in cash and cash equivalent
assets and had no liabilities other than certain fees and expenses incurred in
connection with the Offer and its obligations under the Parent Note (as defined
in Section 10 of this Offer to Purchase). See Sections 10 and 17 of this Offer
to Purchase.
Except as otherwise set forth in this Offer to Purchase, none of Parent or
Purchaser, nor, to the best knowledge of Parent and Purchaser, any of the
persons or entities listed in Annex I hereto owns or has any right to acquire
any Shares and none of them has effected any transaction in the Shares during
the past sixty days.
Except as set forth in this Offer to Purchase, none of Parent or Purchaser,
nor, to the best knowledge of Parent and Purchaser, any of the persons or
entities listed in Annex I hereto has any contract, arrangement, understanding
or relationship with any other person with respect to any securities of the
Company, including, without limitation, any contract, arrangement, understanding
or relationship concerning the transfer or the voting of any securities of the
Company, joint ventures, loan or option arrangements, puts or calls, guaranties
of loans, guaranties against loss or the giving or withholding of proxies.
Except as set forth in this Offer to Purchase, none of Parent or Purchaser, nor,
to the best knowledge of Parent and Purchaser, any of the persons or entities
listed in Annex I hereto has had any transactions with the Company, or any of
its executive officers, directors or affiliates that would require reporting
under the rules of the Commission.
Except as set forth in this Offer to Purchase, there have been no contacts,
negotiations or transactions between any of Parent or Purchaser or their
respective subsidiaries or, to the best knowledge of Parent and Purchaser, any
of the persons or entities listed in Annex I hereto, on the one hand, and the
Company or its executive officers, directors or affiliates, on the other hand,
concerning a merger, consolidation or acquisition, tender offer or other
acquisition of securities, election of directors or a sale or other transfer of
a material amount of assets.
15
<PAGE>
10. SOURCE AND AMOUNT OF FUNDS
The total amount of funds required by Purchaser to purchase all of the
Shares pursuant to the Offer is estimated to be approximately $83,000,000. Fees
and expenses related to the Offer and the Merger payable by Purchaser are
estimated not to exceed an additional $2,000,000. Purchaser will obtain all of
the funds necessary to consummate the Offer and the Merger from Parent in the
form of (i) a $50,000,000 capital contribution and (ii) a $35,000,000 loan to be
evidenced by a promissory note accruing interest at 8% per annum and maturing on
April 2, 1999 (the "Purchaser Note"). Parent will fund its capital contribution
and the loan to Purchaser entirely from its unrestricted working capital
reserves, which exceed $85,000,000.
On April 2, 1998, Parent borrowed $35,000,000 from Knowledge University
Holdings, L.L.C., a Delaware limited liability company ("Lender") and an
affiliate of Parent, pursuant to a promissory note (the "Parent Note") in favor
of Lender in the aggregate principal amount of $35,000,000. The entire principal
amount of the Parent Note and all accrued and unpaid interest thereon will
become due on April 2, 1999 and the Parent Note bears interest at a rate of 8%
per annum. The Parent Note is unsecured. No person or entity listed on Annex I
to this Offer to Purchase (other than Parent) will be obligated under the Parent
Note, will guarantee the Parent Note or will otherwise support the repayment of
funds advanced pursuant to the Parent Note.
Although no definitive plans or arrangements for the repayment of funds
advanced pursuant to the Parent Note or the Purchaser Note have been
established, Purchaser anticipates the Purchaser Note will be repaid after the
Effective Time with the proceeds of future bank financings. Parent intends to
repay the Parent Note with the proceeds from the repayment of the Purchaser
Note. Such decision will be made based on Parent's and Purchaser's review from
time to time of the advisability of particular actions with respect to such
repayment, as well as prevailing interest rates, financial and other economic
conditions and such other factors as Parent and Purchaser may deem appropriate.
The Offer is not subject to any financing contingency. None of the persons
or entities listed in Annex I to this Offer to Purchase is obligated to fund,
nor does any such person or entity intend to fund, any portion of the Offer or
the Merger.
11. BACKGROUND OF THE OFFER; PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS WITH
THE COMPANY
BACKGROUND OF THE OFFER. On November 11, 1997, Ronald J. Packard, Treasurer
and Secretary of each of Parent and Purchaser, met with Richard A. Niglio,
Chairman and Chief Executive Officer of the Company in San Rafael, California to
initiate discussions regarding a possible merger or other combination involving
the Company, Preschool Education Co., L.L.C., a Delaware limited liability
company ("PEC"), a subsidiary of Knowledge Universe, L.L.C., a Delaware limited
liability company ("Knowledge Universe"), and the direct parent of Parent and
Knowledge Universe. Subsequent to the November 11, 1997 meeting, representatives
of PEC and Knowledge Universe contacted representatives of DLJ to discuss the
prospect of a potential acquisition of the Company.
During November and December 1997, representatives of the Company, PEC and
Knowledge Unviverse and their respective financial advisors, including
McGettigan, Wick & Co. ("McGettigan, Wick") and DLJ, respectively, engaged in
discussions regarding the economic and other terms of a possible transaction
involving the Company and PEC or an affiliate of PEC. On December 22, 1997, PEC
and Knowledge Universe, acting through DLJ, made a non-binding proposal for the
acquisition of the Company, subject to customary financial, legal, accounting
and other due diligence. In early January 1998, PEC, Knowledge Universe and DLJ
commenced a comprehensive business due diligence investigation of the Company
and its financial affairs, including physical inspections of a number of the
Company's school facilities.
In late January 1998, the Company was informed by PEC that it would need to
undertake accounting and legal due diligence before it could make a firm
proposal, and that such due diligence would only be undertaken by PEC on an
exclusive basis, with economic protection should the Company enter into an
16
<PAGE>
alternative transaction during, or within a limited period of time following,
the conduct of such due diligence. At the request of PEC, the Company and PEC
entered into an interim agreement on February 5, 1998 pursuant to which the
Company agreed not to pursue alternative transactions with third parties during
a limited period of time to permit further due diligence. Pursuant to such
interim agreement, the Company also granted PEC a one year option with
contingent exercise rights on 300,000 Shares at $9.50 per Share and agreed to
reimburse PEC for certain due diligence expenses under certain circumstances.
On February 27, 1998, PEC advised the Company that it and its affiliates had
completed the due diligence review of the Company and that Parent was prepared
to offer to acquire 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, all directors on the
Company Board and certain representatives of Advest participated in a telephonic
meeting of the Company Board at which time the Company Board, among other
things, approved and adopted the Offer and the Merger and recommended that the
Company's stockholders accept the Offer and tender their Shares pursuant to the
Offer. The parties executed the Merger Agreement on March 27, 1998 and delivered
the signature pages thereto into escrow pending the delivery of certain
ancillary documents, which were delivered to Parent on March 29, 1998. The
execution of the Merger Agreement was publicly announced prior to the opening of
the financial markets on March 30, 1998.
CERTAIN BUSINESS RELATIONSHIPS BETWEEN PARENT AND CERTAIN EXECUTIVE OFFICERS
AND DIRECTORS OF THE COMPANY. Concurrent with the execution of the Merger
Agreement, Parent and Dr. Yalow entered into an Employment Agreement (the "Yalow
Employment Agreement") providing for the employment of Dr. Yalow by Parent. The
Yalow Employment Agreement is contingent upon the consummation of the Offer and
will become effective upon a date designated by Parent, which date will be on or
after the consummation of the Offer and on or prior to the Effective Time. The
terms and conditions of the Yalow Employment Agreement, once effective, will
supersede the terms and conditions of Dr. Yalow's employment with the Company.
Pursuant to the Yalow Employment Agreement, Dr. Yalow is required to serve
Parent and/or its subsidiaries or affiliates in such executive capacity, and
agrees to hold such office(s), as the Board of Directors of Parent shall from
time to time designate. In consideration for such services, Dr. Yalow will
receive base compensation of $200,000 per year during the term of the Yalow
Employment Agreement and will be eligible, in the sole discretion of Parent,
each fiscal year for a bonus of up to 50% of such base compensation in
accordance with Parent's bonus policy in effect from time to time, as well as
certain other benefits set forth in the Yalow Employment Agreement. In addition,
at such time as Parent or the Surviving Corporation adopts an employee equity
participation program, Dr. Yalow will be eligible to participate in such program
and will be granted rights in an amount, at a stated price, on a vesting
schedule and subject to such other terms and conditions as shall be determined
by the Board of Directors of Parent or its compensation committee, if
applicable. In accordance with the Yalow Employment Agreement, 10,000 Options
held by Dr. Yalow will be canceled as of the Effective Time and will be replaced
with options, stock appreciation or other rights (with the same vesting schedule
as such Options) at exercise prices that will result in Dr. Yalow realizing an
economic benefit substantially similar to such canceled Options (provided that
such economic benefit does not constitute an "excess parachute payment" under
Section 280G of the Code). The Yalow Employment Agreement further provides that,
during the term thereof, Dr. Yalow will not compete with Parent and that during
her employment with Parent and for two years after the date of termination of
such employment, Dr. Yalow will not, among other things, interfere with Parent's
business relationships with its customers or suppliers, employees or independent
contractors. The Yalow Employment Agreement also provides that during the term
thereof and, depending on the circumstances under which the Yalow Employment
Agreement 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
17
<PAGE>
elementary education or that otherwise competes with Parent anywhere in the
world. Pursuant to the Yalow Employment Agreement, the term of Dr. Yalow's
employment with Parent commences upon the effective date thereof and terminates
3 years thereafter.
As an inducement to entering into the Merger Agreement, Parent requested
that the Company enter into a Consulting Agreement (the "Consulting Agreement")
with Mr. Niglio concurrent with the execution of the Merger Agreement. The
Consulting Agreement is contingent upon the consummation of the Offer and will
become effective upon a date designated by Parent, which date will be on or
after the consummation of the Offer and on or prior to the Effective Time.
Pursuant to the Consulting Agreement, among other things, Mr. Niglio agrees to
resign, as of the effective date of the Consulting Agreement, as an employee and
an officer of the Company and the Company agrees to engage Mr. Niglio as a
consultant to the Company upon the terms and conditions set forth therein. In
consideration for such consulting services, Mr. Niglio will receive a consulting
fee equal to $350,000 per annum. Pursuant to the Consulting Agreement, Mr.
Niglio's engagement as a consultant to the Company commences upon the effective
date thereof and terminates 2 years thereafter and the entire consulting fee for
such 2-year term (equal to $700,000) shall be paid to Mr. Niglio as of the
effective date of the Consulting Agreement. The Consulting Agreement provides
that, during the term thereof, 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 after the effective date of
the Consulting Agreement, even if terminated, Mr. Niglio agrees that 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. The Consulting Agreement supersedes any previous employment,
consulting or similar agreement between the Company and Mr. Niglio.
In addition to the foregoing and in order to induce Parent to enter into the
Merger Agreement, Parent further requested that the Company enter into
employment agreements (the "Employment Agreements") with certain officers of the
Company concurrent with the execution of the Merger Agreement. The Employment
Agreements are contingent upon the consummation of the Offer and will become
effective upon a date designated by Parent, which date will be on or after the
consummation of the Offer and on or prior to the Effective Time. Except as set
forth below, the Employment Agreements have identical terms and generally
provide for the continued employment, as of the effective date, respectively,
thereof, of Frank A. Devine, Randall J. Truelove and Jane A. Delaney, each an
officer of the Company (such individuals, together with Dr. Yalow and Mr.
Niglio, hereinafter referred to as the "Named Officers") in consideration for
the payment of base compensation of $110,000 per annum, in the case of Messrs.
Devine and Truelove, and $90,000 per annum, in the case of Ms. Delaney, as well
as certain other benefits set forth in their respective Employment Agreements.
In addition, each of Messrs. Devine and Truelove and Ms. Delaney will be
eligible, at the sole discretion of the Company, in accordance with their
respective Employment Agreements for a bonus of up to 30% of such Named
Officer's base compensation in accordance with the Company's bonus policy in
effect from time to time. At such time as the Company adopts an employee equity
participation program, each of the foregoing Named Officers will be eligible to
participate in such program and will be granted rights in an amount, at a stated
price, on a vesting schedule and subject to such other terms and conditions as
shall be determined by the Company Board or its compensation committee, if
applicable. Each of the Employment Agreements provides that, during the term
thereof, the Named Officer party thereto will not compete with the Company and
that, during the term thereof and for two years from the date of termination
thereof, such Named Officer will not interfere with the Company's business
relationships with its customers or suppliers, employees or independent
contractors. Each Employment Agreement also provides that, during the term
thereof and for two years from the date of termination thereof, the Named
Officer party thereto will not be engaged in, or own or control, or be
associated with, any business that involves any form of early childhood or
elementary education or that otherwise competes with the Company anywhere in the
world, except that this provision
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will not apply to Ms. Delaney after termination of employment if her Employment
Agreement is terminated by the Company without cause. Each of the Employment
Agreements provides for a term of employment equal to 2 years after the
effective date, respectively, thereof.
McGettigan, Wick has provided certain financial advisory services to the
Company in connection with the Merger Agreement. Following the consummation of
the Merger, Parent may retain McGettigan, Wick as financial advisor to the
Surviving Corporation in connection with the disposition of certain
non-material, non-core assets of the Company.
12. PURPOSE OF THE OFFER AND THE MERGER; PLANS FOR THE COMPANY
PURPOSE. The Offer is being made pursuant to the Merger Agreement. The
purpose of the Offer, the Merger and the Merger Agreement and the transactions
contemplated thereby is to enable Parent to acquire control of, and to own the
entire equity interest in, the Company. Upon consummation of the Merger, the
Surviving Corporation will become a wholly owned subsidiary of Parent.
Under the DGCL and the Company's Certificate of Incorporation, the approval
of the Company Board, and the affirmative vote of the holders of a majority of
the outstanding Shares are required to approve and adopt the Merger Agreement
and the transactions contemplated thereby, including the Merger. Section 203 of
the DGCL prevents certain "business combinations" with an "interested
stockholder" (generally, any person who owns or has the right to acquire 15% or
more of a corporation's outstanding voting stock) for a period of three years
following the time such person became an interested stockholder unless, among
other things, prior to the time the interested stockholder became such, the
board of directors of the corporation approved either the business combination
or the transaction in which the interested stockholder became such.
The Company Board is comprised of seven members. The Company Board has
unanimously approved the Offer, the Merger, the Merger Agreement and the Option
and Support Agreement and the transactions contemplated thereby for the purposes
of Section 203 of the DGCL, and has 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. Unless the Merger is consummated
pursuant to the "short-form" merger provisions under the DGCL described below
(in which case no further corporate action by the stockholders of the Company
will be required to complete the Merger), the only remaining required corporate
action of the Company will be the approval of the Merger by the affirmative vote
of the holders of a majority of the Shares. If the Minimum Condition is
satisfied, Purchaser will have the ability to approve and adopt the Merger by
virtue of its ownership of a majority of the Shares without the affirmative vote
of any other stockholder of the Company.
PLANS FOR THE COMPANY AFTER THE OFFER. Once the Offer is consummated, if
permitted by NNM and the Exchange Act, it is the intention of Purchaser and
Parent to seek to cause the Company to file applications to withdraw the Shares
from listing on NNM and to terminate the registration of the Shares under the
Exchange Act. See Section 7 of this Offer to Purchase. In the event that the
Shares are no longer included for quotation on NNM, it is possible that the
Shares would continue to trade in the over-the-counter market and that price
quotations would be reported by other sources. The extent of the public market
for the Shares and the availability of such quotations would, however, depend on
the number of holders of Shares remaining at such time, the interest in
maintaining a market in Shares on the part of securities firms, the possible
termination of registration of the Shares under the Exchange Act (as described
below) and other factors. To the extent the Shares are delisted from NNM, the
market for Shares could be adversely affected. Further, neither Parent nor
Purchaser can predict whether the reduction in the number of Shares that might
otherwise trade publicly, if any, effected by the Offer would have an adverse or
beneficial effect on the market price for or marketability of the Shares or
whether it would cause future market prices to be greater or less than the Offer
Price. See Section 7 of this Offer to Purchase.
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If, following consummation of the Offer, Purchaser owns 90% or more of the
outstanding Shares, Purchaser intends, and Parent intends to cause Purchaser, to
consummate the Merger as a "short-form" merger pursuant to Section 253 of the
DGCL. Under such circumstances, neither the approval of any holder of Shares
(other than Purchaser) or of the Company Board would be required. Assuming all
outstanding Options are exercised and tendered pursuant to the Offer, upon the
tender of all Shares owned by the Selling Stockholders in accordance with the
Option and Support Agreement, Purchaser will need to acquire an additional
4,706,350 Shares pursuant to the Offer to reach the 90% ownership level
necessary to effect such a "short-form" merger under the DGCL.
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 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. Yalow, which resignations are to
be effective immediately following consummation of the Offer. See Sections 11
and 13 of this Offer to Purchase.
After completion or termination of the Offer, Purchaser reserves the right,
but has no current intention, to acquire or sell Shares in open market or
negotiated transactions. There can be no assurance that Purchaser will acquire
such additional Shares in such circumstances or over what period of time such
additional Shares, if any, might be acquired. As a consequence, no assurance can
be given as to when Purchaser will cause the Merger to be consummated, and
similarly no assurance can be given as to when the Merger Consideration will be
paid to stockholders who do not tender their Shares in the Offer.
