<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) September 2, 1997
--------------------------------
EDUCATION ALTERNATIVES, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
MINNESOTA 1-11111 41-1581297
- --------------------------------------------------------------------------------
(State or other jurisdiction) (Commission File Number) (IRS Employer
of incorporation Identification No.)
7900 XERXES AVENUE SOUTH
1300 NORWEST FINANCIAL CENTER
MINNEAPOLIS, MINNESOTA 55431
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (612) 832-0092
-----------------------------
<PAGE>
Item 5. OTHER EVENTS.
Education Alternatives, Inc. (the "Company") entered into an Agreement
and Plan of Merger, dated as of September 2, 1997 (the "Merger Agreement"), with
Sunrise Educational Services, Inc., a Delaware corporation ("Sunrise"), and Sun
Delaware, Inc., a Delaware corporation and wholly-owned subsidiary of the
Company ("Sub"), providing for the statutory merger of Sunrise with and into Sub
(the "Merger") with Sub remaining as a wholly-owned subsidiary of the Company.
Under the terms of the Merger Agreement, upon consummation of the
Merger each outstanding share of Sunrise Common Stock will be converted into the
right to receive a certain member of shares of Common Stock, par value $.01 per
share, of the Company ("EAI Common Stock") as calculated pursuant to the Merger
Agreement, cash in the amount of $1.92, or a combination thereof, subject to an
aggregate cash consideration limit of 50% of the total consideration paid to the
holders of Sunrise Common Stock in the Merger. In addition, each outstanding
share of Sunrise Series C Preferred Stock will be converted into the right to
receive a certain number of shares of EAI Common Stock as calculated pursuant to
the Merger Agreement. Cash will be paid in lieu of the issuance of any
fractional shares.
The consummation of the Merger is subject to approval by the
shareholders of the Company and the stockholders of Sunrise and certain other
conditions, all as set forth in the Merger Agreement. The Merger Agreement
contemplates that the Merger will be accounted for through the purchase method
and be tax-free to the stockholders of Sunrise as to the EAI Common Stock that
they receive.
The foregoing description of the Merger Agreement does not purport to
be complete and is qualified in its entirety by reference to the Merger
Agreement, which is attached hereto as an exhibit and incorporated herein by
reference.
Item 7. EXHIBITS.
2 Agreement and Plan of Merger, dated as of September 2, 1997, by and
among Education Alternatives, Inc., Sun Delaware, Inc. and Sunrise
Educational Services, Inc.
99 Press release dated September 2, 1997.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
EDUCATION ALTERNATIVES, INC.
Date: September 12, 1997 By /s/ Gerald A. Haugen
-------------------------------
Gerald A. Haugen
Chief Financial Officer
<PAGE>
EXHIBIT INDEX
No. Exhibit Page
--- ------- ----
2 Agreement and Plan of Merger, dated as of September Filed
2, 1997, by and among Education Alternatives, Inc., Electronically
Sun Delaware, Inc. and Sunrise Educational
Services, Inc.
99 Press release dated September 2, 1997. Filed
Electronically
<PAGE>
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
AMONG
EDUCATION ALTERNATIVES, INC.,
SUN DELAWARE, INC.
AND
SUNRISE EDUCATIONAL SERVICES, INC.
- --------------------------------------------------------------------------------
DATED SEPTEMBER 2, 1997
<PAGE>
TABLE OF CONTENTS
ARTICLE I THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.01. EFFECTIVE TIME OF THE MERGER.. . . . . . . . . . . . . . . . . . . . . . 1
1.02. CLOSING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.03. EFFECTS OF THE MERGER. . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.04. CERTIFICATE OF INCORPORATION AND BY-LAWS OF SURVIVING CORPORATION. . . . 2
1.05. DIRECTORS AND OFFICERS OF SURVIVING CORPORATION. . . . . . . . . . . . . 3
1.06. OTHER AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE II CONVERSION OF SECURITIES. . . . . . . . . . . . . . . . . . . . . . 4
2.01. EFFECT ON CAPITAL STOCK. . . . . . . . . . . . . . . . . . . . . . . . . 4
(a) Capital Stock of Sub. . . . . . . . . . . . . . . . . . . . . . . . . 4
(b) Sunrise Common Stock and Sunrise Series C Stock . . . . . . . . . . . 4
(c) Fractional Shares . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(d) EAI Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(e) Sunrise Stock Options and Warrants. . . . . . . . . . . . . . . . . . 5
(f) Dissenters' Rights. . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.02 CONVERSION OF SUNRISE COMMON STOCK AND SUNRISE SERIES C STOCK . . . . . . 5
2.03. ELECTION AND PRORATION PROCEDURES. . . . . . . . . . . . . . . . . . . . 6
2.04. EXCHANGE OF CERTIFICATES.. . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE III REPRESENTATIONS AND WARRANTIES OF SUNRISE. . . . . . . . . . . . .10
3.01. ORGANIZATION OF THE COMPANY. . . . . . . . . . . . . . . . . . . . . . .10
3.02. SUNRISE CAPITAL STRUCTURE. . . . . . . . . . . . . . . . . . . . . . . .11
3.03. AUTHORITY, NO CONFLICT, REQUIRED FILINGS AND CONSENTS. . . . . . . . . .11
3.04. SEC FILINGS; FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . .13
3.05. NO UNDISCLOSED LIABILITIES . . . . . . . . . . . . . . . . . . . . . . .13
3.06. ABSENCE OF CERTAIN CHANGES OR EVENTS . . . . . . . . . . . . . . . . . .14