Pursuant to the Merger, each then-outstanding Share (other than Shares owned
by the Company, Parent or Purchaser or any direct or indirect wholly owned
subsidiary of the Company, Parent or Purchaser and Shares owned by stockholders
who perfect any available appraisal rights under the DGCL) shall be converted
into the right to receive an amount in cash equal to the Merger Consideration,
without interest thereon. All Shares that are owned by the Company, Parent,
Purchaser or any direct or indirect wholly owned subsidiary of the Company,
Parent or Purchaser at the Effective Time shall be canceled, and no
consideration shall be delivered in exchange therefor.
Purchaser is not offering to acquire outstanding Options in the Offer.
Pursuant to the Merger Agreement, subject to the consummation of the Merger, in
exchange for the payment, pursuant to the Option Offer, of an amount equal to
the aggregate Merger Consideration into which Shares issuable upon exercise of
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, all Options shall be
canceled. In accordance with the Merger Agreement, the Option Offer must be
accepted, if at all, irrevocably by the holders of 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. It is a condition to the Offer that all holders of Options shall have
irrevocably agreed to cancel such Options in return for the payment of
consideration pursuant to the Option Offer. See Section 15 of this Offer to
Purchase. 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.
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Following the Merger, the Surviving Corporation will be a wholly owned
subsidiary of Parent. Pursuant to the Merger Agreement, the officers of the
Company immediately prior to the Effective Time shall be the initial officers of
the Surviving Corporation until their successors are duly elected and qualified,
or their earlier death, resignation or removal. Concurrent with the execution of
the Merger Agreement, Parent has entered into the Yalow Employment Agreement to
provide, among other things, for the employment of Dr. Yalow by Parent
commencing on the effective date thereof, and the Company has entered into the
Consulting Agreement with Mr. Niglio to provide for the resignation of Mr.
Niglio as an employee and an officer of the Company and his engagement as a
consultant to the Company commencing as of the effective date thereof. See
Sections 11 and 13 of this Offer to Purchase. In addition, the Company has,
concurrent with the execution of the Merger Agreement, entered into the
Employment Agreements with certain of the Named Officers. See Sections 11 and 13
of this Offer to Purchase. Pursuant to the Merger Agreement, the Company is
required to obtain releases, in form and substance satisfactory to Parent, from
each of the Named Officers and from McGettigan, Wick prior to the consummation
of the Offer. Except as set forth herein with respect to the Named Officers,
neither Parent nor Purchaser has discussed with the Company's key management
personnel, nor reached any agreement with respect to, the terms of future
employment.
Except as otherwise described in this Offer to Purchase, Purchaser has no
current plans or proposals which relate to or would result in: (a) an
extraordinary corporate transaction, such as a merger, reorganization or
liquidation involving the Company; (b) a sale or transfer of a material amount
of assets of the Company; (c) any change in the Company Board or management of
the Company, including, but not limited to, any plan or proposal to change the
number or term of directors, to fill any existing vacancy on the Company Board
or any change any material term of the employment contract of any executive
officer; (d) any material change in the present dividend rate or policy or
indebtedness or capitalization of the Company; (e) any other material change in
the Company's corporate structure or business; (f) a class of equity securities
of the Company becoming eligible for termination of registration pursuant to
Section 12(g)(4) of the Exchange Act; or (g) the suspension of the Company's
obligation to file reports pursuant to Section 15(d) of the Exchange Act.
13. 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. 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 the Tender
Offer Statement on Schedule 14D-1 filed with the Commission with respect to the
Offer, and are incorporated herein by reference. Capitalized terms not otherwise
defined herein shall have the meanings set forth in the applicable agreement.
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 the satisfaction of the Minimum
Condition and certain other conditions that are described in Section 15 of this
Offer to Purchase. 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 in Section 15 of this Offer to
Purchase). 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 in Section 15 of this Offer to Purchase,
including, without limitation, the Minimum Condition, Purchaser will use its
reasonable best efforts to
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consummate the Offer as soon as legally permissible in accordance with the
Merger Agreement. The conditions described in Section 15 of this Offer to
Purchase 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 Merger Agreement provides that, subject to compliance with applicable
law, promptly upon the acceptance for payment and payment by Purchaser of Shares
purchased pursuant to the Offer, and from time to time thereafter, Purchaser
shall be entitled to designate certain directors to the Company Board and the
Company and the Company Board shall, at such time, take all actions necessary to
cause Purchaser's designees to be so elected. See Sections 7 and 12 of this
Offer to Purchase.
THE MERGER. The Merger Agreement provides that, subject to the terms and
conditions therein, and in accordance with the DGCL, at the Effective Time,
Purchaser (or such other subsidiary of Parent as described below) will be merged
with the Company, the separate corporate existence of Purchaser shall cease and
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.
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 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 Options to become exercisable
immediately prior to the Effective Time, subject to the consummation of the
Merger. The Company is required to make 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 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,
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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.
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;
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(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;
(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 and Advest 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
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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 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
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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.
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
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
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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 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
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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 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 the Company's 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.
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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, 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, DLJ) 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 the Company's
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
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<PAGE>
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 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 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
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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 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 the Company's 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
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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 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.
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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 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
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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.
14. 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.
15. 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
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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
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 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, the Commonwealth of
Pennsylvania (the "Pennsylvania Waiting Period"), 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
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(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
(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.
16. CERTAIN REGULATORY AND LEGAL MATTERS
Except as set forth in this Section 16, based on a review of publicly
available filings made by the Company with the Commission and other publicly
available information concerning the Company, as well as certain representations
made to Purchaser and Parent in the Merger Agreement by the Company, neither
Purchaser nor Parent is aware of any license or regulatory permit that appears
to be material to the business of the Company and its subsidiaries, taken as a
whole, that might be adversely affected by Purchaser's acquisition of Shares as
contemplated herein or of any approval or other action by any governmental
entity that would be required for the acquisition or ownership of Shares by
Purchaser as contemplated herein. Should any such approval or other action be
required, Purchaser and Parent currently contemplate that such approval or other
action will be sought, except as described below. Except as specified in this
Section 16, Purchaser has no current intention to delay the purchase of Shares
tendered pursuant to the Offer pending the outcome of any such matter, subject,
however, to Purchaser's right to decline to purchase Shares if any of the
conditions specified in Section 15 of this Offer to Purchase shall have
occurred. There can be no assurance that any such approval or other action, if
needed, would be
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obtained or would be obtained without substantial conditions, or that adverse
consequences might not result to the Company's business or that certain parts of
the Company's business might not have to be disposed of if any such approvals
were not obtained or other action taken. If certain types of adverse action are
taken with respect to the matters discussed below, Purchaser could decline to
accept for payment or pay for any Shares tendered. See Section 15 of this Offer
to Purchase for certain conditions of the Offer.
STATE TAKEOVER LAWS. The Company is incorporated under the laws of the
State of Delaware and operations are conducted throughout the United States. A
number of states throughout the United States have enacted takeover statutes
that purport, in varying degrees, to be applicable to attempts to acquire
securities of corporations that are incorporated or have assets, stockholders,
executive offices or principal places of business in such states. In EDGAR V.
MITE CORP., the Supreme Court of the United States held that the Illinois
Business Takeover Act, which involved state securities laws that made the
takeover of certain corporations more difficult, imposed a substantial burden on
interstate commerce and therefore was unconstitutional. In CTS CORP. V. DYNAMICS
CORP. OF AMERICA, however, the Supreme Court of the United States held that a
state may, as a matter of corporate law and, in particular, those laws
concerning corporate governance, constitutionally disqualify a potential
acquirer from voting on the affairs of a target corporation without prior
approval of the remaining stockholders, provided that such laws were applicable
only under certain conditions. Subsequently, a number of Federal courts ruled
that various state takeover statutes were unconstitutional insofar as they apply
to corporations incorporated outside the state of enactment.
The Company is subject to the provisions of Section 203 of the DGCL with
respect to restrictions upon business combinations involving the Company. In
general, Section 203 of the DGCL prevents an "interested stockholder"
(generally, a person who owns or has the right to acquire 15% or more of a
corporation's outstanding voting stock) from engaging in a "business
combination" (defined to include mergers and certain other transactions) with a
Delaware corporation for a period of three years following the time such person
became an interested stockholder unless, among other things, the corporation's
board of directors approves such business combination or the transaction in
which the interested stockholder becomes such prior to the time the interested
stockholder becomes such. The Company Board has approved the Offer, the Merger,
the Merger Agreement and the Option and Support Agreement for the purposes of
Section 203 of the DGCL. Except as described above with respect to Section 203
of the DGCL, Parent and Purchaser have not attempted to comply with any other
state takeover laws in connection with the Offer and believes none of such laws
to be applicable to the Offer. Should any person seek to apply any state
takeover law, Parent and Purchaser reserve the right to take such action as then
appears desirable, which may include challenging the validity or applicability
of any such statute allegedly applicable to the Offer in appropriate court
proceedings. Nothing in this Offer to Purchase nor any action taken in
connection herewith is intended as a waiver of that right. In the event it is
asserted that one or more state takeover laws is applicable to the Offer or the
Merger, and an appropriate court does not determine that it is inapplicable or
invalid as applied to the Offer, Parent and Purchaser might be required to file
certain information with, or receive approvals from, the relevant state
authorities. In addition, if enjoined, Purchaser might be unable to accept for
payment or pay for any Shares tendered pursuant to the Offer, or be delayed in
continuing or consummating the Offer and the Merger. In such case, Purchaser may
not be obligated to accept for payment or pay for any Shares tendered. See
Section 15 of this Offer to Purchase.
ANTITRUST. Under the provisions of the HSR Act applicable to the Offer, the
acquisition of Shares 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
will be submitted on April 3, 1998. Accordingly, the waiting period under the
HSR Act will expire at
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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. Although the Company is required to file certain
information and documentary material with the Antitrust Division and the FTC in
connection with the Offer, neither the Company's failure to make such filings
nor a request to the Company from the Antitrust Division or the FTC for
additional information or documentary material will extend the waiting period.
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.
If the Antitrust Division, the FTC, a state or a private party raises
antitrust concerns in connection with a proposed transaction, Parent and
Purchaser may engage in negotiations with the relevant governmental agency or
party concerning possible means of addressing these issues and may delay
consummation of the Offer or the Merger while such discussions are ongoing.
APPRAISAL RIGHTS. Holders of Shares do not have appraisal rights as a
result of the Offer. However, if the Merger is consummated, holders of Shares
will have certain rights pursuant to the provisions of Section 262 of the DGCL
to dissent and demand appraisal of their Shares in connection with the Merger.
Under Section 262, dissenting stockholders who comply with the applicable
statutory procedures will be entitled to receive a judicial determination of the
fair value of their Shares (exclusive of any element of value arising from the
accomplishment or expectation of the Merger) and to receive payment of such fair
value in cash, together with a fair rate of interest, if any. Any such judicial
determination of the fair value of the Shares could be based upon factors other
than, or in addition to, the price per share to be paid in the Merger or the
market value of the Shares. The value so determined could be more or less than
the price per share to be paid in the Merger. See Annex II to this Offer to
Purchase for the complete text of Section 262 of the DGCL.
LEGAL PROCEEDINGS. Parent and Purchaser are not aware of any pending or
overtly threatened legal proceedings, actions or suits, including, without
limitation, any such proceedings, actions or suits against the Company or any of
its subsidiaries, which would affect the Offer or the Merger. If any such
matters were to arise, Purchaser could decline to accept for payment or pay for
any Shares tendered in the Offer. See Section 15 of this Offer to Purchase.
LICENSING. Each preschool or school operated by the Company must be
licensed under applicable state or local licensing laws and is subject to a
variety of state and local regulations. Although these
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regulations vary greatly from jurisdiction to jurisdiction, governmental
agencies generally review, with respect to a preschool, the safety, fitness and
adequacy of the buildings and equipment; the ratio of staff to children; the
dietary program; the daily curriculum and compliance with health standards. In
most jurisdictions, these agencies conduct scheduled and unscheduled inspections
of the preschools, and licenses must be renewed periodically. Repeated failures
by a preschool to comply with applicable regulations may subject it to
sanctions, including probation or, in more serious cases, suspension or
revocation of the preschool's license to operate. The Company has informed
Parent and Purchaser that all preschools and schools operated by the Company
have received all required approvals of governmental authorities required in
connection with the operation thereof and have been operated and maintained in
all material respects in compliance with all applicable regulations. The Company
has further represented and warranted in the Merger Agreement that all material
licenses, permits, authorizations, approvals and registrations required under
any statute, law, ordinance, regulation, rule or order of any federal, state,
local or foreign governmental authority or agency 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 consummation of the Offer and the
Merger. The Company is required to file an initial application for a license to
operate certain of its facilities in the Commonwealth of Pennsylvania with the
State Board of Private Academic Schools, the Commonwealth of Pennsylvania,
thirty days prior to the consummation of the Offer. The Company filed the
necessary application on April 2, 1998. Accordingly, the Pennsylvania Waiting
Period is scheduled to expire as of the initial scheduled Expiration Date.
FEDERAL RESERVE BOARD REGULATIONS. Regulations T, U and X (the "Margin
Regulations") promulgated by the Federal Reserve Board restrict the extension or
maintenance of credit for the purpose of purchasing or carrying margin stock,
including the Shares, if such credit is secured directly or indirectly by margin
stock. Such secured credit may not be extended or maintained in an amount that
exceeds the maximum loan value of all the direct and indirect collateral
securing the credit, including margin stock and other collateral. The Parent
Note and the Purchaser Note are structured so as to be in full compliance with
the Margin Regulations.
17. FEES AND EXPENSES
Parent and Purchaser have engaged DLJ as the Dealer Manager in connection
with the Offer. In addition, DLJ is acting as exclusive financial advisor to
Parent and PEC in connection with the proposed acquisition of the Company.
Pursuant to the terms of DLJ's engagement, DLJ will be paid an aggregate fee of
approximately $1,300,000 in connection with its services as exclusive financial
advisor and as the Dealer Manager. DLJ will also be reimbursed for travel and
other out-of-pocket expenses, including reasonable legal fees and expenses, and
DLJ and certain related parties will be indemnified against certain liabilities,
including liabilities under the federal securities laws, arising out of DLJ's
engagement. In the ordinary course of business, the Dealer Manager and its
affiliates may actively trade or hold the securities of the Company for their
own account or for the account of customers and, accordingly, may at any time
hold a long or short position in such securities.
Parent and Purchaser have retained MacKenzie Partners, Inc., as Information
Agent, and IBJ Schroder Bank & Trust Company, as Depositary, in connection with
the Offer. The Information Agent and the Depositary will receive reasonable and
customary compensation for their services hereunder and reimbursement for their
reasonable out-of-pocket expenses. The Information Agent and the Depositary will
also be indemnified by Purchaser against certain liabilities in connection with
the Offer.
Neither Purchaser nor Parent, nor any officer, director, stockholder, agent
or other representative of Purchaser or Parent, will pay any fees or commissions
to any broker, dealer or other person (other than the Dealer Manager and the
Information Agent) for soliciting tenders of Shares pursuant to the Offer.
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Brokers, dealers, commercial banks, trust companies and other nominees will,
upon request, be reimbursed by Purchaser for customary mailing and handling
expenses incurred by them in forwarding materials to their customers.
18. MISCELLANEOUS
Purchaser is not aware of any state where the making of the Offer is
prohibited by administrative or judicial action pursuant to any valid state
statute. If Purchaser becomes aware of any valid state statute prohibiting the
making of the Offer or the acceptance of Shares pursuant thereto, Purchaser will
make a good faith effort to comply with such state statute. If, after such good
faith effort, Purchaser cannot comply with such state statute, the Offer will
not be made to (nor will tenders be accepted from or on behalf of) the holders
of Shares in such state. In any jurisdiction where the securities, blue sky or
other laws require the offer to be made by a licensed broker or dealer, the
Offer shall be deemed to be made on behalf of Purchaser by DLJ or one or more
registered brokers or dealers licensed under the laws of such jurisdiction.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION ON BEHALF OF PURCHASER OTHER THAN AS CONTAINED IN THIS OFFER TO
PURCHASE OR IN THE LETTER OF TRANSMITTAL, AND, IF ANY SUCH INFORMATION OR
REPRESENTATION IS GIVEN OR MADE, IT SHOULD NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY PURCHASER.
Purchaser and Parent have jointly filed a Tender Offer Statement on Schedule
14D-1 with the Commission, pursuant to Rule 14d-1 of the Exchange Act, together
with exhibits furnishing certain information with respect to the Offer. Such
Schedule 14D-1 and any amendments thereto, including all exhibits, may be
examined and copies may be obtained at the same places and in the same manner as
set forth with respect to the Company in Section 8 of this Offer to Purchase
(except that copies thereof may not be available at the regional offices of the
Commission).
<TABLE>
<S> <C> <C>
KBI ACQUISITION CORP.