3.07. TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
3.08. PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
3.09. INTELLECTUAL PROPERTY. . . . . . . . . . . . . . . . . . . . . . . . . .15
3.10. AGREEMENTS, CONTRACTS, AND COMMITMENTS . . . . . . . . . . . . . . . . .16
3.11. LITIGATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
3.12. ENVIRONMENTAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . .16
(a) Hazardous Substances. . . . . . . . . . . . . . . . . . . . . . . . .16
(b) Hazardous Substances Activities . . . . . . . . . . . . . . . . . . .17
(c) UST's and AST's.. . . . . . . . . . . . . . . . . . . . . . . . . . .17
(d) Listing.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
(e) Environmental Reports . . . . . . . . . . . . . . . . . . . . . . . .17
(f) Environmental Claims, etc.. . . . . . . . . . . . . . . . . . . . . .17
(g) Compliance with Environmental Laws. . . . . . . . . . . . . . . . . .17
3.13. EMPLOYEE BENEFIT PLANS.. . . . . . . . . . . . . . . . . . . . . . . . .18
3.14. COMPLIANCE WITH LAWS . . . . . . . . . . . . . . . . . . . . . . . . . .19
3.15. INTERESTED PARTY TRANSACTIONS. . . . . . . . . . . . . . . . . . . . . .19
3.16. NO EXISTING DISCUSSIONS. . . . . . . . . . . . . . . . . . . . . . . . .19
3.17. NO SECURED DEBT. . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
3.18. OPINION OF FINANCIAL ADVISOR . . . . . . . . . . . . . . . . . . . . . .19
3.19. TAX REPRESENTATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . .19
3.20. CONSENTS OF THIRD PARTIES. . . . . . . . . . . . . . . . . . . . . . . .20
3.21. VOTING AGREEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . .20
i
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ARTICLE IV REPRESENTATIONS AND WARRANTIES OF EAI AND SUB . . . . . . . . . . .20
4.01. ORGANIZATION OF THE COMPANY. . . . . . . . . . . . . . . . . . . . . . .20
4.02. EAI CAPITAL STRUCTURE. . . . . . . . . . . . . . . . . . . . . . . . . .21
4.03. AUTHORITY; NO CONFLICT; REQUIRED FILINGS AND CONTRACTS.. . . . . . . . .22
4.04. SEC FILINGS; FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . .23
4.05. NO UNDISCLOSED LIABILITIES . . . . . . . . . . . . . . . . . . . . . . .23
4.06. ABSENCE OF CERTAIN CHANGES OR EVENTS . . . . . . . . . . . . . . . . . .24
4.07. TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
4.08. PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25
4.09. INTELLECTUAL PROPERTY. . . . . . . . . . . . . . . . . . . . . . . . . .25
4.10. AGREEMENTS, CONTRACTS AND COMMITMENTS. . . . . . . . . . . . . . . . . .26
4.11. LITIGATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26
4.12. ENVIRONMENTAL MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . .26
(a) Hazardous Substances. . . . . . . . . . . . . . . . . . . . . . . . .26
(b) Hazardous Substances Activities.. . . . . . . . . . . . . . . . . . .26
(c) UST's and AST's.. . . . . . . . . . . . . . . . . . . . . . . . . . .26
(d) Listing.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27
(e) Environmental Reports.. . . . . . . . . . . . . . . . . . . . . . . .27
(f) Environmental Claims, etc.. . . . . . . . . . . . . . . . . . . . . .27
(g) Compliance with Environmental Laws. . . . . . . . . . . . . . . . . .27
4.13. EMPLOYEE BENEFIT PLANS.. . . . . . . . . . . . . . . . . . . . . . . . .27
4.14. COMPLIANCE WITH LAWS . . . . . . . . . . . . . . . . . . . . . . . . . .28
4.15. INTERESTED PARTY TRANSACTIONS. . . . . . . . . . . . . . . . . . . . . .28
4.16. NO EXISTING DISCUSSIONS. . . . . . . . . . . . . . . . . . . . . . . . .29
4.17. NO SECURED DEBT. . . . . . . . . . . . . . . . . . . . . . . . . . . . .29
4.18. OPINION OF FINANCIAL ADVISOR . . . . . . . . . . . . . . . . . . . . . .29
4.19. OWNERSHIP AND INTERIM OPERATIONS OF SUB. . . . . . . . . . . . . . . . .29
4.20. CONSENT OF THIRD PARTIES . . . . . . . . . . . . . . . . . . . . . . . .29
4.21. VOTING AGREEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . .29
ARTICLE V CONDUCT OF BUSINESS. . . . . . . . . . . . . . . . . . . . . . . . .29
5.01. COVENANTS OF SUNRISE . . . . . . . . . . . . . . . . . . . . . . . . . .29
5.02. COVENANTS OF EAI . . . . . . . . . . . . . . . . . . . . . . . . . . . .32
5.03. COOPERATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32
ARTICLE VI ADDITIONAL AGREEMENTS AND COVENANTS . . . . . . . . . . . . . . . .32
6.01. NO SOLICITATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . .32
6.02. JOINT PROXY STATEMENT; REGISTRATION STATEMENT. . . . . . . . . . . . . .33
6.03. ACCESS TO INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . .34
6.04. SHAREHOLDERS MEETINGS. . . . . . . . . . . . . . . . . . . . . . . . . .35
6.05. LEGAL CONDITIONS TO MERGER . . . . . . . . . . . . . . . . . . . . . . .35
6.06. PAYMENT OF TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . .35
6.07. PUBLIC DISCLOSURE. . . . . . . . . . . . . . . . . . . . . . . . . . . .35
6.08. TAX-FREE REORGANIZATION. . . . . . . . . . . . . . . . . . . . . . . . .36
6.09. NASDAQ QUOTATION . . . . . . . . . . . . . . . . . . . . . . . . . . . .37
6.10. STOCK PLANS, WARRANTS AND OTHER OPTIONS. . . . . . . . . . . . . . . . .37
6.11. GUARANTEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37
6.12. CONSENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .38
6.13. BROKERS OR FINDERS . . . . . . . . . . . . . . . . . . . . . . . . . . .38
6.14 EMPLOYEE BENEFITS; EMPLOYEE ISSUES. . . . . . . . . . . . . . . . . . . .38
6.15. REPORTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .38
6.16. NOTIFICATION OF CERTAIN MATTERS. . . . . . . . . . . . . . . . . . . . .38
6.17. ADDITIONAL AGREEMENTS; REASONABLE EFFORTS. . . . . . . . . . . . . . . .38
ii
<PAGE>
ARTICLE VII CONDITIONS TO MERGER . . . . . . . . . . . . . . . . . . . . . . .39
7.01. CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER . . . . . . .39
(a) Shareholder Approval. . . . . . . . . . . . . . . . . . . . . . . . .39
(b) Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .39
(c) Registration Statement. . . . . . . . . . . . . . . . . . . . . . . .39
(d) NASDAQ. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .39
7.02. ADDITIONAL CONDITIONS TO OBLIGATIONS OF EAI AND SUB. . . . . . . . . . .39
(a) Accuracy of Representations and Warranties; Compliance with Covenants39
(b) Absence of Material Adverse Effect. . . . . . . . . . . . . . . . . .40
(c) Blue Sky Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . .40
(d) Absence of Litigation, Injunctions. . . . . . . . . . . . . . . . . .40
(e) Opinion of Sunrise's Counsel. . . . . . . . . . . . . . . . . . . . .40
(f) Updated Fairness Opinion. . . . . . . . . . . . . . . . . . . . . . .40
(g) Comfort Letter. . . . . . . . . . . . . . . . . . . . . . . . . . . .40
(h) Consents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .41
(i) Dissenting Shares . . . . . . . . . . . . . . . . . . . . . . . . . .41
(j) Preschool Services, Inc . . . . . . . . . . . . . . . . . . . . . . .41
(j) Preschool Services, Inc . . . . . . . . . . . . . . . . . . . . . . .41
7.03. ADDITIONAL CONDITIONS TO OBLIGATIONS OF SUNRISE. . . . . . . . . . . . .41
(a) Accuracy of Representations and Warranties; Compliance with Covenants41
(b) Absence of Material Adverse Effect. . . . . . . . . . . . . . . . . .42
(c) Absence of Litigation, Injunctions. . . . . . . . . . . . . . . . . .42
(d) Opinion of EAI's Counsel. . . . . . . . . . . . . . . . . . . . . . .42
(e) Updated Fairness Opinion. . . . . . . . . . . . . . . . . . . . . . .42
(f) Comfort Letter. . . . . . . . . . . . . . . . . . . . . . . . . . . .42
(g) Tax Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . .42
ARTICLE VIII TERMINATION AND AMENDMENT . . . . . . . . . . . . . . . . . . . .43
8.01. TERMINATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .43
8.02. EFFECT OF TERMINATION. . . . . . . . . . . . . . . . . . . . . . . . . .44
8.03. FEES AND EXPENSES. . . . . . . . . . . . . . . . . . . . . . . . . . . .44
8.04. ALTERNATIVE TRANSACTION DEFINITION . . . . . . . . . . . . . . . . . . .44
8.05. AMENDMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .45
8.06. EXTENSION; WAIVER. . . . . . . . . . . . . . . . . . . . . . . . . . . .45
ARTICLE IX MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . .45
9.01. NONSURVIVAL OF REPRESENTATIONS, WARRANTIES, AND AGREEMENTS . . . . . . .45
9.02. NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .45
9.03. INTERPRETATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . .46
9.04. COUNTERPARTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .46
9.05. ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES . . . . . . . . . . . . .46
9.06. GOVERNING LAW. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .47
9.07. ASSIGNMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .47
9.08. KNOWLEDGE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .47
ARTICLE X DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . .47
iii
<PAGE>
SCHEDULES
- ---------
Sunrise Disclosure Schedule
EAI Disclosure Schedule
Schedule 3.02(g) . . . . . . . . . . . . . . Sunrise Warrant Agreements
Schedule 3.04(b) . . . . . . . . . . . . . . Sunrise Financial Statements
Schedule 3.08. . . . . . . . . . . . . . . . Sunrise Properties
Schedule 3.09. . . . . . . . . . . . . . . . Sunrise Intellectual Property
Schedule 3.10. . . . . . . . . . . . . . . . Sunrise Material Contracts
Schedule 3.13. . . . . . . . . . . . . . . . Sunrise Employee Benefit Plans
Schedule 4.04(b) . . . . . . . . . . . . . . EAI Financial Statements
Schedule 4.08. . . . . . . . . . . . . . . . EAI Properties
Schedule 4.09. . . . . . . . . . . . . . . . EAI Intellectual Property
Schedule 4.11. . . . . . . . . . . . . . . . EAI Material Contracts
Schedule 4.13. . . . . . . . . . . . . . . . EAI Employee Benefit Plans
Schedule 5.01(e) . . . . . . . . . . . . . . Sunrise Existing Obligations
Schedule 5.01(l) . . . . . . . . . . . . . . Sunrise Capital Expenditures
Schedule 6.12. . . . . . . . . . . . . . . . Sunrise Fees
Schedule 7.02(j) . . . . . . . . . . . . . . Preschool Services, Inc. Officers
and Directors
EXHIBITS
- --------
Exhibit 1.01 . . . . . . . . . . . . . . . . Form of Certificate of Merger
Exhibit 3.22 . . . . . . . . . . . . . . . . Form of Sunrise Affiliate
Agreement
Exhibit 4.21 . . . . . . . . . . . . . . . . Form of EAI Affiliate Agreement
Exhibit 7.02(e). . . . . . . . . . . . . . . Form of Opinion of Counsel to
Sunrise
Exhibit 7.03(d). . . . . . . . . . . . . . . Form of Opinion of Counsel to EAI
iv
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated September 2,
1997, is by and among EDUCATION ALTERNATIVES, INC., a Minnesota corporation
("EAI"), SUN DELAWARE, INC., a Delaware corporation and a wholly owned
subsidiary of EAI ("Sub"), and SUNRISE EDUCATIONAL SERVICES, INC., a Delaware
corporation ("Sunrise").