</TABLE>
April 3, 1998
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ANNEX I
CERTAIN INFORMATION CONCERNING CERTAIN ENTITIES AND CERTAIN OF THEIR
DIRECTORS AND EXECUTIVE OFFICERS
Certain information is provided herein with respect to Purchaser, Parent,
PEC, Knowledge Universe, EDU, L.L.C., a Delaware limited liability company
("EDU"), ET Holdings, L.L.C., a Delaware limited liability company ("ET
Holdings"), ET Consolidated, L.L.C., a Delaware limited liability company ("ET
Consolidated"), Hampstead Associates, L.L.C., a Delaware limited liability
company ("Hampstead"), Mollusk Holdings, LLC, a California limited liability
company ("Mollusk"), Cephalopod Corporation, a California corporation
("Cephalopod"), Lawrence Investments, LLC, a California limited liability
company ("Lawrence"), Lawrence J. Ellison, an individual, Ridgeview Associates,
LLC, a California limited liability company ("Ridgeview"), Michael R. Milken, an
individual, and Lowell J. Milken, an individual (collectively, the "Named
Persons"). Except as otherwise indicated below, the principal executive offices
of each Named Person are located at 844 Moraga Drive, Los Angeles, California
90049, and each natural person is a citizen of the United States.
Parent is a wholly owned subsidiary of PEC. PEC is a holding company with no
operations or assets other than its ownership of 100% of the stock of Parent.
Knowledge Universe is a member of PEC owning 99.9% of the outstanding membership
interests of PEC and is also the manager of PEC. The principal business of
Knowledge Universe is to acquire interests in, and/or operate, other companies
and businesses, primarily, but not limited to, companies and businesses engaged
in education.
EDU is a member of PEC owning 0.1% of the membership interests of PEC. The
principal business of EDU is to act as a member of PEC and other affiliated
companies. ET Holdings is the manager of Knowledge Universe. The principal
business of ET Holdings is to act as the manager and as a member of Knowledge
Universe. ET Consolidated is the manager of ET Holdings. The principal business
of ET Consolidated is to act as the manager and as a member of ET Holdings.
Hampstead is the manager of each of ET Consolidated and EDU. The principal
business of Hampstead is to act as the manager and as a member of ET
Consolidated, EDU and other affiliated companies. Ridgeview is the manager of
Hampstead. The principal business of Ridgeview is to act as the manager and as a
member of Hampstead and other affiliated companies. Michael R. Milken and Lowell
J. Milken are the managers of Ridgeview.
The principal business of Mollusk is to act as a member of Hampstead and
affiliated companies. Mollusk may also act as, or appoint, a co-manager of
Hampstead. The principal executive offices of Mollusk are located at 351
California Street, 15th Floor, San Francisco, California 94104. Cephalopod and
Lawrence are the managers of Mollusk. The principal business of Cephalopod is to
act as a manager and member of Mollusk and other entities. The principal
executive offices of Cephalopod are located at 500 Oracle Parkway, Redwood
Shores, California 94065. Mr. Ellison owns all of the outstanding equity
interests in Cephalopod. The principal business of Lawrence is to act as a
manager and member of Mollusk and other entities. Mr. Ellison and Mr. Philip B.
Simon are the managers of Lawrence. The principal executive offices of Lawrence
are located at 101 Ygnacio Valley Road, Suite 310, Walnut Creek, California
94596.
Messrs. Michael and Lowell Milken and Mr. Ellison may each be deemed a
controlling person of Hampstead, ET Holdings, ET Consolidated, Knowledge
Universe, PEC, Parent and Purchaser. In addition, Messrs. Michael and Lowell
Milken may each be deemed to be a controlling person of Ridgeview. Mr. Ellison
may be deemed to be a controlling person of Mollusk, Cephalopod and Lawrence.
During the past five years, none of the Named Persons nor, to the best
knowledge of each of the Named Persons, any of the members, directors or
executive officers of the Named Persons has been
I-1
<PAGE>
convicted in a criminal proceeding (excluding traffic violations or similar
misdemeanors) nor has been a party to a civil proceeding of a judicial or
administrative body of competent jurisdiction as a result of which such person
was or is subject to a judgment, decree or final order enjoining future
violations of, or, prohibiting or mandating activities subject to federal or
state securities laws or finding any violation of such laws, except that on
February 24, 1998, without admitting or denying any liability, Michael R. Milken
consented to the entry of a final judgment in the U.S. District Court for the
Southern District of New York in SECURITIES AND EXCHANGE COMMISSION V. MICHAEL
R. MILKEN ET AL., which judgment was entered on February 26, 1998, restraining
and enjoining Michael R. Milken from associating with any broker, dealer,
investment adviser, investment company, or municipal securities dealer and from
violating Section 15(a) of the Exchange Act.
On March 11, 1991, in the action entitled IN THE MATTER OF MICHAEL R.
MILKEN, the Commission instituted a proceeding pursuant to Section 15(b)(6) of
the Exchange Act and ordered that Michael R. Milken be barred from association
with any broker, dealer, investment advisor, investment company or municipal
securities dealer. On April 24, 1990, Michael R. Milken consented to the entry
of a final judgment in the U.S. District Court for the Southern District of New
York in SECURITIES AND EXCHANGE COMMISSION V. DREXEL BURNHAM LAMBERT
INCORPORATED, ET AL., restraining and enjoining Michael Milken from engaging in
transactions, acts, practices and courses of business which constitute or would
constitute violations of, or which aid and abet or would aid and abet violations
of, Sections 7(c), 7(f), 9(a)(2), 10(b), 13(d), 14(e), 15(c)(3) and 17(a)(1) of
the Exchange Act, and Regulations T and X and Rules 10b-5, 10b-6, 13d-1, 13d-2,
14c-3, 15c3-1, 17a-3 and 17a-4 promulgated thereunder and Section 17(a) of the
Securities Act of 1933, as amended.
I-2
<PAGE>
The following table sets forth names, present principal occupation or
employment, and material occupations, positions, offices, or employments during
the last five years of each director and executive officer of Parent, Purchaser
and Knowledge Universe, and for the individuals above who are Named Persons.
Unless otherwise noted, the executive officers, directors and Named Persons set
forth below have held the positions indicated below with Parent, Purchaser or
Knowledge Universe, respectively, for the last five years or have served such
entities in various administrative or executive capacities for at least that
long. Unless otherwise set forth below, the business address of each person
listed below is 844 Moraga Drive, Los Angeles, California 90049, and each person
is a citizen of the United States.
I. EXECUTIVE OFFICERS AND DIRECTORS OF PARENT AND PURCHASER
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION AND
NAME TITLE FIVE YEAR EMPLOYMENT HISTORY
- --------------------------------- -------------------------- --------------------------------------------------
<S> <C> <C>
Thomas J. Kalinske Director; President Mr. Kalinske has served as President of each of
1350 Old Bayshore, Suite 260 Parent and Purchaser and as a director of each of
Burlingame, California 94010 Parent and Purchaser since their incorporation.
Since September 1996, Mr. Kalinske's principal
occupation has been to serve as President of
Knowledge Universe. From September 1990 to
September 1996, Mr. Kalinske served as President
and Chief Executive Officer of Sega of America,
located at 255 Shoreline Drive, Redwood Shores,
California. Mr. Kalinske is a director of the
National Foundation for the Improvement of
Education and UCLA's Graduate School of Education
and Information Services and is a trustee of the
RAND Corporation's Institute on Education and
Training. Mr. Kalinske is also a director of The
Milken Family Foundation, located at 1250 Fourth
Street, Santa Monica, California.
Ronald J. Packard Director; Treasurer Mr. Packard has served as Treasurer and Secretary
and Secretary of each of Parent and Purchaser and as a director
of each of Parent and Purchaser since their
incorporation. Since March 1998, Mr. Packard's
principal business occupation has been to serve as
a Vice President of Knowledge Universe. Prior
thereto, Mr. Packard had served as an executive
employee of Knowledge Universe since March 1997.
From January 1995 to March 1997, Mr. Packard was
President and General Manager of Forestal
Trillium, located at 1860 11 de Septiembre,
Santiago, Chile. Prior thereto, Mr. Packard had
been employed as a consultant by McKinsey & Co. at
400 South Hope Street, Los Angeles, California,
from September 1989 to January 1995.
</TABLE>
I-3
<PAGE>
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION AND
NAME TITLE FIVE YEAR EMPLOYMENT HISTORY
- --------------------------------- -------------------------- --------------------------------------------------
<S> <C> <C>
Deborah Bond-Upson Director Mrs. Bond-Upson has served as a director of each
1350 Old Bayshore, Suite 260 of Parent and Purchaser since their incorporation.
Burlingame, California 94010 Since March 1998, Mrs. Bond-Upson's principal
business occupation has been to serve as a Vice
President of Knowledge Universe. Prior thereto,
Mrs. Bond-Upson had served as an executive
employee of Knowledge Universe since November
1997. From January 1993 to November 1997, Mrs.
Bond-Upson served as Vice President of Kaplan
Educational Centers and Vice President of The
Landrah Corporation, each located at 888 Seventh
Avenue, New York, New York.
</TABLE>
II. EXECUTIVE OFFICERS AND DIRECTORS OF KNOWLEDGE UNIVERSE
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION AND
NAME TITLE FIVE YEAR EMPLOYMENT HISTORY
- --------------------------------- -------------------------- --------------------------------------------------
<S> <C> <C>
Michael R. Milken Director Mr. Milken's principal business occupation has
been to serve as a director of Knowledge Universe
since January 1996. Mr. Milken has also served as
President and a director of MC Group since
December 1993. Since July 1993, Mr. Milken has
served as President and a director of EEN
Communications Network. Mr. Milken has also served
as a director of The Milken Institute for Job and
Capital Formation since May 1993, as President and
a director of the Association for the Cure of
Cancer of the Prostate, since April 1993 and as a
director of The Milken Family Foundation, each
located at 1250 Fourth Street, Santa Monica,
California.
Lowell J. Milken Director Mr. Milken's principal business occupation has
been to serve as a director of Knowledge Universe
since January 1996. Since prior to 1993, Mr.
Milken has served as President and a director of
The Milken Family Foundation, located at 1250
Fourth Street, Santa Monica, California.
</TABLE>
I-4
<PAGE>
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION AND
NAME TITLE FIVE YEAR EMPLOYMENT HISTORY
- --------------------------------- -------------------------- --------------------------------------------------
<S> <C> <C>
Lawrence J. Ellison Director Mr. Ellison has served as a director of Knowledge
500 Oracle Parkway Universe since January 1996. Mr. Ellison's
Redwood Shores, California 94065 principal business occupation has been to serve as
Chief Executive Officer of Oracle Corporation,
located at 500 Oracle Parkway, Redwood Shores,
California, since May 1977, as Chairman of the
Board of Oracle Corporation since June 1995 and as
a member of its Executive Committee since 1986.
Mr. Ellison also served as the President of Oracle
Corporation until June 1996. From December 1995
through May 1997, Mr. Ellison served as President,
Chief Financial Officer and Secretary of
Cephalopod. Since May 1997, Mr. Ellison has served
as Chairman and Chief Executive Officer of
Cephalopod. Mr. Ellison has been a member of
Lawrence since April 1997.
Steven B. Fink Vice Chairman Mr. Fink's principal business occupation has been
to serve as Vice Chairman of Knowledge Universe
since August 1997. Mr. Fink has served as a Vice
President of MC Group since December 1993. Prior
thereto, Mr. Fink served as President of East West
Capital, located at 10900 Wilshire Boulevard, Los
Angeles, California.
Thomas J. Kalinske President Mr. Kalinske has served as President of Knowledge
Universe since September 1996. In addition, Mr.
Kalinske has held the positions set forth above.
Stanley E. Maron Secretary Mr. Maron has served as Secretary of Knowledge
Universe since December 1996. Mr. Maron's
principal business occupation has been to serve as
an attorney and shareholder of Maron & Sandler, a
professional corporation, located at 844 Moraga
Drive, Los Angeles, California, since 1994. Prior
thereto, Mr. Maron had been an attorney and
shareholder of Buchalter, Nemer, Fields & Younger,
located at 601 S. Figueroa, Suite 2400, Los
Angeles, California, since 1975.
Ronald J. Packard Vice President Mr. Packard has served as a Vice President of
Knowledge Universe since March 1998. In addition,
Mr. Packard has held the positions set forth
above.
Deborah Bond-Upson Vice President Mrs. Bond-Upson has served as a Vice President of
Knowledge Universe since March 1998. In addition,
Mrs. Bond-Upson has held the positions set forth
above.
</TABLE>
I-5
<PAGE>
ANNEX II
Set forth below is Section 262 of the General Corporation Law of the State
of Delaware regarding appraisal rights, which rights will only be available in
connection with the Merger.
SECTION 262 OF THE GENERAL CORPORATION LAW OF THE STATE OF DELAWARE
SECTION 262 APPRAISAL RIGHTS--(a) Any stockholder of a corporation of this
State who holds shares of stock on the date of the making of a demand pursuant
to subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation, who
has otherwise complied with subsection (d) of this section and who has neither
voted in favor of the merger or consolidation nor consented thereto in writing
pursuant to 228 of this title shall be entitled to an appraisal by the Court of
Chancery of the fair value of his shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and the
words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Section Section 251 (other than a merger effected pursuant
to subsection (g) of Section 251), 252, 254, 257, 258, 263 or 264 of this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock, or
depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no appraisal
rights shall be available for any shares of stock of the constituent
corporation surviving a merger if the merger did not require for its
approval the vote of the holders of the surviving corporation as provided in
subsection (f) of Section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required by
the terms of an agreement of merger or consolidation pursuant to Section !
251, 252, 254, 257, 258, 263 and 264 of this title to accept for such stock
anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock (or depository receipts in
respect thereof) or depository receipts at the effective date of the
merger or consolidation will be either listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this paragraph.
II-1
<PAGE>
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are available
pursuant to subsections (b) or (c) hereof that appraisal rights are
available for any or all of the shares of the constituent corporations, and
shall include in such notice a copy of this section. Each stockholder
electing to demand the appraisal of his shares shall deliver to the
corporation, before the taking of the vote on the merger or consolidation, a
written demand for appraisal of his shares. Such demand will be sufficient
if it reasonably informs the corporation of the identity of the stockholder
and that the stockholder intends thereby to demand the appraisal of his
shares. A proxy or vote against the merger or consolidation shall not
constitute such a demand. A stockholder electing to take such action must do
so by a separate written demand as herein provided. Within 10 days after the
effective date of such merger or consolidation, the surviving or resulting
corporation shall notify each stockholder of each constituent corporation
who has complied with this subsection and has not voted in favor of or
consented to the merger or consolidation of the date that the merger or
consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to Section 228
or Section 253 of this title, each constituent corporation, either before
the effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of stock
of such constituent corporation who are entitled to appraisal rights of the
approval of the merger or consolidation and that appraisal rights are
available for any or all shares of such class or series of stock of such
constituent corporation, and shall include in such notice a copy of this
section, provided that, if the notice is given on or after the effective
date of the merger or consolidation, such notice shall be given by the
surviving or resulting corporation to all such holders of any class or
series of stock of a constituent corporation that are entitled to appraisal
rights. Such notice may, and, if given on or after the effective date of the
merger or consolidation, shall, also notify such stockholders of the
effective date of the merger or consolidation. Any stockholder entitled to
appraisal rights may, within twenty days after the date of mailing of such
notice, demand in writing from the surviving or resulting corporation the
appraisal of such holder's shares. Such demand will be sufficient if it
reasonably informs the corporation of the identity of the stockholder and
that the stockholder intends thereby to demand the appraisal of such
holder's shares. If such notice did not notify stockholders of the effective
date of the merger or consolidation, either (i) each such constituent
corporation shall send a second notice before the effective date of the
merger or consolidation notifying each of the holders of any class or series
of stock of such constituent corporation that are entitled to appraisal
rights of the effective date of the merger or consolidation or (ii) the
surviving or resulting corporation shall send such a second notice to all
such holders on or within 10 days after such effective date; provided,
however, that if such second notice is sent more than 20 days following the
sending of the first notice, such second notice need only be sent to each
stockholder who is entitled to appraisal rights and who has demanded
appraisal of such holder's shares in accordance with this subsection. An
affidavit of the
II-2
<PAGE>
secretary or assistant secretary or of the transfer agent of the corporation
that is required to give either notice that such notice has been given
shall, in the absence of fraud, be prima facie evidence of the facts stated
therein. For purposes of determining the stockholders entitled to receive
either notice, each constituent corporation may fix, in advance, a record
date that shall be not more than 10 days prior to the date the notice is
given; provided that, if the notice is given on or after the effective date
of the merger or consolidation, the record date shall be such effective
date. If no record date is fixed and the notice is given prior to the
effective date, the record date shall be the close of business on the day
next preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied with
subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to withdraw his demand for
appraisal and to accept the terms offered upon the merger or consolidation.