WITNESSETH:
WHEREAS, the Boards of Directors of EAI, Sub and Sunrise deem it advisable
and in the best interests of each corporation and its respective shareholders
that EAI and Sunrise combine in order to advance the long-term business
interests of EAI and Sunrise;
WHEREAS, the strategic combination of EAI and Sunrise shall be effected by
the terms of this Agreement through a transaction in which Sunrise will merge
with and into Sub, and the stockholders of Sunrise will become shareholders of
EAI (the "Merger");
WHEREAS, in furtherance of the Merger, and upon the terms and conditions
set forth herein, (i) each share of Sunrise's Common Stock, $.01 par value,
issued and outstanding at the Effective Time (as defined in Section 1.01 hereof)
("Sunrise Common Stock"), shall be converted, using the Exchange Ratio (as
defined in Section 2.02(a)(i) hereof) and subject to the proration procedures
set forth in Section 2.03 hereof, into either (a) shares of Common Stock, par
value $.01, of EAI ("EAI Common Stock") or (b) cash and (ii) each share of
Sunrise's Series C Preferred Stock, $1.00 par value, issued and outstanding at
the Effective Time ("Sunrise Series C Stock"), shall be converted, using the
Series C Conversion Factor (as defined in Section 2.02(b) hereof), into EAI
Common Stock at the Effective Time.
WHEREAS, for Federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code");
NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants, and agreements set forth herein and other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, and intending to be legally bound, the parties hereby agree as
follows:
ARTICLE I
THE MERGER
1.01. EFFECTIVE TIME OF THE MERGER. Subject to the provisions of this
Agreement, a certificate of merger (the "Certificate of Merger"), substantially
in the form attached hereto as Exhibit 1.01, shall be duly executed and
acknowledged by the Constituent Corporations (as defined in Section 1.03
hereof), and thereafter delivered to the Secretary of State of the State of
Delaware, for filing, as provided in the General Corporation Law of the State of
Delaware (the
<PAGE>
"Delaware Law"), as soon as practicable on or after the Closing Date (as defined
in Section 1.02 hereof). The Merger shall become effective upon the filing of
the Certificate of Merger with the Secretary of State of the State of Delaware
or at such time thereafter as is provided in the Certificate of Merger (the
"Effective Time").
1.02. CLOSING. The closing of the Merger (the "Closing") will take
place at 9:00 a.m., Minneapolis time, on a date to be specified by EAI and
Sunrise, which shall be no later than the second business day after satisfaction
of the shareholder approval conditions set forth in Section 7.01(a) hereof, and
the satisfaction or waiver of all other conditions to the consummation of the
Merger set forth in this Agreement, but in any event which shall be no later
than 120 days from the date of this Agreement (the "Closing Date"), at the
offices of Faegre & Benson LLP, Minneapolis, Minnesota, unless another date or
place is agreed to in writing by EAI and Sunrise. All actions taken at the
Closing shall be deemed to have been taken simultaneously at the time the last
of any such actions is taken or completed.
1.03. EFFECTS OF THE MERGER.
(a) At the Effective Time in accordance with this Agreement and
Delaware Law, (i) Sunrise shall be merged with and into Sub, (ii) the separate
corporate existence of Sunrise (except as such existence may be continued by
operation of law) shall cease and (iii) Sub shall continue as the surviving
corporation and shall be governed by the laws of the State of Delaware (Sub and
Sunrise are sometimes referred to herein as the "Constituent Corporations" and
Sub is sometimes referred to herein as "Surviving Corporation").
(b) At and after the Effective Time, Surviving Corporation shall
possess all the rights, privileges, powers, and franchises of a public as well
as of a private nature, and be subject to all the restrictions, disabilities,
and duties of each of the Constituent Corporations; and all and singular rights,
privileges, powers, and franchises of each of the Constituent Corporations, and
all property, real, personal and mixed, and all debts, liabilities and duties
due on whatever account, and all and every other interest of or belonging to
either of the Constituent Corporations, as well as for stock subscriptions and
all other things in action or belonging to each of the Constituent Corporations,
shall be taken and deemed to be transferred to and vested in Surviving
Corporation without further act or deed, and all property, rights, privileges,
powers, and franchises, and all and every other interest shall be thereafter the
property of Surviving Corporation, and the title to any real estate vested by
deed or otherwise, in either of the Constituent Corporations, shall not revert
or be in any way impaired; but all rights of creditors and all liens upon any
property of either of the Constituent Corporations shall be preserved
unimpaired, and all debts, liabilities, and duties of the Constituent
Corporations shall thereafter attach to Surviving Corporation, and may be
enforced against it to the same extent as if such debts and liabilities had been
incurred or contracted by it.
1.04. CERTIFICATE OF INCORPORATION AND BY-LAWS OF SURVIVING
CORPORATION.
(a) The Certificate of Incorporation of Sub as in effect
immediately prior to the Effective Time shall be the Certificate of
Incorporation of Surviving Corporation, until duly amended in accordance with
the terms thereof and of the Delaware Law, except that from and
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after the Effective Time, Article First of the Certificate of Incorporation of
Sub shall be amended to be and read as follows:
"First: The name of the Corporation shall be Sunrise
Educational Services, Inc."
(b) The By-Laws of Sub in effect immediately prior to the Effective
Time shall be the By-Laws of Surviving Corporation, until duly amended in
accordance with the terms thereof, of the Certificate of Incorporation of
Surviving Corporation and of the Delaware Law.
1.05. DIRECTORS AND OFFICERS OF SURVIVING CORPORATION.
(a) The directors of Sub holding office at the Effective Time shall,
from and after the Effective Time, be the directors of Surviving Corporation,
such directors to serve until their successors have been duly elected or
appointed and qualified or until their earlier death, resignation or removal in
accordance with Surviving Corporation's Certificate of Incorporation and
By-Laws.
(b) The officers of Surviving Corporation from and after the
Effective Time shall be as at set forth below:
John T. Golle Chief Executive Officer
James R. Evans President
Barbara L. Owens Vice President
Jennifer L. Andrew Treasurer and Secretary
Such officers shall serve until their successors have been duly
elected or appointed and qualified or until their earlier death, resignation or
removal in accordance with Surviving Corporation's Certificate of Incorporation
and By-Laws.
1.06. OTHER AGREEMENTS. At or prior to the Effective Time:
(a) The EAI Stock Option Plan (as defined in Section 4.02(a) hereof)
shall be amended to increase the number of shares reserved for issuance upon the
exercise of options thereunder to an amount sufficient to cover the exercise of
Sunrise Options (as defined in Section 2.01(e) hereof).
(b) The number of directors to serve on the Board of Directors of EAI
shall be increased by one, and such opening shall be filled by an individual
mutually acceptable to the Board of Directors of both EAI and Sunrise.
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ARTICLE II
CONVERSION OF SECURITIES
2.01. EFFECT ON CAPITAL STOCK. Subject to the other provisions of this
Article II, at the Effective Time, by virtue of the Merger and without any
action on the part of EAI, Sunrise, Sub or the holder of any shares of the
following securities:
(a) CAPITAL STOCK OF SUB. Each issued and outstanding share of the
capital stock of Sub shall remain outstanding as a share of Sub Common Stock and
shall not be converted into any other securities or cash pursuant to the Merger.
The certificates for such shares shall not be surrendered or in any way modified
by reason of the effectiveness of the Merger. No stock of Sub will be issued
pursuant to the Merger.
(b) SUNRISE COMMON STOCK AND SUNRISE SERIES C STOCK. Subject to
Section 2.02 hereof, (i) each issued and outstanding share of Sunrise Common
Stock (other than Dissenting Shares (as defined in Section 2.01(f) hereof) and
shares of Sunrise Common Stock held of record by EAI, Sub or Sunrise or any
other direct or indirect subsidiary of EAI or Sunrise immediately prior to the
Effective Time) shall be automatically converted into and become the right to
receive EAI Common Stock or cash, at the election of the holder thereof, in each
case, as provided in Section 2.02(a) hereof, and (ii) each issued and
outstanding share of Sunrise Series C Stock (other than Dissenting Shares and
shares of Sunrise Series C Stock held of record by EAI, Sub or Sunrise or any
other direct or indirect subsidiary of EAI or Sunrise immediately prior to the
Effective Time) shall be automatically converted into and become the right to
receive EAI Common Stock, as provided in Section 2.02(b) hereof. At the
Effective Time, each share of Sunrise Common Stock or Sunrise Preferred Stock
(as defined in Section 3.02(a) hereof) held of record by EAI, Sub or Sunrise or
any direct or indirect subsidiary of EAI or Sunrise shall be canceled and cease
to exist, and no payment shall be made with respect thereto.
(c) FRACTIONAL SHARES. No scrip or fractional shares of EAI Common
Stock shall be issued in the Merger. Each fractional share of EAI Common Stock
which a holder of Sunrise Common Stock or Sunrise Series C Stock would otherwise
be entitled to receive shall be automatically converted into the right to
receive, after the later of the Effective Time or the surrender of such
stockholder's Certificate or Certificates (as defined in Section 2.01(d)
hereof), from EAI, an amount in cash in lieu of such fractional share of EAI
Common Stock based on the EAI Share Price (as defined in Section 2.02(a)(i)
hereof). EAI will make available to the Exchange Agent (as defined in
Section 2.03 hereof) the cash necessary for the purpose of paying for fractional
shares.
(d) EAI STOCK. All shares of EAI Common Stock into which the
shares of Sunrise Common Stock or Sunrise Series C Stock are converted shall
be fully paid and nonassessable and will have Rights attached thereto in
accordance with the EAI Rights Agreement (as such terms are defined in
Section 4.02(a) hereof). All shares of Sunrise Common Stock or Sunrise Series
C Stock, when so converted, shall no longer be outstanding and shall
automatically be canceled and retired and shall cease to exist, and holders
of certificates which immediately prior to the Effective Time represented
shares of Sunrise Common Stock or Sunrise
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Series C Stock (the "Certificates") shall cease to have any rights with
respect thereto, except the right to receive the shares of EAI Common Stock
and any cash to be issued or paid in consideration therefor upon the
surrender of the Certificates in accordance with Section 2.04 hereof, without
interest.
(e) SUNRISE STOCK OPTIONS AND WARRANTS. At the Effective Time, (i)
all outstanding options to purchase Sunrise Common Stock (the "Sunrise Options")
under the Sunrise 1987 Stock Option Plan, the Sunrise 1995 Stock Option Plan
(together, the "Sunrise Stock Option Plans") and the Sunrise Non-Employee
Directors Stock Option Plan (the "Sunrise Non-Employee Option Plan" and,
together with the Sunrise Stock Option Plans, the "Sunrise Option Plans") will
become options to purchase EAI Common Stock and (ii) each outstanding warrant to
acquire shares of Sunrise Common Stock or Sunrise Series C Stock will become a
warrant to acquire shares of EAI Common Stock, in accordance with Section 6.10
hereof.
(f) DISSENTERS' RIGHTS. Notwithstanding any provision of this
Agreement to the contrary, any shares of Sunrise Common Stock or Sunrise
Series C Stock, outstanding immediately prior to the Effective Time held by a
holder who has demanded and perfected the right, if any, for appraisal of those
shares in accordance with the provisions of Section 262 of the Delaware Law and
as of the Effective Time has not withdrawn or lost such right to such appraisal
("Dissenting Shares") shall not be converted pursuant to this Article II, but
the holder shall only be entitled to such rights as are granted by the Delaware
Law. If a holder of shares of Sunrise Common Stock or Sunrise Series C Stock
who demands appraisal of those shares under the Delaware Law shall effectively
withdraw or lose (through failure to perfect or otherwise) the right to
appraisal, then, as of the Effective Time or the occurrence of such event,
whichever last occurs, a Stock Election (as defined in Section 2.03(a) hereof)
shall be deemed to have been made with respect to such Shares, and such
Dissenting Shares shall thus be converted into and represent only the right to
receive, pursuant to the terms of Section 2.02 below, EAI Common Stock (and cash
in lieu of fractional shares in accordance with Section 2.01(c) hereof), as the
case may be. Sunrise shall give EAI (i) prompt notice of any written demands
for appraisal of any shares of Sunrise Common Stock or Sunrise Series C Stock,
attempted withdrawals of such demands, and any other instruments served pursuant
to the Delaware Law and received by Sunrise relating to stockholders' rights of
appraisal, and (ii) the opportunity to direct all negotiations and proceedings
with respect to demands for appraisal under the Delaware Law. Sunrise shall
not, except with the prior written consent of EAI, voluntarily make any payment
with respect to any demands for appraisal, offer to settle or settle any such
demands or approve any withdrawal of any such demands.