Within 120 days after the effective date of the merger or consolidation, any
stockholder who has complied with the requirements of subsections (a) and (d)
hereof, upon written request, shall be entitled to receive from the corporation
surviving the merger or resulting from the consolidation a statement setting
forth the aggregate number of shares not voted in favor of the merger or
consolidation and with respect to which demands for appraisal have been received
and the aggregate number of holders of such shares. Such written statement shall
be mailed to the stockholder within 10 days after his written request for such a
statement is received by the surviving or resulting corporation or within 10
days after expiration of the period for delivery of demands for appraisal under
subsection (d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in Chancery
in which the petition was filed a duly verified list containing the names and
addresses of all stockholders who have demanded payment for their shares and
with whom agreements as to the value of their shares have not been reached by
the surviving or resulting corporation. If the petition shall be filed by the
surviving or resulting corporation, the petition shall be accompanied by such a
duly verified list. The Register in Chancery, if so ordered by the Court, shall
give notice of the time and place fixed for the hearing of such petition by
registered or certified mail to the surviving or resulting corporation and to
the stockholders shown on the list at the addresses therein stated. Such notice
shall also be given by 1 or more publications at least 1 week before the day of
the hearing, in a newspaper of general circulation published in the City of
Wilmington, Delaware or such publication as the Court deems advisable. The forms
of the notices by mail and by publication shall be approved by the Court, and
the costs thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion,
II-3
<PAGE>
permit discovery or other pretrial proceedings and may proceed to trial upon the
appraisal prior to the final determination of the stockholder entitled to an
appraisal. Any stockholder whose name appears on the list filed by the surviving
or resulting corporation pursuant to subsection (f) of this section and who has
submitted his certificates of stock to the Register in Chancery, if such is
required, may participate fully in all proceedings until it is finally
determined that he is not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation.
II-4
<PAGE>
Facsimile copies (with manual signatures) of the Letter of Transmittal will
be accepted. The Letter of Transmittal and certificates for Shares and any other
required documents should be sent or delivered by each stockholder of the
Company or such stockholder's broker, dealer, commercial bank, trust company or
other nominee to the Depositary at one of the addresses set forth below:
THE DEPOSITARY FOR THE OFFER IS:
IBJ SCHRODER BANK & TRUST COMPANY
<TABLE>
<S> <C> <C>
BY MAIL: BY FACSIMILE TRANSMISSION: BY HAND OR OVERNIGHT DELIVERY:
P.O. Box 84 (212) 858-2611 One State Street
Bowling Green Station Attn: Reorganization Dept. New York, New York 10004
New York, New York 10274-0084 Attn: Reorganization Dept.
Attn: Reorganization Dept. Securities Processing Window
SC-1
CONFIRM RECEIPT OF
FACSIMILE
BY TELEPHONE:
(212) 858-2103
</TABLE>
Any questions or requests for assistance or additional copies of the Offer
to Purchase and the related Letter of Transmittal, and other tender offer
materials, may be directed to the Dealer Manager or the Information Agent at
their respective addresses and telephone numbers listed below. Stockholders may
also contact their broker, dealer, commercial bank, trust company or other
nominee for assistance concerning the Offer.
THE DEALER MANAGER FOR THE OFFER IS:
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
2121 Avenue of the Stars, Suite 3200
Los Angeles, California 90067
(310) 282-7449 (call collect)
THE INFORMATION AGENT FOR THE OFFER IS:
[MACKENZIE PARTNERS, INC. LOGO]
156 Fifth Avenue
New York, New York 10010
(212) 929-5500 (call collect)
or
Call Toll Free (800) 322-2885
<PAGE>
LETTER OF TRANSMITTAL
TO TENDER SHARES OF COMMON STOCK
OF
CHILDREN'S DISCOVERY CENTERS OF AMERICA, INC.
PURSUANT TO THE OFFER TO PURCHASE
DATED APRIL 3, 1998
OF
KBI ACQUISITION CORP.
A WHOLLY OWNED SUBSIDIARY OF
KNOWLEDGE BEGINNINGS, INC.
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON FRIDAY, MAY 1, 1998, UNLESS THE OFFER IS EXTENDED.
THE DEPOSITARY FOR THE OFFER IS:
IBJ SCHRODER BANK & TRUST COMPANY
<TABLE>
<S> <C> <C>
BY MAIL: BY FACSIMILE BY HAND OR OVERNIGHT DELIVERY:
TRANSMISSION:
P.O. Box 84 (212) 858-2611 One State Street
Bowling Green Station Attn: Reorganization New York, New York 10004
New York, New York 10274-0084 Dept. Attn: Reorganization Dept.
Attn: Reorganization Dept. Securities Processing Window
SC-1
CONFIRM RECEIPT OF
FACSIMILE
BY TELEPHONE:
(212) 858-2103
</TABLE>
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. YOU MUST SIGN THIS LETTER OF
TRANSMITTAL WHERE INDICATED BELOW AND COMPLETE THE SUBSTITUTE FORM W-9 PROVIDED
HEREIN.
THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ
CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED.
This Letter of Transmittal is to be completed by stockholders of Children's
Discovery Centers of America, Inc., a Delaware corporation (the "Company"), if
certificates representing Shares (as defined below) ("Share Certificates") are
to be forwarded herewith or, unless an Agent's Message (as defined in the Offer
to Purchase (as defined below)) is utilized, if delivery of Shares is to be made
by book-entry transfer to the Depositary's account at The Depository Trust
Company (hereinafter referred to as the "Book-Entry Transfer Facility") pursuant
to the procedures set forth in Section 3 of the Offer to Purchase.
<PAGE>
Stockholders whose Share Certificates are not immediately available or who
cannot deliver their Share Certificates and all other documents required hereby
to the Depositary prior to the Expiration Date (as defined in the Offer to
Purchase), or who cannot comply with the book-entry transfer procedures on a
timely basis, may nevertheless tender their Shares pursuant to the guaranteed
delivery procedure set forth in Section 3 of the Offer to Purchase. See
Instruction 2. Delivery of documents to the Book-Entry Transfer Facility in
accordance with the Book-Entry Transfer Facility's procedures does not
constitute delivery to the Depositary.
/ / CHECK HERE IF SHARES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER TO THE
DEPOSITARY'S ACCOUNT AT THE BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE
FOLLOWING:
Name of Tendering Institution:
Account Number: Transaction Code Number:
/ / CHECK HERE IF SHARES ARE BEING TENDERED PURSUANT TO A NOTICE OF GUARANTEED
DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY AND COMPLETE THE FOLLOWING:
Name(s) of Registered Holder(s):
Window Ticket No. (if any):
Date of Execution of Notice of Guaranteed Delivery:
Name of Institution which Guaranteed Delivery:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Name(s) and Address(es) of Holder(s)
(Please fill in, if blank, exactly as Share Certificate(s) and Share(s) Tendered
name(s) appear(s) on Share Certificate(s) (Attach additional list, if necessary)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total Number
Share of Shares Number of
Certificate Evidenced by Shares
Number(s)* Share Tendered**
Certificate(s)
----------------------------------------------------------
----------------------------------------------------------
----------------------------------------------------------
----------------------------------------------------------
Total Shares
- ---------------------------------------------------------------------------------------------------------
* Need not be completed by stockholders delivering Shares by book-entry transfer.
** Unless otherwise indicated, it will be assumed that all Shares evidenced by each Share Certificate
delivered to the Depositary are being tendered hereby. See Instruction 4.
- ---------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
The undersigned hereby tenders to KBI Acquisition Corp., a Delaware
corporation ("Purchaser") and a wholly owned subsidiary of Knowledge Beginnings,
Inc., a Delaware corporation, the above-described shares of common stock, par
value $.01 per share (the "Shares"), of Children's Discovery Centers of America,
Inc., a Delaware corporation (the "Company"), pursuant to Purchaser's offer to
purchase any and all outstanding Shares at a purchase price of $12.25 per Share
(the "Offer Price"), net to the seller in cash, without interest thereon, upon
the terms and subject to the conditions set forth in the Offer to Purchase dated
April 3, 1998 (the "Offer to Purchase"), receipt of which is hereby
acknowledged, and in this Letter of Transmittal (which, together with the Offer
to Purchase, as each may be amended and supplemented from time to time,
constitute the "Offer").
Subject to, and effective upon, acceptance for payment of the Shares
tendered herewith, the undersigned hereby sells, assigns and transfers to or
upon the order of Purchaser all right, title and interest in and to all the
Shares that are being tendered hereby and any and all other Shares or other
securities issued or issuable in respect thereof on or after March 27, 1998 (a
"Distribution") and appoints the Depositary the true and lawful agent and
attorney-in-fact of the undersigned with respect to such Shares (and any
Distributions), with full power of substitution (such power of attorney being
deemed to be an irrevocable power coupled with an interest), to (a) deliver
Share Certificates (and any Distributions), or transfer ownership of such Shares
(and any Distributions) on the account books maintained by the Book-Entry
Transfer Facility, together, in any such case, with all accompanying evidences
of transfer and authenticity, to or upon the order of Purchaser, (b) present
such Shares (and any Distributions) for transfer on the books of the Company,
and (c) receive all benefits and otherwise exercise all rights of beneficial
ownership of such Shares (and any Distributions), all in accordance with the
terms and subject to the conditions of the Offer.
The undersigned hereby irrevocably appoints designees of Purchaser as the
attorneys and proxies of the undersigned, each with full power of substitution,
to exercise all voting and other rights of the undersigned in such manner as
each such attorney and proxy or his substitute shall in his sole judgment deem
proper, with respect to all of the Shares tendered hereby which have been
accepted for payment by Purchaser prior to the time of any vote or other action
(and any Distributions), at any meeting of stockholders of the Company (whether
annual or special and whether or not an adjourned meeting) or otherwise. This
power of attorney and proxy are irrevocable, are coupled with an interest in the
Shares tendered hereby, and are granted in consideration of, and effective upon,
the acceptance for payment of such Shares by Purchaser in accordance with the
terms of the Offer. Such acceptance for payment shall revoke any other proxy or
written consent granted by the undersigned at any time with respect to such
Shares (and any Distributions), and no subsequent proxies will be given or
written consents executed by the undersigned (and if given or executed, will not
be deemed effective).
The undersigned hereby represents and warrants that the undersigned has full
power and authority to tender, sell, assign and transfer the Shares tendered
hereby (and any Distributions) and that when the same are accepted for payment
by Purchaser, Purchaser will acquire good and unencumbered title thereto, free
and clear of all liens, restrictions, charges and encumbrances and not subject
to any adverse claims. The undersigned will, upon request, execute and deliver
any additional documents deemed by the Depositary or Purchaser to be necessary
or desirable to complete the sale, assignment and transfer of the Shares
tendered hereby (and any Distributions). All authority herein conferred or
agreed to be conferred shall survive the death or incapacity of the undersigned,
and any obligation of the undersigned hereunder shall be binding upon the heirs,
personal representatives, successors and assigns of the undersigned. Except as
stated in the Offer, this tender is irrevocable.
The undersigned understands that the tender of Shares pursuant to any one of
the procedures described in Section 3 of the Offer to Purchase and in the
instructions hereto will constitute an agreement between the undersigned and
Purchaser upon the terms and subject to the conditions of the Offer. The
undersigned acknowledges that no interest will be paid on the Offer Price for
tendered Shares regardless of any extension of the Offer or any delay in making
such payment.
Unless otherwise indicated in the box entitled "Special Payment
Instructions," please issue the check for the purchase price of any Shares
purchased, and return any Share Certificates evidencing any Shares not tendered
or not purchased, in the name(s) of the undersigned (and, in the case of Shares
tendered by book-entry transfer, by credit to the account at the Book-Entry
Transfer Facility). Similarly, unless otherwise indicated in the box entitled
"Special Delivery Instructions,"
<PAGE>
please mail the check for the purchase price of any Shares purchased and return
any Share Certificates evidencing any Shares not tendered or not purchased (and
accompanying documents, as appropriate) to the undersigned at the address shown
below the undersigned's signature(s). In the event that the boxes entitled
"Special Payment Instructions" and "Special Delivery Instructions" are both
completed, please issue the check for the purchase price of any Shares purchased
and return any Share Certificates evidencing any Shares not tendered or not
purchased in the name(s) of, and mail said check and Share Certificates to, the
person(s) so indicated. The undersigned acknowledges that Purchaser has no
obligation, pursuant to the "Special Payment Instructions," to transfer any
Shares from the name of the registered holder(s) thereof if Purchaser does not
accept for payment any of the Shares so tendered.
- --------------------------------------------------
SPECIAL PAYMENT INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5, 6, AND 7)
To be completed ONLY if the check for the purchase price of Shares
purchased or Share Certificates evidencing Shares not tendered or not
purchased are to be issued in the name of someone other than the undersigned,
or if Shares tendered hereby and delivered by book-entry transfer which are
not purchased are to be returned by credit to an account at the Book-Entry
Transfer Facility other than that designated above.
Issue: / / Check / / Share Certificate(s) to:
Name _________________________________________________________________________
(Please Print)
Address ______________________________________________________________________
______________________________________________________________________________
(Zip Code)
______________________________________________________________________________
(Taxpayer Identification or Social Security No.)
(See Substitute Form W-9 on reverse side)
Credit Shares delivered by book-entry transfer and not purchased to the
account set forth below:
____________________________________________________________ (Account Number)
- --------------------------------------------------
- --------------------------------------------------
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5, 6 AND 7)
To be completed ONLY if the check for the purchase price of Shares
purchased or Share Certificates evidencing Shares not tendered or not
purchased are to be mailed to someone other than the undersigned, or to the
undersigned at an address other than that shown under the undersigned's
signature.
Mail: / / Check / / Share Certificate(s) to:
Name _________________________________________________________________________
(Please Print)
Address ______________________________________________________________________
______________________________________________________________________________
(Zip Code)
______________________________________________________________________________
(Taxpayer Identification or Social Security No.)
(See Substitute Form W-9 on reverse side)
- ------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
IMPORTANT
STOCKHOLDERS SIGN HERE
(PLEASE COMPLETE SUBSTITUTE FORM W-9 ON REVERSE)
______________________________________________________________________________
______________________________________________________________________________
Signature(s) of Holder(s)
Dated: __
(Must be signed by the registered holder(s) exactly as such holder(s)
name(s) appear(s) on the Share Certificate(s) or on a security position
listing or by a person(s) authorized to become the registered holder(s) of
such Share Certificate(s) by certificates and documents transmitted herewith.
If signature is by a trustee, executor, administrator, guardian,
attorney-in-fact, officer of a corporation or other person acting in a
fiduciary or representative capacity, please provide the following information
and see Instruction 5.)
Name(s): _____________________________________________________________________
(Please Type or Print)
Capacity (full title): _______________________________________________________
Address: _____________________________________________________________________
(Include Zip Code)
Area Code and Telephone No.: _________________________________________________
Tax Identification or Social Security Nos.: __________________________________
(See Substitute Form W-9 on reverse side)
GUARANTEE OF SIGNATURE(S)
(SEE INSTRUCTIONS 1 AND 5)
Authorized Signature: ________________________________________________________
Name: ________________________________________________________________________
(Please Type or Print)
Title: _______________________________________________________________________
Name of Firm: ________________________________________________________________
Address: _____________________________________________________________________
(Include Zip Code)
Area Code and Telephone No.: _________________________________________________
Dated: __
- --------------------------------------------------------------------------------
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER
1. GUARANTEE OF SIGNATURES. Except as otherwise provided below, signatures
on all Letters of Transmittal must be guaranteed by a firm that is a bank,
broker, dealer, credit union, savings association or other entity which is a
member in good standing of the Securities Transfer Agents Medallion Program or
by any other bank, broker, dealer, credit union, savings association or other
entity which is an "eligible guarantor institution," as such term is defined in
Rule 17Ad-5 under the Securities Exchange Act of 1934, as amended (each of the
foregoing constituting an "Eligible Institution"), unless the Shares tendered
thereby are tendered (i) by a registered holder of Shares who has not completed
either the box labeled "Special Payment Instructions" or the box labeled
"Special Delivery Instructions" on this Letter of Transmittal or (ii) for the
account of an Eligible Institution. See Instruction 5. If Share Certificates are
registered in the name of a person or persons other than the signer of this
Letter of Transmittal, or if payment is to be made or delivered to, or
certificates evidencing unpurchased Shares are to be issued or returned to, a
person other than the registered owner or owners, then the tendered Share
Certificates must be endorsed or accompanied by duly executed stock powers, in
either case signed exactly as the name or names of the registered owner or
owners appear on the Share Certificates, with the signatures on the Share
Certificates or stock powers guaranteed by an Eligible Institution as provided
herein. See Instruction 5.
2. DELIVERY OF LETTER OF TRANSMITTAL AND SHARE CERTIFICATES. This Letter of
Transmittal is to be used if Share Certificates are to be forwarded herewith or,
unless an Agent's Message is utilized, if the delivery of Shares is to be made
by book-entry transfer pursuant to the procedures set forth in Section 3 of the
Offer to Purchase. Certificates for all physically delivered Shares, or a
confirmation of a book-entry transfer into the Depositary's account at the
Book-Entry Transfer Facility of all Shares delivered electronically, as well as
a properly completed and duly executed Letter of Transmittal (or a manually
signed facsimile thereof) and any other documents required by this Letter of
Transmittal, or an Agent's Message in the case of a book-entry transfer, must be
received by the Depositary at one of its addresses set forth on the front page
of this Letter of Transmittal by the Expiration Date (as defined in the Offer to
Purchase). Stockholders who cannot deliver their Share Certificates and all
other required documents to the Depositary by the Expiration Date must tender
their Shares pursuant to the guaranteed delivery procedure set forth in Section
3 of the Offer to Purchase. Pursuant to such procedure: (a) such tender must be
made by or through an Eligible Institution; (b) a properly completed and duly
executed Notice of Guaranteed Delivery, substantially in the form provided by
Purchaser, must be received by the Depositary prior to the Expiration Date; and
(c) Share Certificates for all tendered Shares, in proper form for tender, or a
confirmation of a book-entry transfer into the Depositary's account at the
Book-Entry Transfer Facility of all Shares delivered electronically, as well as
a properly completed and duly executed Letter of Transmittal (or a manually
signed facsimile thereof), and any other documents required by this Letter of
Transmittal, must be received by the Depositary within three Nasdaq National
Market trading days after the date of execution of such Notice of Guaranteed
Delivery, all as provided in Section 3 of the Offer to Purchase.