2.02 CONVERSION OF SUNRISE COMMON STOCK AND SUNRISE SERIES C STOCK.
(a) Subject to the proration procedures and the other provisions of
this Article II, each holder of Sunrise Common Stock issued and outstanding
immediately prior to the Effective Time (other than Dissenting Shares or shares
of Sunrise Common Stock held of record by EAI, Sub or Sunrise or any other
direct or indirect subsidiary of EAI or Sunrise immediately prior to the
Effective Time) will be entitled to elect, pursuant to Section 2.03 hereof, to
receive one of the following:
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(i) for each share of Sunrise Common Stock, a fraction (the "Exchange
Ratio") of one share of EAI Common Stock in an amount equal to $1.92
divided by the average per share closing price (the "EAI Share Price") of
EAI Common Stock on the Nasdaq National Market for the ten trading days
immediately preceding the date which is five days prior to the date upon
which a meeting of the stockholders of Sunrise is held for the purpose of
approving the Merger; provided, however, that under no circumstances shall
the Exchange Ratio exceed 0.450 or be less than 0.350; or
(ii) for each share of Sunrise Common Stock, cash in the amount of
$1.92 (the "Per Share Cash Consideration"); or
(iii) some combination of EAI Common Stock and cash, in each case
converted pursuant to the formulas set forth in subsections (i) and (ii)
above; and
(b) Subject to the other provisions of this Article II, each
holder of Sunrise Series C Stock issued and outstanding immediately prior to
the Effective Time (other than Dissenting Shares or shares of Sunrise Series
C Stock held of record by EAI, Sub or Sunrise or any other direct or indirect
subsidiary of EAI or Sunrise immediately prior to the Effective Time) will be
entitled to receive, for each share of Sunrise Series C Stock, the number of
shares of EAI Common Stock equal to the product (the "Series C Conversion
Factor") of (x) 7.0588 and (y) a fraction (the "Series C Exchange Ratio")
equal to (I) $2.125 divided by (II) the EAI Share Price, provided, however,
that under no circumstances shall the Series C Exchange Ratio exceed 0.498 or
be less than 0.387.
(c) The Exchange Ratio and the Series C Exchange Ratio shall be
appropriately adjusted to reflect any stock split, reverse stock split, stock
dividend, recapitalization, exchange, subdivision, combination of, or other
similar change (including the exercise of any Rights under the EAI Rights
Agreement (as such terms are defined in Section 4.02(a) hereof)) in EAI
Common Stock, Sunrise Common Stock or Sunrise Series C Stock following the
date of this Agreement.
2.03. ELECTION AND PRORATION PROCEDURES.
(a) ELECTION FORMS AND TYPES OF ELECTIONS. An election and
transmittal notice (the "Election and Transmittal Notice") mutually
acceptable to EAI and Sunrise, and other appropriate and customary
transmittal and instruction materials (which shall specify that delivery
shall be effected, and risk of loss and title to the Certificates theretofore
representing shares of Sunrise Common Stock or Sunrise Series C Stock shall
pass, only upon proper delivery of such Certificates to an exchange agent
(the "Exchange Agent") authorized by EAI and reasonably acceptable to
Sunrise) shall be mailed with the Joint Proxy Statement (as defined in
Section 6.02(a) hereof) as soon as practicable after the execution of this
Agreement or on such other date as EAI and Sunrise shall mutually agree (the
"Mailing Date") to each holder of record of Sunrise Common Stock and Sunrise
Series C Stock as of five business days prior to the Mailing Date. Sunrise
shall provide to the Exchange Agent all information reasonably necessary for
it to perform its obligations as specified herein. Each Election and
Transmittal Notice shall permit the holder of Sunrise Common Stock (or
beneficial owner through appropriate and
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customary documentation and instructions) to elect (an "Election"), to receive
either (i) EAI Common Stock (a "Stock Election") with respect to all of such
holder's Sunrise Common Stock, or (ii) cash (a "Cash Election") with respect to
all of such holder's Sunrise Common Stock or (iii) EAI Common Stock with respect
to a specified number of shares of Sunrise Common Stock (a "Combination Stock
Election") and cash with respect to a specified number of shares of Sunrise
Common Stock (a "Combination Cash Election"). Any Sunrise Common Stock (other
than Dissenting Shares) with respect to which the holder (or the beneficial
owner, as the case may be) shall not have submitted to the Exchange Agent an
effective, properly completed Election and Transmittal Notice received prior to
the Election Deadline (as defined in Section 2.03(b) hereof) shall be deemed to
be "Undesignated Shares" hereunder. A Stock Election shall be deemed to have
been made with respect to all Undesignated Shares. Holders of Sunrise Series C
Stock shall receive EAI Common Stock with respect to all of such holder's
Sunrise Series C Stock.
(b) PROPER AND TIMELY ELECTION. Any Election shall have been
properly made and effective only if the Exchange Agent shall have actually
received a properly completed Election and Transmittal Notice by 5:00 P.M.