THE METHOD OF DELIVERY OF THIS LETTER OF TRANSMITTAL, SHARE CERTIFICATES AND
ALL OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH THE BOOK-ENTRY TRANSFER
FACILITY, IS AT THE OPTION AND RISK OF THE TENDERING STOCKHOLDER, AND DELIVERY
WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY. IF DELIVERY
IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS
RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY
DELIVERY.
No alternative, conditional or contingent tenders will be accepted. By
execution of this Letter of Transmittal (or a manually signed facsimile
thereof), all tendering stockholders waive any right to receive any notice of
the acceptance of their Shares for payment.
3. INADEQUATE SPACE. If the space provided herein is inadequate, the Share
Certificate numbers and/or the number of Shares should be listed on a separate
schedule attached hereto.
4. PARTIAL TENDERS. If fewer than all of the Shares represented by any Share
Certificate delivered to the Depositary are to be tendered, fill in the number
of Shares which are to be tendered in the box entitled "Number of Shares
Tendered." In such case, a new Share Certificate for the remainder of the Shares
represented by the old Share Certificate will be sent to the person(s) signing
this Letter of Transmittal, unless otherwise provided in the box entitled
"Special Delivery Instructions," as promptly as practicable following the
expiration or termination of the Offer. All Shares represented by Share
Certificates delivered to the Depositary will be deemed to have been tendered
unless otherwise indicated.
<PAGE>
5. SIGNATURES ON LETTER OF TRANSMITTAL; STOCK POWERS AND ENDORSEMENTS. If
this Letter of Transmittal is signed by the registered holder(s) of the Shares
tendered hereby, the signature(s) must correspond with the name(s) as written on
the face of the Share Certificate(s) without alteration, enlargement or any
other change whatsoever.
If any of the Shares tendered hereby are owned of record by two or more
persons, all such persons must sign this Letter of Transmittal.
If any of the Shares tendered hereby are registered in different names on
different Share Certificates, it will be necessary to complete, sign and submit
as many separate Letters of Transmittal as there are different registrations of
Share Certificates.
If this Letter of Transmittal is signed by the registered holder(s) of the
Shares tendered hereby, no endorsements of Share Certificate(s) or separate
stock powers are required, unless payment of the purchase price is to be made,
or Share Certificate(s) evidencing Shares not tendered or not purchased are to
be returned, in the name of any person other than the registered holder(s).
Signatures on any such Share Certificate(s) or stock powers must be guaranteed
by an Eligible Institution.
If this Letter of Transmittal is signed by a person other than the
registered holder(s) of the Shares tendered hereby, the Share Certificate(s)
evidencing the Shares tendered hereby must be endorsed or accompanied by
appropriate stock powers, in either case signed exactly as the name(s) of the
registered holder(s) appear(s) on such Share Certificate(s). Signature(s) on any
such Share Certificate(s) or stock powers must be guaranteed by an Eligible
Institution.
If this Letter of Transmittal or any Share Certificate or stock power is
signed by a trustee, executor, administrator, guardian, attorney-in-fact,
officer of a corporation or other person acting in a fiduciary or representative
capacity, such person should so indicate when signing and proper evidence
satisfactory to Purchaser of the authority of such person to so act must be
submitted.
6. STOCK TRANSFER TAXES. Purchaser will pay any stock transfer taxes with
respect to the sale and transfer of any Shares to it or its order pursuant to
the Offer. If, however, payment of the purchase price is to be made to, or Share
Certificates evidencing Shares not tendered or not purchased are to be returned
in the name of, any person other than the registered holder(s) of such Shares,
then the amount of any stock transfer taxes (whether imposed on the registered
holder(s), such other person or otherwise) payable on account of the transfer to
such person will be deducted from the purchase price unless satisfactory
evidence of the payment of such taxes, or exemption therefrom, is submitted.
EXCEPT AS PROVIDED IN THIS INSTRUCTION 6, IT WILL NOT BE NECESSARY FOR TRANSFER
TAX STAMPS TO BE AFFIXED TO THE SHARE CERTIFICATE(S) LISTED IN THIS LETTER OF
TRANSMITTAL.
7. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS. If the check for the purchase
price of any Shares purchased is to be issued, or any Share Certificate(s)
evidencing Shares not tendered or not purchased are to be returned, in the name
of a person other than the person(s) signing this Letter of Transmittal or if
the check or any Share Certificate(s) evidencing Shares not tendered or not
purchased are to be mailed to someone other than the person(s) signing this
Letter of Transmittal or to the person(s) signing this Letter of Transmittal at
an address other than that shown above, the appropriate boxes on this Letter of
Transmittal should be completed. Shareholders tendering Shares by book-entry
transfer may request that Shares not purchased be credited to such account at
the Book-Entry Transfer Facility as such stockholder may designate in the box
entitled "Special Payment Instructions." If no such instructions are given, any
such Shares not purchased will be returned by crediting the account at the
Book-Entry Transfer Facility.
8. SUBSTITUTE FORM W-9. The tendering holder of Shares is required to
provide the Depositary with such holder's correct taxpayer identification number
("TIN") on Substitute Form W-9, which is provided below, unless an exemption
applies. In the case of any holder who has completed the box entitled "Special
Payment Instructions," however, the correct TIN on Substitute Form W-9 should be
provided for the recipient of the payment pursuant to such instructions. Failure
to provide the information on the Substitute Form W-9 may subject the tendering
holder of Shares to a $50 penalty and to 31% federal income tax backup
withholding on the payment of the purchase price for the Shares.
9. QUESTIONS AND REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and
requests for assistance may be directed to the Dealer Manager or the Information
Agent at their respective addresses and telephone numbers set forth on the back
cover of the Offer to Purchase. Additional copies of the Offer to Purchase, the
Letter of Transmittal, the Notice of Guaranteed Delivery and other related
materials may be obtained from the Dealer Manager, the Information Agent or from
brokers, dealers, commercial banks and trust companies.
<PAGE>
THIS LETTER OF TRANSMITTAL OR A MANUALLY SIGNED FACSIMILE COPY HEREOF
(TOGETHER WITH SHARE CERTIFICATES OR CONFIRMATION OF BOOK-ENTRY TRANSFER AND ALL
OTHER REQUIRED DOCUMENTS) OR A NOTICE OF GUARANTEED DELIVERY MUST BE RECEIVED BY
THE DEPOSITARY ON OR PRIOR TO THE EXPIRATION DATE (AS DEFINED IN THE OFFER TO
PURCHASE).
IMPORTANT TAX INFORMATION
Under the federal income tax law, a holder of Shares whose tendered Shares
are accepted for payment is generally required by law to provide the Depositary
(as payer) with such holder's correct TIN on Substitute Form W-9 below (unless
an exemption from backup withholding applies). The holder of Shares must also
state that (i) such holder has not been notified by the Internal Revenue Service
that such holder is subject to backup withholding as a result of a failure to
report all interest or dividends or (ii) the Internal Revenue Service has
notified such holder that such holder is no longer subject to backup
withholding. If the Depositary is not provided with the correct TIN, the holder
of Shares may be subject to a $50 penalty imposed by the Internal Revenue
Service and payments made to such holder may be subject to backup withholding.
Certain holders of Shares (including, among others, all corporations and
certain foreign individuals) are not subject to these backup withholding and
reporting requirements. In order for a foreign individual to qualify as an
exempt recipient, such individual must submit a statement, signed under
penalties of perjury, attesting to such individual's exempt status. Forms of
such statements can be obtained from the Depositary. See the enclosed Guidelines
for Certification of Taxpayer Identification Number on Substitute Form W-9 for
additional instructions.
If backup withholding applies, the Depositary is required to withhold 31% of
any payments made to the holder of Shares. Backup withholding is not an
additional tax. Rather, the tax withheld pursuant to backup withholding rules
will be available as a credit against such holder's tax liabilities. If
withholding results in an overpayment of taxes, a refund may be obtained from
the Internal Revenue Service.
WHAT NUMBER TO GIVE THE DEPOSITARY
If the holder of Shares is an individual, the correct TIN is his or her
social security number. In other cases, the correct TIN may be the employer
identification number of the record holder of the Shares tendered hereby. If the
Shares are in more than one name or are not in the name of the actual owner,
consult the enclosed Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9 for additional guidance on which number to report.
If the tendering holder of Shares has not been issued a TIN and has applied for
a number or intends to apply for a number in the near future, the holder should
write "Applied For" in the space provided for the TIN in Part I of the
Substitute Form W-9, and sign and date the Substitute Form W-9. If "Applied For"
is written in Part I of the Substitute Form W-9 and the Depositary is not
provided with a TIN within thirty (30) days, the Depositary may withhold 31% of
all payments of the purchase price to such holder until a TIN is provided to the
Depositary.
<PAGE>
PAYER'S NAME: IBJ SCHRODER BANK & TRUST COMPANY
<TABLE>
<C> <S> <C>
- --------------------------------------------------------------------------------------------------------
SUBSTITUTE PART I--Taxpayer Identification Number--For ------------------------
FORM W-9 all accounts, enter taxpayer identification Social Security Number
Department of the Treasury number in the box at right. (For most OR
Internal Revenue Service individuals this is your social security ------------------------
PAYER'S REQUEST FOR TAXPAYER number. If you do not have a number, see Employer Identification
IDENTIFICATION NUMBER (TIN) Obtaining a Number in the enclosed Number
GUIDELINES.) Certify by signing and dating (If awaiting TIN write
below. "Applied For")
Note: If the account is in more than one
name, see chart in the enclosed GUIDELINES
to determine which number to give the payer
-------------------------------------------------------------------------
PART II--For Payees exempt from backup withholding, see the enclosed
GUIDELINES and complete as instructed therein.
- --------------------------------------------------------------------------------------------------------
CERTIFICATION--Under penalties of perjury, I certify that:
(1) The number shown on this form is my correct Taxpayer Identification Number (or I am waiting for a
number to be issued to me); and
(2) I am not subject to backup withholding either because (a) I have not been notified by the Internal
Revenue Service (IRS) that I am subject to backup withholding as a result of a failure to report
all interest or dividends, or (b) the IRS has notified me that I am no longer subject to backup
withholding.
CERTIFICATION INSTRUCTIONS--You must cross out item (2) above if you have been notified by the IRS that
you are subject to backup withholding because of underreporting interest or dividends on your tax
return. However, if, after being notified by the IRS that you were subject to backup withholding, you
received another notification from the IRS that you were no longer subject to backup withholding, do
not cross out item (2). (Also see instructions in the enclosed GUIDELINES.)
- --------------------------------------------------------------------------------------------------------
SIGNATURE: ------------------------------------------------ DATE: ------------
- --------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER. PLEASE REVIEW THE
ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU ARE AWAITING
(OR WILL SOON APPLY FOR) A TAXPAYER IDENTIFICATION NUMBER.
<PAGE>
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification
number has not been issued to me and either (a) I have mailed or
delivered an application to receive a taxpayer identification number
to the appropriate Internal Revenue Service Center or Social Security
Administration Office or (b) I intend to mail or deliver an
application in the near future. I understand that, notwithstanding the
information I provided in Part I of the Substitute Form W-9 (and the
fact that I have completed this Certificate of Awaiting Taxpayer
Identification Number), if I do not provide a correct taxpayer
identification number to the Depositary within thirty (30) days, 31%
of all reportable payments made to me pursuant to the Offer and Merger
may be withheld.
SIGNATURE: DATE:
THE INFORMATION AGENT FOR THE OFFER IS:
[MACKENZIE PARTNERS, INC. LOGO]
THE DEALER MANAGER FOR THE OFFER IS:
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
<PAGE>
NOTICE OF GUARANTEED DELIVERY
FOR
TENDER OF SHARES OF COMMON STOCK
OF
CHILDREN'S DISCOVERY CENTERS OF AMERICA, INC.
This Notice of Guaranteed Delivery, or one substantially in the form hereof,
must be used to accept the Offer (as defined below) if certificates evidencing
shares of common stock, par value $.01 per share (the "Shares"), of Children's
Discovery Centers of America, Inc., a Delaware corporation (the "Company"), are
not immediately available, or if the procedure for book-entry transfer cannot be
completed on a timely basis or time will not permit all required documents to
reach the Depositary on or prior to the Expiration Date (as defined in the Offer
to Purchase dated April 3, 1998 (the "Offer to Purchase")). Such form may be
delivered by hand or facsimile transmission or mail to the Depositary. See
Section 3 of the Offer to Purchase.
THE DEPOSITARY FOR THE OFFER IS:
IBJ SCHRODER BANK & TRUST COMPANY
<TABLE>
<S> <C> <C>
BY MAIL: BY FACSIMILE TRANSMISSION: BY HAND OR OVERNIGHT DELIVERY:
P.O. Box 84 (212) 858-2611 One State Street
Bowling Green Station Attn: Reorganization Dept. New York, New York 10004
New York, New York 10274-0084 Attn: Reorganization Dept.
Attn: Reorganization Dept. Securities Processing Window
SC-1
CONFIRM RECEIPT OF
FACSIMILE
BY TELEPHONE:
(212) 858-2103
</TABLE>
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS
SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE TRANSMISSION OTHER
THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
Ladies and Gentlemen:
The undersigned hereby tenders to KBI Acquisition Corp., a Delaware
corporation and a wholly owned subsidiary of Knowledge Beginnings, Inc., a
Delaware corporation, upon the terms and subject to the conditions set forth in
the Offer to Purchase and the related Letter of Transmittal (which, as amended
and supplemented from time to time, together constitute the "Offer"), receipt of
which is hereby acknowledged, the number of Shares specified below pursuant to
the guaranteed delivery procedure described in Section 3 of the Offer to
Purchase.
<PAGE>
<TABLE>
<S> <C>
- --------------------------------------- ---------------------------------------
Signature(s):
- --------------------------------------- If Shares will be delivered by book-entry
transfer, provide the following information:
- ---------------------------------------
Name(s) of
Record Holder(s):
- ---------------------------------------
PLEASE TYPE OR PRINT Account Number:
---------------------------------------
- --------------------------------------- Date:
---------------------------------------
Certificate Nos.
(if available):
- ---------------------------------------
- ---------------------------------------
Address:
- ---------------------------------------
- ---------------------------------------
ZIP CODE
Area Code and
Telephone No.:
- ---------------------------------------
- --------------------------------------- ---------------------------------------
</TABLE>
GUARANTEE
(NOT TO BE USED FOR A SIGNATURE GUARANTEE)
THE UNDERSIGNED, A BANK, BROKER, DEALER, CREDIT UNION, SAVINGS ASSOCIATION
OR OTHER ENTITY WHICH IS A MEMBER IN GOOD STANDING OF THE SECURITIES TRANSFER
AGENTS MEDALLION PROGRAM OR A BANK, BROKER, DEALER, CREDIT UNION, SAVINGS
ASSOCIATION OR OTHER ENTITY WHICH IS AN "ELIGIBLE GUARANTOR INSTITUTION," AS
SUCH TERM IS DEFINED IN RULE 17AD-15 UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS AMENDED (EACH OF THE FOREGOING CONSTITUTING AN "ELIGIBLE INSTITUTION"),
GUARANTEES THE DELIVERY TO THE DEPOSITARY OF THE SHARES TENDERED HEREBY,
TOGETHER WITH A PROPERLY COMPLETED AND DULY EXECUTED LETTER OF TRANSMITTAL (OR A
MANUALLY SIGNED FACSIMILE THEREOF) AND ANY OTHER REQUIRED DOCUMENTS, OR AN
AGENT'S MESSAGE (AS DEFINED IN THE OFFER TO PURCHASE) IN THE CASE OF A
BOOK-ENTRY TRANSFER OF SHARES, ALL WITHIN THREE NASDAQ NATIONAL MARKET TRADING
DAYS OF THE DATE HEREOF.
The Eligible Institution that completes this form must communicate the
guarantee to the Depositary and must deliver the Letter of Transmittal and
certificates representing Shares to the Depositary within the time period set
forth herein. Failure to do so could result in a financial loss to such Eligible
Institution.
<TABLE>
<S> <C>
- --------------------------------------- ---------------------------------------
Name of Firm:
- ---------------------------------------
---------------------------------------
AUTHORIZED SIGNATURE
Address:
- --------------------------------------- Name:
---------------------------------------
PLEASE PRINT
- ---------------------------------------
ZIP CODE
Title:
---------------------------------------
Area Code and
Telephone No.:
Date:
- ---------------------------------------
---------------------------------------
- --------------------------------------- ---------------------------------------
</TABLE>
NOTE: DO NOT SEND SHARE CERTIFICATES WITH THIS FORM. CERTIFICATES
FOR SHARES SHOULD BE SENT WITH YOUR LETTER OF TRANSMITTAL.
<PAGE>
OFFER TO PURCHASE FOR CASH
ANY AND ALL OUTSTANDING SHARES OF COMMON STOCK
OF
CHILDREN'S DISCOVERY CENTERS OF AMERICA, INC.