(Minneapolis time) on the 30th day following the Mailing Date (the "Election
Deadline"). An Election and Transmittal Notice shall be deemed properly
completed only if (i) an Election is indicated for each share of Sunrise Common
Stock covered by such Election and Transmittal Notice and (ii) such notice is
accompanied by one or more Certificates (or customary affidavits and
indemnification regarding the loss or destruction of such Certificates or the
guaranteed delivery of such Certificates) representing all shares of Sunrise
Common Stock and Sunrise Series C Stock covered by such Election and Transmittal
Notice, together with duly executed transmittal materials included in or
required by the Election and Transmittal Notice. Any Election and Transmittal
Notice may be revoked or changed by the person submitting such Notice at or
prior to the Election Deadline. In the event an Election and Transmittal Notice
is revoked prior to the Election Deadline, the shares of Sunrise Common Stock
represented by such Election and Transmittal Notice shall automatically become
Undesignated Shares unless and until a new Election and Transmittal Notice is
properly made with respect to such shares on or before the Election Deadline,
and the Exchange Agent shall cause the certificates representing such shares of
Sunrise Common Stock to be promptly returned without charge to the person
submitting the revoked Election and Transmittal Notice upon written request to
that effect from the holder who submitted such Election and Transmittal Notice.
Subject to the terms of this Agreement and of the Election and Transmittal
Notice, the Exchange Agent shall have reasonable discretion to determine whether
an election, revocation, or change has been properly or timely made and to
disregard immaterial defects in the Election and Transmittal Notice, and any
decisions of EAI and Sunrise required by the Exchange Agent and made in good
faith in determining such matters shall be binding and conclusive. Neither EAI
nor the Exchange Agent shall be under any obligation to notify any person of any
defect in an Election and Transmittal Notice.
(c) PRORATION. If the number of Cash Election Shares (as defined
below) exceeds the number of Maximum Cash Shares (as defined below), then as
promptly as practicable but not later than ten calendar days after the Effective
Time, EAI shall cause the Exchange Agent to effect an allocation among the
holders of Cash Election Shares as follows:
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(i) a cash proration factor shall be determined by dividing (x)
the Maximum Cash Shares by (y) the aggregate number of Cash Election Shares
(the "Cash Proration Factor").
(ii) Each holder of Sunrise Common Stock who made an effective Cash
Election or Combination Cash Election shall be entitled to receive in exchange
for shares of Sunrise Common Stock:
(x) cash in an amount equal to the product of (1) the Per Share Cash
Consideration, and (2) the aggregate number of shares of Sunrise
Common Stock covered by such Cash Election or Combination Cash
Election, and (3) the Cash Proration Factor; and
(y) the number of shares of EAI Common Stock equal to the product of
(1) the Exchange Ratio, and (2) the aggregate number of shares of
Sunrise Common Stock covered by such Cash Election or Combination
Cash Election, and (3) one minus the Cash Proration Factor.
(iii) For purposes of the proration described above, the following
terms shall have the definitions indicated below:
(x) "Cash Election Shares" shall mean the aggregate number of shares
of Sunrise Common Stock as to which Cash Elections and
Combination Cash Elections shall have effectively been made
pursuant to Section 2.03 hereof;
(y) "Maximum Cash Shares" shall mean (A) 50% of the aggregate number
of shares of all Sunrise Common Stock outstanding immediately
prior to the Effective Time LESS (B) the sum of (1) the aggregate
number of shares of Sunrise Common Stock that are Dissenting
Shares PLUS (2) the aggregate fractional shares of Sunrise Common
Stock for which the holders of such Sunrise Common Stock are
entitled to receive cash in lieu of fractional shares of EAI
Common Stock pursuant to Section 2.01(d) hereof.
2.04. EXCHANGE OF CERTIFICATES.
(a) Promptly after the Effective Time, EAI shall deposit or shall
cause to be deposited in trust with the Exchange Agent certificates representing
the number of whole shares of EAI Common Stock to which the holders of Sunrise
Common Stock and Sunrise Series C Stock are entitled pursuant to this Article
II, together with cash sufficient to cover the lesser of the Cash Amount and the
aggregate Per Share Cash Consideration and to pay for fractional shares then
known to EAI (such cash amounts and certificates being hereinafter referred to
as the "Exchange Fund"). The Exchange Agent shall, pursuant to irrevocable
instructions received from EAI, deliver the number of shares of EAI Common Stock
and pay the amounts of cash provided for in this Article II out of the Exchange
Fund. Additional amounts of cash, if any, needed from time to time by the
Exchange Agent shall be provided by EAI and shall become part of the Exchange
Fund. The Exchange Fund shall not be used for any other purpose, except as
provided
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in this Agreement, or as otherwise agreed to by EAI, Sub, and Sunrise prior to
the Effective Time.