AT
$12.25 NET PER SHARE
BY
KBI ACQUISITION CORP.
A WHOLLY OWNED SUBSIDIARY OF
KNOWLEDGE BEGINNINGS, INC.
- --------------------------------------------------------------------------------
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON FRIDAY, MAY 1, 1998, UNLESS THE OFFER IS EXTENDED.
- --------------------------------------------------------------------------------
April 3, 1998
To Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees:
Donaldson, Lufkin & Jenrette Securities Corporation is acting as Dealer
Manager to KBI Acquisition Corp., a Delaware corporation ("Purchaser") and a
wholly owned subsidiary of Knowledge Beginnings, Inc., a Delaware corporation
("Parent"), in connection with Purchaser's offer to purchase any and all
outstanding shares of common stock, par value $.01 per share (the "Shares"), of
Children's Discovery Centers of America, Inc., a Delaware corporation (the
"Company"), at a purchase price of $12.25 per Share, net to the seller in cash,
without interest thereon, upon the terms and subject to the conditions set forth
in the Offer to Purchase dated April 3, 1998 (the "Offer to Purchase") and in
the related Letter of Transmittal (which, as amended and supplemented from time
to time, together constitute the "Offer") enclosed herewith. The Offer is being
made pursuant to an Agreement and Plan of Merger, dated as of March 27, 1998, by
and among Parent, Purchaser and the Company. All capitalized terms used but not
defined herein shall have the meaning ascribed to them in the Offer to Purchase.
Please furnish copies of the enclosed materials to those of your clients for
whose accounts you hold Shares in your name or in the name of your nominee.
Enclosed herewith for your information and forwarding to your clients are
copies of the following documents:
1. The Offer to Purchase dated April 3, 1998.
2. The Letter of Transmittal to tender Shares for your use and for the
information of your clients. Facsimile copies of the Letter of Transmittal
(with manual signatures) may be used to tender Shares.
3. A letter to the stockholders of the Company from Mr. Richard A.
Niglio, Chairman and Chief Executive Officer of the Company, together with a
Solicitation/Recommendation Statement on Schedule 14D-9 filed with the
Securities and Exchange Commission by the Company and mailed to the
stockholders of the Company, each recommending that the Company's
stockholders accept the Offer and tender their Shares.
4. The Notice of Guaranteed Delivery to be used to tender Shares
pursuant to the Offer if none of the procedures for tendering Shares set
forth in the Offer to Purchase can be completed on a timely basis.
5. A printed form of letter which may be sent to your clients for whose
accounts you hold Shares registered in your name or in the name of your
nominee, with space provided for obtaining such clients' instructions with
regard to the Offer.
6. Guidelines of the Internal Revenue Service for Certification of
Taxpayer Identification Number on Substitute Form W-9.
7. A return envelope addressed to IBJ Schroder Bank & Trust Company, as
Depositary (the "Depositary").
YOUR PROMPT ACTION IS REQUESTED. WE URGE YOU TO CONTACT YOUR CLIENTS AS
PROMPTLY AS POSSIBLE. PLEASE NOTE THAT THE OFFER AND WITHDRAWAL RIGHTS EXPIRE AT
12:00 MIDNIGHT, NEW YORK CITY TIME, ON FRIDAY, MAY 1, 1998, UNLESS THE OFFER IS
EXTENDED.
<PAGE>
Please note the following:
1. The tender price is $12.25 per Share, net to the seller in cash,
without interest thereon.
2. The Offer is being made for any and all outstanding Shares.
3. The Offer is conditioned upon, among other things, (i) 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),
(ii) the expiration or termination of any applicable waiting period under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and
the passage of certain statutory waiting periods relating to the Company's
operating licenses, (iii) certain ancillary agreements and instruments
having been obtained by the Company, and (iv) the satisfaction of certain
other terms and conditions set forth in the Offer to Purchase.
4. Tendering stockholders will not be obligated to pay brokerage fees
or commissions or, except as set forth in the Letter of Transmittal, stock
transfer taxes on the transfer of Shares pursuant to the Offer.
Upon the terms and subject to the conditions of the Offer (including, if the
Offer is extended or amended, the terms and conditions of any such extension or
amendment), Purchaser will accept for payment and pay for all Shares which are
validly tendered and not validly withdrawn on or prior to the Expiration Date.
In order to take advantage of the Offer, (i) a duly executed and properly
completed Letter of Transmittal (or a manually signed facsimile thereof) and any
required signature guarantees or, in the case of a book-entry transfer, an
Agent's Message, and any other required documents should be sent to the
Depositary and (ii) certificates representing tendered Shares ("Share
Certificates") or a timely Book-Entry Confirmation should be delivered to the
Depositary in accordance with the instructions set forth in the Offer to
Purchase and the Letter of Transmittal.
Holders of Shares whose Share Certificates are not immediately available or
who cannot deliver their Share Certificates and all other required documents to
the Depositary or complete the procedures for book-entry transfer prior to the
Expiration Date must tender their Shares according to the guaranteed delivery
procedures set forth in Section 3 of the Offer to Purchase.
None of Purchaser, Parent nor any officer, director, stockholder, agent or
other representative of Purchaser will pay any fees or commissions to any
broker, dealer or other person (other than the Dealer Manager and the
Information Agent as described in the Offer to Purchase) for soliciting tenders
of Shares pursuant to the Offer. Purchaser will, however, upon request,
reimburse you for customary mailing and handling expenses incurred by you in
forwarding any of the enclosed materials to your clients. Purchaser will pay or
cause to be paid any stock transfer taxes payable on the transfer of Shares to
it, except as otherwise provided in Instruction 6 to the Letter of Transmittal.
Any inquiries you may have with respect to the Offer should be addressed to
Donaldson, Lufkin & Jenrette Securities Corporation, as Dealer Manager, 2121
Avenue of the Stars, Suite 3200, Los Angeles, California 90067, (310) 282-7449,
or to MacKenzie Partners, Inc., as Information Agent, 156 Fifth Avenue, New
York, New York 10010, (212) 929-5500 or (800) 322-2885.
Requests for copies of the enclosed materials may be directed to the Dealer
Manager or the Information Agent at the above address and telephone number.
Very truly yours,
DONALDSON, LUFKIN & JENRETTE
SECURITIES
CORPORATION
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU
OR ANY OTHER PERSON AS THE AGENT OF PARENT, PURCHASER, THE DEALER MANAGER, THE
DEPOSITARY, THE INFORMATION AGENT OR ANY AFFILIATE OF ANY OF THE FOREGOING, OR
AUTHORIZE YOU OR ANY OTHER PERSON TO MAKE ANY STATEMENT OR USE ANY DOCUMENT ON
BEHALF OF ANY OF THEM IN CONNECTION WITH THE OFFER OTHER THAN THE ENCLOSED
DOCUMENTS AND THE STATEMENTS CONTAINED THEREIN.
<PAGE>
OFFER TO PURCHASE FOR CASH
ANY AND ALL OUTSTANDING SHARES OF COMMON STOCK
OF
CHILDREN'S DISCOVERY CENTERS OF AMERICA, INC.
AT
$12.25 NET PER SHARE
BY
KBI ACQUISITION CORP.
A WHOLLY OWNED SUBSIDIARY OF
KNOWLEDGE BEGINNINGS, INC.
- --------------------------------------------------------------------------------
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON FRIDAY, MAY 1, 1998, UNLESS THE OFFER IS EXTENDED.
- --------------------------------------------------------------------------------
April 3, 1998
To Our Clients:
Enclosed for your consideration are the Offer to Purchase dated April 3,
1998 (the "Offer to Purchase") and the related Letter of Transmittal (which, as
amended or supplemented from time to time, together constitute the "Offer")
relating to an offer by KBI Acquisition Corp., a Delaware corporation
("Purchaser") and a wholly owned subsidiary of Knowledge Beginnings, Inc., a
Delaware corporation ("Parent"), to purchase any and all outstanding shares of
common stock, par value $.01 per share (the "Shares"), of Children's Discovery
Centers of America, Inc., a Delaware corporation (the "Company"), at a purchase
price of $12.25 per Share, net to the seller in cash, without interest thereon,
upon the terms and subject to the conditions set forth in the Offer. The Offer
is being made pursuant to an Agreement and Plan of Merger, dated as of March 27,
1998, by and among Parent, Purchaser and the Company.
This material is being forwarded to you as the beneficial owner of Shares
carried by us in your account but not registered in your name.
A TENDER OF SUCH SHARES CAN BE MADE ONLY BY US AS THE HOLDER OF RECORD AND
PURSUANT TO YOUR INSTRUCTIONS. THE LETTER OF TRANSMITTAL IS FURNISHED TO YOU FOR
YOUR INFORMATION ONLY AND CANNOT BE USED BY YOU TO TENDER SHARES HELD BY US FOR
YOUR ACCOUNT.
Accordingly, we request instructions as to whether you wish to tender any or
all of the Shares held by us for your account, upon the terms and subject to the
conditions set forth in the Offer to Purchase.
Please note the following:
1. The tender price is $12.25 per Share, net to the seller in cash,
without interest thereon.
2. The Offer is being made for any and all outstanding Shares.
3. The Offer and withdrawal rights will expire at 12:00 midnight, New
York City time, on Friday, May 1, 1998, unless the Offer is extended.
4. The Offer is conditioned upon (i) 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), (ii) the expiration or
termination of any applicable waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, and the passage of certain
statutory waiting periods relating to the Company's operating licenses,
(iii) certain ancillary agreements and instruments having
<PAGE>
been obtained by the Company, and (iv) the satisfaction of certain other
terms and conditions set forth in the Offer to Purchase.
5. 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 Company's stockholders, (ii) approved and adopted the Merger Agreement
and the Option and Support Agreement (each as defined in the Offer to
Purchase) and the transactions contemplated thereby, including the Offer and
the Merger, (iii) recommended that the Company's stockholders accept the
Offer and tender their Shares pursuant to the Offer, and (iv) taken all
action necessary to render Section 203 of the General Corporation Law of the
State of Delaware and other state takeover statutes inapplicable to the
Offer, the Merger and the Option and Support Agreement.
6. Tendering stockholders will not be obligated to pay brokerage fees
or commissions or, except as set forth in the Letter of Transmittal, stock
transfer taxes on the transfer of Shares pursuant to the Offer.
If you wish to have us tender any or all of your Shares, please so instruct
us by completing, executing, detaching and returning to us the instruction form
contained in this letter. An envelope to return your instruction to us is
enclosed. If you authorize tender of your Shares, all such Shares will be
tendered unless otherwise indicated in such instruction form. PLEASE FORWARD
YOUR INSTRUCTIONS TO US AS SOON AS POSSIBLE TO ALLOW US AMPLE TIME TO TENDER
YOUR SHARES ON YOUR BEHALF PRIOR TO THE EXPIRATION OF THE OFFER.
The Offer is made solely pursuant to the Offer to Purchase and the related
Letter of Transmittal and any supplements or amendments thereto. The Offer is
not being made to, nor will tenders be accepted from or on behalf of, holders of
Shares residing in any jurisdiction in which the making of the Offer or
acceptance thereof would not be in compliance with the securities laws of such
jurisdiction.
<PAGE>
INSTRUCTIONS WITH RESPECT TO THE
OFFER TO PURCHASE FOR CASH
ANY AND ALL OUTSTANDING SHARES OF COMMON STOCK
OF
CHILDREN'S DISCOVERY CENTERS OF AMERICA, INC.
The undersigned acknowledge(s) receipt of your letter and the enclosed Offer
to Purchase dated April 3, 1998 (the "Offer to Purchase") and the related Letter
of Transmittal (which together constitute the "Offer") in connection with the
offer by KBI Acquisition Corp., a Delaware corporation ("Purchaser") and a
wholly owned subsidiary of Knowledge Beginnings, Inc., a Delaware corporation,
to purchase any and all outstanding shares of common stock, par value $.01 per
share (the "Shares"), of Children's Discovery Centers of America, Inc., a
Delaware corporation.
This will instruct you to tender to Purchaser the number of Shares indicated
below (or if no number is indicated below, all Shares) which are held by you for
the account of the undersigned, upon the terms and subject to the conditions set
forth in the Offer to Purchase.
<TABLE>
<S> <C>
- -------------------------------------------
Number of Shares to be Tendered: SIGN HERE
- ---------------------------------- Shares*
- ------------------------------------------- -------------------------------------------
-------------------------------------------
Dated: ----------------------------------- Signature(s)
-------------------------------------------
-------------------------------------------
Print Name(s)
-------------------------------------------
-------------------------------------------
Print Address(es)
-------------------------------------------
Area Code and Telephone Number(s)
-------------------------------------------
Taxpayer Identification or
Social Security Number(s)
</TABLE>
- ------------------------
* Unless otherwise indicated, it will be assumed that all Shares held by us
for your account are to be tendered.
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE
PAYER--Social Security Numbers have nine digits separated by two hyphens: I.E.,
000-00-0000. Employer Identification Numbers have nine digits separated by only
one hyphen: I.E., 00-0000000. The table below will help determine the type of
number to give the payer.
<TABLE>
<S> <C> <C>
- ---------------------------------------------------------------
FOR THIS TYPE OF ACCOUNT: GIVE THE
SOCIAL SECURITY
NUMBER OF--
- ---------------------------------------------------------------
1. Individual The individual
2. Two or more individuals The actual owner of the
(joint account) account or, if combined
funds, the first
individual on the
account(1)
3. Husband and wife (joint The actual owner of the
account) account or, if joint
funds, either person(1)
4. Custodian account of a The minor(2)
minor (Uniform Gift to
Minors Act)
5. Adult and minor (joint The adult or, if the
account) minor is the only
contributor, the minor(1)
6. Account in the name of The ward, minor or
guardian or committee for incompetent person(3)
a designated ward, minor
or incompetent person
7. a. The usual revocable The grantor-trustee(1)
savings trust account
(grantor is also
trustee)
b. So-called trust The actual owner(1)
account that is not a
legal or valid trust
under State law
- ---------------------------------------------------------------
FOR THIS TYPE OF ACCOUNT: GIVE THE EMPLOYER
IDENTIFICATION
NUMBER OF--
- ---------------------------------------------------------------
8. Sole proprietorship The owner(4)
9. A valid trust, estate or The legal entity(5)
pension trust
10. Corporate The corporation
11. Religious, charitable or The organization
educational organization
12. Partnership account held The partnership
in the name of the
business
13. Association, club or The organization
other tax-exempt
organization
14. A broker or registered The broker or nominee
nominee
15. Account with the Depart- The public entity
ment of Agriculture in
the name of a public
entity (such as a State
or local government,
school district, or
prison) that receives
agricultural program
payments
</TABLE>
<TABLE>
<S> <C>
- -------------------------------------------------------- --------------------------------------------------------
</TABLE>
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Circle the ward's, minor's or incompetent person's name and furnish such
person's social security number.
(4) The name of the owner must be shown.
(5) List first and circle the name of the legal trust, estate or pension trust.
Do not furnish the identification number of the personal representative or
trustee unless the legal entity itself is not designated in the account
title.
NOTE: If no name is circled when there is more than one name, the number will be
considered to be that of the first name listed.
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER OF SUBSTITUTE FORM W-9
PAGE 2
OBTAINING A NUMBER
If you don't have a taxpayer identification number or you don't know your
number, obtain Form SS-5, Application for a Social Security Number Card (for
individuals), or Form SS-4, Application for Employer Identification Number (for
businesses and all other entities), at the local office of the Social Security
Administration or the Internal Revenue Service and apply for a number.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Payees generally exempted from backup withholding on payments include the
following:
- - A corporation.
- - A financial institution.
- - An organization exempt from tax under section 501(a) of the Internal Revenue
Code of 1986, as amended (the "Code"), or an individual retirement plan.
- - The United States or any agency or instrumentality thereof.
- - A State, the District of Columbia, a possession of the United States or any
political subdivision or instrumentality thereof.
- - A foreign government, a political subdivision of a foreign government or any
agency or instrumentality thereof.
- - An international organization or any agency or instrumentality thereof.
- - A dealer in securities or commodities required to register in the United
States or a possession thereof.
- - A real estate investment trust.
- - A common trust fund operated by a bank under Section 584(a) of the Code.
- - An entity registered at all times during the tax year under the Investment
Company Act of 1940.
- - A foreign central bank of issue.
Payments of dividends and patronage dividends generally not subject to backup
withholding include the following:
- - Payments to nonresident aliens subject to withholding under Section 1441 of
the Code.
- - Payments to partnerships not engaged in a trade or business in the United
States and which have at least one nonresident partner.
- - Payments of patronage dividends where the amount received is not paid in
money.
- - Payments made by certain foreign organizations.
Payments of interest generally not subject to backup withholding include the
following:
- - Payments of interest on obligations issued by individuals. Note: Payees may be
subject to backup withholding if this interest is $600 or more and is paid in
the course of the payer's trade or business and the payee has not provided his
or her correct taxpayer identification number to the payer.
- - Payments of tax-exempt interest (including exempt-interest dividends under
Section 852 of the Code).
- - Payments described in Section 6049(b)(5) of the Code to nonresident aliens.
- - Payments on tax-free covenant bonds under Section 1451 of the Code.
- - Payments made by certain foreign organizations.
Exempt payees described above must still complete the Substitute Form W-9
enclosed herewith to avoid possible erroneous backup withholding. FILE
SUBSTITUTE FORM W-9 WITH THE PAYER, REMEMBERING TO CERTIFY YOUR TAXPAYER
IDENTIFICATION NUMBER ON THE FORM AND WRITE 'EXEMPT' ON THE FACE OF THE FORM.
Payments that are not subject to information reporting are also not subject to
backup withholding. For details, see the regulations under sections 6041,
6041A(a), 6042, 6044, 6045, 6049, 6050A and 6050N of the Code.
PRIVACY ACT NOTICE.--Section 6109 of the Code requires most recipients of
dividend, interest or other payments to give taxpayer identification numbers to
payers who must report the payments to the Internal Revenue Service. The
Internal Revenue Service uses the numbers for identification purposes. Payers
must be given the numbers whether or not recipients are required to file tax
returns. Payers must generally withhold 31% of taxable interest, dividend and
certain other payments to a payee who does not furnish a taxpayer identification
number to a payer. Certain penalties may also apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER--If you fail
to furnish your correct taxpayer identification number to a payer, you may be
subject to a penalty of $50 for each such failure unless your failure is due to
reasonable cause and not to willful neglect.
(2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING--If you
make a false statement with no reasonable basis which results in no imposition
of backup withholding, you may be subject to a penalty of $500.
(3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION--Willfully falsifying
certifications or affirmations may subject you to criminal penalties including
fines and/or imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL
REVENUE SERVICE.
<PAGE>
Contact: Susan Carlson/Zoe Arden
Access Communications
(415) 904-7070, ext. 231, 287
[email protected]
[email protected]
KNOWLEDGE BEGINNINGS, A SUBSIDIARY OF KNOWLEDGE UNIVERSE, ACQUIRES CHILDREN'S
DISCOVERY CENTERS
BURLINGAME, Calif., March 30 -- 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 Beginnings 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 the 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."
"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."
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
from its humble beginnings 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."
Under the terms of the merger agreement, a subsidiary of Knowledge Beginnings
will promptly commence a tender offer for all outstanding shares of CDC at a net
price of $12.25 per share in cash. In connection with the execution of the
merger agreement, Knowledge Beginnings entered into an Option and Support
Agreement with three partnerships owning a total of 1,363,700 shares of CDC
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.
<PAGE>
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 through out 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.
<PAGE>
THIS ANNOUNCEMENT IS NEITHER AN OFFER TO PURCHASE NOR A SOLICITATION OF AN
OFFER TO SELL SHARES. THE OFFER (AS DEFINED BELOW) IS MADE SOLELY BY
THE OFFER TO PURCHASE DATED APRIL 3, 1998 AND THE RELATED LETTER OF
TRANSMITTAL, AND ANY AMENDMENTS OR SUPPLEMENTS THERETO, AND IS BEING
MADE TO ALL HOLDERS OF SHARES (AS DEFINED BELOW). KBI ACQUISITION CORP.
IS NOT AWARE OF ANY STATE WHERE THE MAKING OF THE OFFER IS PROHIBITED
BY ADMINISTRATIVE OR JUDICIAL ACTION PURSUANT TO ANY VALID STATE STATUTE.
IF IT BECOMES AWARE OF ANY VALID STATE STATUTE PROHIBITING THE MAKING
OF THE OFFER OR THE ACCEPTANCE OF SHARES PURSUANT THERETO, KBI ACQUISITION
CORP. WILL MAKE A GOOD FAITH EFFORT TO COMPLY WITH SUCH STATE STATUTE. IF,
AFTER SUCH GOOD FAITH EFFORT, KBI ACQUISITION CORP. CANNOT COMPLY WITH
SUCH STATE STATUTE, THE OFFER WILL NOT BE MADE TO (NOR WILL TENDERS BE
ACCEPTED FROM OR ON BEHALF OF) THE HOLDERS OF SHARES IN SUCH STATE.
IN ANY JURISDICTION WHERE THE SECURITIES, BLUE SKY OR OTHER LAWS
REQUIRE THE OFFER TO BE MADE BY A LICENSED BROKER OR DEALER, THE
OFFER SHALL BE DEEMED TO BE MADE ON BEHALF OF KBI ACQUISITION
CORP. BY DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
OR ONE OR MORE REGISTERED BROKERS OR DEALERS LICENSED
UNDER THE LAWS OF SUCH JURISDICTION.
NOTICE OF OFFER TO PURCHASE FOR CASH
ANY AND ALL OUTSTANDING SHARES OF COMMON STOCK
OF
CHILDREN'S DISCOVERY CENTERS OF AMERICA, INC.
AT
$12.25 NET PER SHARE IN CASH
BY
KBI ACQUISITION CORP.
A WHOLLY OWNED SUBSIDIARY OF
KNOWLEDGE BEGINNINGS, INC.
KBI Acquisition Corp., a Delaware corporation ("Purchaser") and a wholly
owned subsidiary of Knowledge Beginnings, Inc., a Delaware corporation
("Parent"), is offering to purchase any and all outstanding shares of common
stock, par value $.01 per share (the "Shares"), of Children's Discovery Centers
of America, Inc., a Delaware corporation (the "Company"), at a price of $12.25
per Share, net to the seller in cash, without interest thereon, upon the terms
and subject to the conditions set forth in the Offer to Purchase, dated April
3, 1998 (the "Offer to Purchase"), and in the related Letter of Transmittal
(which, as amended and supplemented from time to time, together constitute the
"Offer"). Following the Offer, Purchaser intends to effect the merger described
below. All capitalized terms used but not otherwise defined herein shall have
the meaning ascribed to them in the Offer to Purchase.
- --------------------------------------------------------------------------------
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON FRIDAY, MAY 1, 1998, UNLESS THE OFFER IS EXTENDED.
- --------------------------------------------------------------------------------
The Offer is conditioned upon, among other things, (i) 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"), (ii) the expiration or termination of any applicable waiting period
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and
the passage of certain statutory waiting periods relating to the Company's
operating licenses, (iii) certain ancillary agreements and instruments having
been obtained by the Company and Parent, and (iv) the satisfaction of certain
other conditions set forth in the Offer to Purchase.
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 Company's
stockholders, (ii) approved and adopted the Merger Agreement and the Option and
Support Agreement (each as defined below) and the transactions contemplated
thereby, including the Offer and the Merger, (iii) recommended that the
Company's stockholders accept the Offer and tender their Shares pursuant to the
Offer, and (iv) taken all action necessary to render Section 203 of the General
Corporation Law of the State of Delaware (the "DGCL") and other state takeover
statutes inapplicable to the Offer, the Merger and the Option and Support
Agreement.
The Company has granted Parent an irrevocable option to purchase newly
issued Shares representing up to 19.9% of the outstanding Shares pursuant to
and upon the terms set forth in an Option and Support Agreement, dated as of
March 27, 1998 (the "Option and Support Agreement"), by and among the Company,
Parent and certain stockholders of the Company (the "Selling Stockholders"). In
addition, pursuant to the Option and Support Agreement, the Selling
Stockholders, owning in the aggregate approximately 20.2% of the issued and
outstanding Shares, have agreed to tender and sell all of their Shares to
Purchaser pursuant to the Offer and have granted Parent an irrevocable option to
purchase all of the Shares owned by such Selling Stockholders upon the terms set
forth in the Option and Support Agreement.
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 Parent, Purchaser
and the Company. The Merger Agreement provides, among other things, that as soon
as practicable after the purchase of the Shares pursuant to the Offer and the
satisfaction or waiver of the conditions set forth in the Merger Agreement and
in accordance with relevant provisions of the DGCL, Purchaser (or such other
subsidiary of Parent as described below) will be merged with the Company (the
"Merger"). Following consummation of the Merger, 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. At
the effective time of the Merger (the "Effective Time"), each issued and
outstanding Share (other than Shares owned by the Company, Parent, Purchaser
or Shares with respect to which appraisal rights are properly exercised under
the DGCL) will be converted into and represent 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").
For purposes of the Offer, Purchaser will be deemed to have accepted for
payment (and thereby purchased) Shares validly tendered and not properly
withdrawn if and when Purchaser gives oral or written notice to IBJ Schroder
Bank & Trust Company (the "Depositary") of Purchaser's acceptance for payment of
such Shares pursuant to the Offer. Upon the terms and subject to the conditions
of the Offer, payment for Shares accepted for payment pursuant to the Offer will
be made by deposit of the purchase price therefor with the Depositary, which
will act as agent for all tendering stockholders for the purpose of receiving
payments from Purchaser and transmitting such payments to tendering
stockholders whose Shares have been accepted for payment. In all cases, payment
for Shares tendered and accepted for payment pursuant to the Offer will be made
only after timely receipt by the Depositary of (i) the certificates evidencing
such Shares (the "Share Certificates") or timely confirmation (a "Book-Entry
Confirmation") of a book-entry transfer of such Shares into the Depositary's
account at The Depository Trust Company (the "Book-Entry Transfer Facility")
pursuant to the procedures set forth in Section 3 of the Offer to Purchase, (ii)
the Letter of Transmittal (or a manually signed facsimile thereof), properly
completed and duly executed, with any required signature guarantees, or an
Agent's Message (as defined below) in connection with a book-entry transfer, and
(iii) any other documents required under the Letter of Transmittal. The term
"Agent's Message" means a message transmitted by the Book-Entry Transfer
Facility to, and received by, the Depositary and forming a part of a Book-Entry
Confirmation, which states that such Book-Entry Transfer Facility has received
an express acknowledgment from the participant in such Book-Entry Transfer
Facility tendering the Shares that are the subject of such Book-Entry
Confirmation that such participant has received and agrees to be bound by the
terms of the Letter of Transmittal and that Purchaser may enforce such agreement
against such participant.
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 in Section 15 of the Offer to Purchase,
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. Subject to the terms and conditions of
the Merger Agreement and the applicable rules of the Securities and Exchange
Commission, Purchaser expressly reserves the right, at any time and from time
to time, to modify the terms of the Offer, including, without limitation, to
extend the Offer (including an extension of up to 20 business days beyond the
initial scheduled expiration date of the Offer notwithstanding the satisfaction
of the conditions set forth in Section 15 of the Offer to Purchase), and thereby
delay acceptance for payment and payment for tendered Shares, by giving oral or
written notice of such extension to the Depositary. Any such extension will be
followed as promptly as practicable by public announcement thereof, such
announcement to be made not later than 9:00 a.m., New York City time, on the
next business day after the previously scheduled expiration date of the Offer.
During any such extension, all Shares previously tendered and not withdrawn will
remain subject to the Offer and to the rights of a tendering stockholder to
withdraw such stockholder's Shares. Under no circumstances will any interest be
paid on the purchase price for tendereed Shares, regardless of any extension of
the Offer or any delay in acceptance for payment and payment for tendered
Shares.
Tenders of Shares made pursuant to the Offer are irrevocable except that
such Shares may be withdrawn at any time prior to 12:00 Midnight, New York City
time, on Friday, May 1, 1998 (or the latest time and date at which the Offer, if
extended by Purchaser, shall expire) and, unless theretofore accepted for
payment by Purchaser pursuant to the Offer, may also be withdrawn at any time
after June 1, 1998. For any such withdrawal to be effective, a written,
telegraphic, telex or facsimile transmission notice of withdrawal must be timely
received by the Depositary at its address set forth on the back cover page of
the Offer to Purchase. Any such notice of withdrawal must specify the name of
the person who tendered the Shares to be withdrawn, the number of Shares to be
withdrawn and the name of the registered holder of such Shares, if different
from that of the person who tendered such Shares. If Share Certificates
evidencing Shares to be withdrawn have been delivered or otherwise identified to
the Depositary, then, prior to the physical release of such Share Certificates,
the serial numbers shown on such Share Certificates must be submitted to the
Depositary and the signature(s) on the notice of withdrawal must be guaranteed
by an Eligible Institution, unless such Shares have been tendered for the
account of an Eligible Institution. If Shares have been tendered pursuant to the
procedures for book-entry transfer as set forth in Section 3 of the Offer to
Purchase, any notice of withdrawal must specify the name and number of the
account at the Book-Entry Transfer Facility to be credited with the withdrawn
Shares and must otherwise comply with such Book-Entry Transfer Facility's
procedures. All questions as to the form and validity (including the time of
receipt) of any notice of withdrawal will be determined by Purchaser, in its
sole discretion, whose determination will be final and binding. None of Parent,
Purchaser, the Company, the Dealer Manager, the Depositary, the Information
Agent or any other person will be under any duty to give notification of any
defects or irregularities in any tender or notice of withdrawal or incur any
liability for failure to give any such notification.
The information required to be disclosed by Rule 14d-6(e)(1)(vii) of the
General Rules and Regulations under the Securities Exchange Act of 1934, as
amended, is contained in the Offer to Purchase and is incorporated herein by
reference.
The Company has provided Purchaser with the Company's stockholder list and
security position listings for the purpose of disseminating the Offer to holders
of Shares. The Offer to Purchase and the related Letter of Transmittal will be
mailed to record holders of Shares whose names appear on the Company's
stockholder list and will be furnished to brokers, dealers, commercial banks,
trust companies and similar persons whose names, or the names of whose nominees,
appear on the stockholder list or, if applicable, who are listed as
participants in a clearing agency's security position listing for subsequent
transmittal to beneficial owners of Shares.
The Offer to Purchase and the related Letter of Transmittal contain
important information which should be read before any decision is made with
respect to the Offer.
Questions and requests for assistance or for copies of the Offer to
Purchase and the related Letter of Transmittal, and other Offer materials, may
be directed to the Dealer Manager or the Information Agent as set forth below,
and copies will be furnished promptly at Purchaser's expense. No fees or
commissions will be paid to brokers, dealers or other persons (other than the
Dealer Manager and the Information Agent) for soliciting tenders of Shares
pursuant to the Offer.
THE INFORMATION AGENT FOR THE OFFER IS:
[MACKENZIE PARTNERS, INC. LOGO]
156 Fifth Avenue
New York, New York 10010
(212) 929-5500 (Call Collect)
or
CALL TOLL-FREE (800) 322-2885
THE DEALER MANAGER FOR THE OFFER IS:
DONALDSON, LUFKIN & JENRETTE
SECURITIIES CORPORATION
2121 Avenue of the Stars, Suite 3000
Los Angeles, CA 90067
(310) 282-7449 (Call Collect)
April 3, 1998
<PAGE>
PROMISSORY NOTE
$35,000,000 Los Angeles, California
April 2, 1998
FOR VALUE RECEIVED, the undersigned, KNOWLEDGE BEGINNINGS, INC., a
Delaware corporation ("Beginnings"), hereby promises to pay to KNOWLEDGE
UNIVERSITY HOLDINGS, L.L.C., a Delaware limited liability company
("Holdings"), at its address at 844 Moraga Drive, Los Angeles, California
90049-1639, or at such other place as Holdings may designate from time to
time in writing, in lawful money of the United States of America and in
immediately available funds, the aggregate principal amount of THIRTY-FIVE
MILLION AND NO/100 DOLLARS ($35,000,000.00). The maturity date (the
"Maturity Date") of this Promissory Note shall be April 2, 1999, at which
time the then-outstanding principal balance hereof, together with all accrued
and unpaid interest at a rate of 8% per annum through the Maturity Date,
shall become immediately due and payable.
At any time prior to the Maturity Date, Beginnings shall have the
right to pay Holdings all or any portion of the then-outstanding principal
balance of this Promissory Note, together with any accrued and unpaid
interest, without penalty.
Time is of the essence in this Promissory Note. Demand, presentment,
protest and notice of nonpayment and protest are hereby waived by Beginnings.
THIS PROMISSORY NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF CALIFORNIA APPLICABLE TO CONTRACTS MADE AND
PERFORMED IN THAT STATE.
KNOWLEDGE BEGINNINGS, INC.
By: /s/ RONALD J. PACKARD
--------------------------------
Name: Ronald J. Packard
------------------------------
Title: Treasurer
-----------------------------
<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
ii
<PAGE>
TABLE OF CONTENTS
(Continued)
(Page)
<S> <C>
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>
iii
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "AGREEMENT"), dated as of
March 27, 1998, is by and among Knowledge Beginnings, Inc., a Delaware
corporation ("PARENT"), KBI Acquisition Corp., a Delaware corporation and a
wholly-owned subsidiary of Parent ("PURCHASER") and Children's Discovery Centers
of America, Inc., a Delaware corporation ("COMPANY").
RECITALS
WHEREAS, the respective Boards of Directors of Parent, Purchaser and the
Company have each determined that it is in the best interests of their
respective stockholders for the Company to be acquired pursuant to the terms and
subject to the conditions of this Agreement.
WHEREAS, in furtherance of such acquisition it is proposed that Purchaser
will make a tender offer (the "OFFER") to purchase all of the issued and
outstanding shares of common stock, par value $0.01 per share, of the Company
(the "COMMON STOCK"), subject to the terms and conditions of this Agreement and
ANNEX I hereto, for $12.25 per share net to the tendering stockholder in cash,
without interest thereon. The Common Stock is sometimes hereinafter referred to
as the "SHARES."
WHEREAS, to complete such acquisition, the respective Boards of Directors
of Parent, Purchaser and the Company have each duly approved the merger of
Purchaser and the Company (the "MERGER") following consummation of the Offer, in
accordance with the terms of this Agreement and the General Corporation Law of
the State of Delaware (the "DELAWARE LAW").
WHEREAS, Parent and the Company have also entered into an Option and
Support Agreement dated as of the date hereof, in the form attached as EXHIBIT A
hereto (the "OPTION AGREEMENT"), providing for the grant by the Company to
Parent of an option to purchase, under certain circumstances, 19.9% of the
outstanding Shares at $10.125 per Share.
WHEREAS, Parent and Proactive Partners, L.P., Fremont Proactive Partners,
L.P. and Lagunitas Partners, L.P. have entered into the Option Agreement
providing for, among other things, the agreement of each such stockholder to
tender all Shares owned by it pursuant to the Offer and the grant by each such
stockholder to Parent of an option to purchase, under certain circumstances, all
Shares owned by such stockholder at $12.25 per Share.
WHEREAS, the Board of Directors of the Company unanimously (i) determined
that the Offer and the Merger is fair to, and in the best interests of, the
stockholders of the Company, (ii) approved and adopted this Agreement, the
Option Agreement and the transactions contemplated hereby and thereby, and
(iii) recommends acceptance of the Offer and approval and adoption by the
stockholders of the Company of this Agreement and the Merger.
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AGREEMENT
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, Parent, Purchaser and the Company
hereby agree as follows:
1. THE OFFER
1.1. THE OFFER.
(a) Provided that nothing shall have occurred which would
result in a failure to satisfy any of the conditions set forth in ANNEX I
hereto, Purchaser shall, as soon as practicable after the date hereof, but in no
event later than the fifth business day after the date of this Agreement,
commence (within the meaning of Rule 14d-2(a) of the Securities Exchange Act of
1934, as amended (the "EXCHANGE ACT")) the Offer. Subject to the terms and
conditions set forth in this Agreement (including the right to terminate, extend
or modify the Offer), and subject to the other conditions set forth in ANNEX I
hereto, including, without limitation, a minimum of a majority of the Shares
(determined on a fully diluted basis) being validly tendered and not withdrawn
prior to the expiration or termination of the Offer (the "MINIMUM CONDITION"),
Purchaser shall use its reasonable efforts to consummate the Offer as soon as
legally permissible. As used herein "on a fully diluted basis" means, as of any
date, the number of Shares outstanding, together with Shares issuable upon
exercise of outstanding Company Options (as hereafter defined). Notwithstanding
any provision of this Agreement, Purchaser expressly reserves the right to
modify the terms of the Offer, including, without limitation, to extend the
Offer beyond the scheduled expiration date (including an extension of up to 20
business days beyond the initial scheduled expiration date whether or not the
conditions set forth in ANNEX I hereto have been satisfied); provided that the
Offer shall not, without the written consent of the Company, be amended to
decrease the price per Share or change the form of consideration payable in the
Offer, decrease the number of Shares sought, waive the Minimum Condition or
impose additional conditions to the Offer. The Company agrees that no Shares
held by the Company or any of its wholly-owned subsidiaries will be tendered
pursuant to the Offer.
(b) As soon as practicable on the date of commencement of the
Offer, Purchaser shall file with the Securities and Exchange Commission (the
"COMMISSION") with respect to the Offer a Schedule 14D-1 (the "SCHEDULE 14D-1")
which will contain an offer to purchase and forms of the related letter of
transmittal and summary advertisement (which documents, together with any
supplements or amendments thereto, are referred to herein collectively as the
"OFFER DOCUMENTS"). Each of Parent and Purchaser, on the one hand, and the
Company, on the other hand, agrees promptly to correct any information provided
by it for use in the Offer Documents if and to the extent that it shall have
become false or misleading in any material respect, and Parent and Purchaser
further agree to take all steps necessary to cause the Offer Documents as so
corrected to be filed with the Commission and to be disseminated to the
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stockholders of the Company, in each case as and to the extent required by
applicable federal securities laws.
1.2. COMPANY ACTION.
(a) The Company approves and consents to the Offer, the Merger
and the Option Agreement and represents that the Board of Directors of the
Company has, by a vote of all directors at a meeting duly called and held,
unanimously (i) determined that each of the Offer and the Merger is fair to, and
in the best interests of, the stockholders of the Company, (ii) approved and
adopted the Option Agreement and this Agreement and the transactions
contemplated hereby and thereby, including the Offer and the Merger,
(iii) recommended acceptance of the Offer and approval and adoption of this
Agreement and the Merger by the stockholders of the Company, and (iv) taken all
action necessary to render Section 203 of the Delaware Law and other state
takeover statutes inapplicable to the Offer, the Merger and the Option
Agreement. The Company further represents that Advest, Inc. has rendered to the
Board of Directors of the Company its opinion that the consideration to be
received by the stockholders of the Company pursuant to the Offer and the Merger
is fair to such stockholders from a financial point of view.
(b) The Company agrees to promptly prepare, and after review by
Purchaser, file with the Commission on the same date the Offer Documents are
filed with the Commission and to mail to its stockholders a
Solicitation/Recommendation Statement on Schedule 14D-9 with respect to the
Offer (the "SCHEDULE 14D-9") containing the recommendation described in Section
1.2(a) hereof and to disseminate the Schedule 14D-9 as required by Rule 14d-9
promulgated under the Exchange Act. The Company agrees to provide Parent and
its counsel with any comments that the Company or its counsel may receive from
the Commission or its staff with respect to the Schedule 14D-9 promptly after
the receipt of such comments and shall provide Parent and its counsel an
opportunity to participate, including by way of discussion with the Commission
or its staff, in the response of the Company to such comments. Each of the
Company, on the one hand, and Parent and Purchaser, on the other hand, agrees
promptly to correct any information provided by it for use in the Schedule 14D-9
if and to the extent that it shall have become false or misleading in any
material respect, and the Company further agrees to take all steps necessary to
cause the Schedule 14D-9 as so corrected to be filed with the Commission and to
be disseminated to the stockholders of the Company, in each case as and to the
extent required by applicable federal securities laws; PROVIDED, HOWEVER, that
subject to the provisions of Article 8, such recommendation may be withdrawn,
modified or amended to the extent that the Board of Directors of the Company
deems it necessary to do so in the exercise of its fiduciary duty after being so
advised in writing by outside counsel.
(c) The Company will promptly furnish Purchaser with mailing
labels containing the names and addresses of the record holders of Shares and
lists of securities positions of Shares held in stock depositories, each as of a
recent date, and shall furnish
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Purchaser with such additional information, including updated lists of
stockholders, mailing labels and lists of securities positions, and
assistance as Purchaser or its agents or representatives may reasonably
request in connection with the Offer. The Company has been advised that each
of its directors intends to tender pursuant to the Offer all shares of Common
Stock owned of record or beneficially by him or her.
1.3. DIRECTORS. Subject to compliance with applicable law, promptly
upon the acceptance for payment and payment by Purchaser for Shares purchased
pursuant to the Offer, and from time to time thereafter, the Company and its
Board of Directors shall, upon request of Parent, promptly take all actions
necessary to cause to be elected as directors of the Company a number of
Parent's designees which equals the product, rounded up to the next whole
number, of the total number of directors on the Board of Directors (giving
effect to the directors elected pursuant to this sentence) multiplied by the
percentage that such number of Shares so accepted for payment and paid for by
Purchaser bears to the number of Shares outstanding, and the Company shall, at
such time, use its reasonable best efforts to cause Parent's designees to be so
elected, including by accepting resignations of those incumbent directors
designated by the Company or increasing the size of the Board of Directors of
the Company and causing Parent's designees to be elected. Subject to applicable
law, the Company shall take all action necessary to effect any such election,
including mailing to its stockholders the information required by Section 14(f)
of the Exchange Act and Rule 14f-1 promulgated thereunder.
2. THE MERGER
2.1. THE MERGER.
(a) At the Effective Date (as defined in Section 2.3), in
accordance with this Agreement and the Delaware Law, Purchaser shall be merged
with and into the Company, the separate corporate existence of Purchaser shall
cease, and the Company shall continue as the surviving corporation under the
corporate name it possesses immediately prior to the Effective Date. The
Company hereinafter sometimes is referred to as the "SURVIVING CORPORATION." At
the Effective Date, the separate corporate existence of Purchaser shall cease.
(b) If Parent so elects, the Merger may alternatively be
structured with Purchaser as the Surviving Corporation or so that any direct or
indirect subsidiary of Parent is merged with and into the Company or the Company
is merged with and into any such other subsidiary. In the event of such an
election, the parties agree to execute an appropriate amendment to this
Agreement in order to reflect such election. If Parent elects to structure the
Merger so that the Company is not the Surviving Corporation, the inaccuracy of
any representation or warranty of the Company which is premised on the
assumption that the Company shall be the Surviving Corporation, which
representation or warranty becomes inaccurate solely as a result of the Company
not being the Surviving Corporation, shall not be deemed to be a breach of such
representation or warranty.
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2.2. EFFECT OF THE MERGER. From and after the Effective Date, the
Merger shall have the effects set forth in Section 259 of the Delaware Law.
2.3. CONSUMMATION OF THE MERGER. As soon as is practicable after the
satisfaction or waiver of the conditions hereinafter set forth, the parties
hereto will cause the Merger to be consummated by filing with the Secretary of
State of Delaware a certificate of merger or a certificate of ownership and
merger, as applicable, in such form as required by, and executed in accordance
with, the relevant provisions of the Delaware Law. The Merger shall become
effective upon the filing of such certificate with the Secretary of State of
Delaware in accordance with the provisions and requirements of the Delaware Law
(the time of such effectiveness is hereinafter referred to as the "EFFECTIVE
DATE").
2.4. CERTIFICATE OF INCORPORATION; BYLAWS; DIRECTORS AND OFFICERS. The
Certificate of Incorporation and Bylaws of Purchaser shall be the Certificate of
Incorporation and Bylaws of the Surviving Corporation, as in effect immediately
prior to the Effective Date, until thereafter amended as provided therein and
under the Delaware Law. The directors of Purchaser immediately prior to the
Effective Date will be the initial directors of the Surviving Corporation, and
the officers of the Company immediately prior to the Effective Date will be the
initial officers of the Surviving Corporation, in each case until their
successors are elected and qualified, or their earlier death, resignation or
removal.
2.5. CONVERSION OF SECURITIES. At the Effective Date, by virtue of the
Merger and without any action on the part of Purchaser, the Company, the
Surviving Corporation or the holder of any of the following securities:
(a) Each Share issued and outstanding immediately prior to the
Effective Date (other than Shares to be canceled pursuant to Section 2.5(b)
hereof and Shares held by Dissenting Stockholders (as defined in Section 2.6))
shall be canceled and extinguished and be converted into and become a right to
receive $12.25 in cash, without interest (the "MERGER CONSIDERATION").
(b) Each Share which is issued and outstanding immediately
prior to the Effective Date and owned by Purchaser, Parent or the Company or any
direct or indirect wholly-owned subsidiary of Purchaser, Parent or the Company,
shall be canceled and retired, and no payment shall be made with respect
thereto.
(c) Each share of common stock, par value $0.01 per share, of
Purchaser issued and outstanding immediately prior to the Effective Date shall
be converted into and become one validly issued, fully paid and nonassessable
share of common stock, par value $0.01 per share, of the Surviving Corporation.
2.6. DISSENTING STOCK. Notwithstanding anything in this Agreement to
the contrary but only to the extent required by the Delaware Law, Shares that
are issued and outstanding immediately prior to the Effective Date and are held
by holders who comply with all the
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provisions of the Delaware Law concerning the right of holders of common
stock to dissent from the Merger and require appraisal of their shares of
Common Stock ("DISSENTING STOCKHOLDERS") shall not be converted into the
right to receive the Merger Consideration but shall become the right to
receive such consideration as may be determined to be due such Dissenting
Stockholders pursuant to the Delaware Law; PROVIDED, HOWEVER, that (i) if any
Dissenting Stockholder shall subsequently deliver a written withdrawal of his
or her demand for appraisal (with the written approval of the Surviving
Corporation, if such withdrawal is not tendered within 60 days after the
Effective Date), or (ii) if any Dissenting Stockholder fails to establish and
perfect his or her entitlement to appraisal rights as provided by applicable
law, or (iii) if within 120 days of the Effective Date neither any Dissenting
Stockholder nor the Surviving Corporation has filed a petition demanding a
determination of the value of all Shares outstanding at the Effective Date
and held by Dissenting Stockholders in accordance with applicable law, then
such Dissenting Stockholder or Stockholders, as the case may be, shall
forfeit the right to appraisal of such Shares and such Shares shall thereupon
be deemed to have been converted into the right to receive, as of the
Effective Date, the Merger Consideration, without interest. The Company
shall give Parent and Purchaser (A) prompt notice of any written demands for
appraisal, withdrawals of demands for appraisal and any other related
instruments received by the Company, and (B) the opportunity to direct all
negotiations and proceedings with respect to demands for appraisal. The
Company will not voluntarily make any payment with respect to any demands for
appraisal and will not, except with the prior written consent of Parent,
settle or offer to settle any demand.
2.7. COMPANY STOCK OPTIONS AND RELATED MATTERS. Prior to the
consummation of the Offer, the Board of Directors of the Company shall cause
each option issued under the Company's Employee Stock Option Plan, the
Non-Employee Director Stock Option Plan and options issued to employees not
under either of such plans (collectively, the "COMPANY OPTIONS"), to become
exercisable immediately prior to the Effective Date, subject to the consummation
of the Merger. Prior to the consummation of the Offer, the Company shall offer
(the "OPTION OFFER") to pay, subject to consummation of the Merger, each holder
of a Company Option an amount equal to (x) the aggregate Merger Consideration
into which the shares of Common Stock issuable upon exercise of such Company
Option would have been converted if such option had been exercised immediately
prior to the Effective Date, reduced by (y)(I) the aggregate exercise price for
the shares of Common Stock then issuable upon exercise of such Company Option,
(II) the amount of any withholding taxes which may be required thereon and (III)
the amount of all outstanding loans from the Company to such holder, in return
for the cancellation of such Company Option. The Option Offer shall be
accepted, if at all, irrevocably by the holders of the Company Options prior to
the consummation of the Offer. The Option Offer shall provide that the holder
of the Company Option shall agree not to exercise the Company Option after
accepting the Option Offer.
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2.8. EXCHANGE OF CERTIFICATES.
(a) Prior the Effective Date, Parent shall designate a bank or
trust company to act as exchange agent (the "EXCHANGE AGENT") in effecting the
exchange for the Merger Consideration of stock certificates (the "CERTIFICATES")
which, prior to the Effective Date, represented Shares entitled to payment
pursuant to Section 2.5. Upon the surrender for cancellation to the Exchange
Agent of such Certificates, together with a letter of transmittal, duly executed
and completed in accordance with the instructions thereon, and any other items
specified in the letter of transmittal, the Exchange Agent shall promptly pay to
the Person entitled thereto the Merger Consideration deliverable in respect
thereto and such Certificates shall be canceled. Until so surrendered and
exchanged, each such Certificate (other than Certificates representing Shares to
be canceled pursuant to Section 2.5(b) and Shares held by Dissenting
Stockholders) shall represent solely the right to receive the Merger
Consideration multiplied by the number of Shares represented by such
Certificate. If any cash is to be paid to a Person other than the Person in
which the Certificate representing Shares surrendered in exchange therefor is
registered, it shall be a condition to such payment that the Certificates so
surrendered shall be properly endorsed or accompanied by appropriate stock
powers and otherwise in proper form for transfer, that such transfer otherwise
be proper and that the Person requesting such payment shall pay to the Exchange
Agent any transfer or other taxes required by reason of the payment of such cash
to a Person other than that of the registered holder of the Certificate
surrendered, or such Person shall establish to the satisfaction of the Exchange
Agent that such tax has been paid or is not applicable. Notwithstanding anything
in this Agreement, neither the Exchange Agent nor any party hereto shall be
liable to a holder of Shares for any Merger Consideration delivered to a public
official pursuant to applicable abandoned property laws. In the event any
Certificate shall have been lost, stolen or destroyed, upon the making of an
affidavit of that fact by the Person claiming such Certificate to be lost,
stolen or destroyed, the Exchange Agent will issuein exchange for such lost,
stolen or destroyed Certificate the Merger Consideration deliverable in respect
thereof as determined in accordance with this Article 2, provided that, the
Person to whom the Merger Consideration is paid shall, as a condition precedent
to the payment thereof, give the Surviving Corporation a bond in such amount as
it may direct or otherwise indemnify the Surviving Corporation in a manner
satisfactory to it against any claim that may be made against the Surviving
Corporation with respect to the Certificate claimed to have been lost, stolen or
destroyed.
(b) Promptly following the date which is six months after the
Effective Date, the Exchange Agent shall return to the Surviving Corporation all
cash and property in its possession relating to the transactions described in
this Agreement, and the Exchange Agent's duties shall terminate. Thereafter,
each holder of a Certificate representing a Share may surrender such Certificate
to the Surviving Corporation and (subject to applicable abandoned property,
escheat and similar laws) receive in exchange therefor the Merger Consideration,
without any interest thereon, but shall have no greater rights against the
Surviving Corporation than may be accorded to general creditors of the Surviving
Corporation under applicable law.
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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
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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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(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.
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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
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<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,
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<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>
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
1
<PAGE>
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.
2
<PAGE>
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).
3
<PAGE>
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,
4
<PAGE>
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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