(b) As soon as practicable after the completion of the allocation
procedure set forth in Section 2.03 hereof, each holder of a Certificate who
surrenders or has surrendered such Certificate (or customary affidavits and
indemnification regarding the loss or destruction of such Certificate), together
with duly executed transmittal materials included in or required by the Election
and Transmittal Notice, to the Exchange Agent shall, upon acceptance thereof, be
entitled to a certificate representing the whole shares of EAI Common Stock
and/or the cash into which the Sunrise Common Stock and Sunrise Series C Stock
shall have been converted pursuant hereto, as well as cash in lieu of any
fractional shares of Sunrise Common Stock or Sunrise Series C Stock to which
such holder would otherwise be entitled. EAI shall pay any transfer or other
taxes required by reason of the issuance of a certificate representing shares of
EAI Common Stock provided that such certificate is issued in the name of the
person in whose name the Certificate surrendered in exchange therefor is
registered; provided, however, that EAI shall not pay any transfer or other tax
if the obligation to pay such tax under applicable law is solely that of the
stockholder or if payment of any such tax by EAI otherwise would cause the
Merger to fail to qualify as a tax-free reorganization under the Code. If any
portion of the consideration to be received pursuant to this Article II upon
exchange of a Certificate (whether the consideration to be received is a
certificate representing shares of EAI Common Stock or a check representing cash
for Per Share Cash Consideration or a fractional share) is to be issued or paid
to a person other than the person in whose name the Certificate surrendered in
exchange therefor is registered, it shall be a condition of such issuance and
payment that the Certificate so surrendered shall be properly endorsed or
otherwise in proper form for transfer and that the person requesting such
exchange shall pay in advance any transfer or other taxes required by reason of
the issuance of a certificate representing shares of EAI Common Stock or a check
representing cash for a fractional share to such other person, or establish to
the satisfaction of the Exchange Agent that such tax has been paid or that no
such tax is applicable. From the Effective Time until surrender in accordance
with this Section 2.04, each Certificate (other than Certificates representing
treasury shares of Sunrise) shall be deemed, for all corporate purposes other
than the payment of dividends or other distributions, to evidence only the right
to receive cash and/or EAI Common Stock, as the case may be, into which such
shares of Sunrise Common Stock shall have been so converted. No dividends that
are otherwise payable on EAI Common Stock will be paid to persons entitled to
receive EAI Common Stock until such persons surrender their Certificates. After
such surrender, there shall be paid to the person in whose name the EAI Common
Stock shall be issued any dividends on such EAI Common Stock that shall have a
record date on or after the Effective Time and prior to such surrender. If the
payment date for any such dividend is after the date of such surrender, such
payment shall be made on such payment date. In no event shall the persons
entitled to receive such dividends be entitled to receive interest on such
dividends. All payments in respect of shares of Sunrise Common Stock or Sunrise
Series C Stock that are made in accordance with the terms hereof shall be deemed
to have been made in full satisfaction of all rights pertaining to such
securities.
(c) In case of any lost, mislaid, stolen, or destroyed Certificate,
the holder thereof may be required, as a condition precedent to the delivery to
such holder of the consideration described in Section 2.02 hereof and in
accordance with Section 167 of the
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Delaware Law, to deliver to EAI a bond in such reasonable sum as EAI may direct
as indemnity against any claim that may be made against the Exchange Agent, EAI,
or Surviving Corporation with respect to the Certificate alleged to have been
lost, mislaid, stolen, or destroyed.
(d) After the Effective Time, there shall be no transfers on the
stock transfer books of Surviving Corporation of the shares of Sunrise Common
Stock or Sunrise Series C Stock that were outstanding immediately prior to the
Effective Time. If, after the Effective Time, Certificates are presented to
Surviving Corporation for transfer, they shall be canceled and exchanged for the
consideration described in Section 2.02 hereof. After the Effective Time, the
shares of Sunrise Common Stock and Sunrise Series C Stock shall be delisted from
the Nasdaq Small Cap Market.
(e) Any portion of the Exchange Fund that remains unclaimed by the
stockholders of Sunrise for six months after the Effective Time shall be
returned to EAI, upon demand, and any holder of Sunrise Common Stock or Sunrise
Series C Stock who has not theretofore complied with Section 2.04(b) hereof
shall thereafter look only to EAI for issuance of the number of shares of EAI
Common Stock and other consideration to which such holder has become entitled
pursuant to Section 2.02 hereof; provided, however, that neither the Exchange
Agent nor any party hereto shall be liable to a holder of shares of Sunrise
Common Stock or Sunrise Series C Stock for any amount required to be paid to a
public official pursuant to any applicable abandoned property, escheat, or
similar law.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SUNRISE
Sunrise represents and warrants to EAI and Sub that the statements
contained in this Article III are true and correct as of the date hereof, except
as set forth in the disclosure schedule delivered by Sunrise to EAI on or before
the date of this Agreement (the "Sunrise Disclosure Schedule"). The Sunrise
Disclosure Schedule shall be arranged in paragraphs corresponding to the
numbered and lettered paragraphs contained in this Article III and the
disclosures in any paragraph, including appropriate cross references, shall
qualify only the corresponding paragraph in this Article III.
3.01. ORGANIZATION OF THE COMPANY. Each of Sunrise and its Subsidiaries
(as defined in Article X) is a corporation duly organized, validly existing,
and in good standing under the laws of the jurisdiction of its incorporation,
has all requisite corporate power to own, lease, and operate its property and
to carry on its business as now being conducted and as proposed to be
conducted, and is duly qualified to do business and is in good standing as a
foreign corporation in each jurisdiction in which the failure to be so
qualified would have a material adverse effect on the business, assets,
financial condition or results of operations (a "Material Adverse Effect") of
Sunrise and its Subsidiaries, taken as a whole. Except as set forth in the
Sunrise SEC Reports (as defined in Section 3.04 hereof) or in the Sunrise
Disclosure Schedule, neither Sunrise nor any of its Subsidiaries directly or
indirectly owns any equity or similar interest in, or any interest
convertible into or exchangeable or exercisable for, any corporation,
partnership, joint venture, or
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other business association or entity excluding securities in any publicly traded
company held for investment by Sunrise and comprising less than one percent of
the outstanding stock of such company.
3.02. SUNRISE CAPITAL STRUCTURE.
(a) The authorized capital stock of Sunrise on the date hereof
consists of 10,000,000 shares of Sunrise Common Stock and 1,000,000 shares of
Preferred Stock, $1.00 par value ("Sunrise Preferred Stock"), of which there
were issued and outstanding (i) 4,252,914 shares of Sunrise Common Stock, (ii)
no shares of Series A Participating Preferred Stock, $1.00 par value, and
(iii) 357,333 shares of Sunrise Series C Stock. There are no shares of Sunrise
Common Stock held in the treasury of Sunrise. Since May 31, 1997, no shares of
Sunrise Common Stock or Sunrise Preferred Stock have been issued except, solely
with respect to Sunrise Common Stock, (x) pursuant to the exercise of options
granted under the Sunrise Option Plans or (y) upon conversion of Sunrise
Preferred Stock, or (z) pursuant to the payment of dividends on the Sunrise
Preferred Stock. All outstanding shares of Sunrise Common Stock and Sunrise
Preferred Stock are validly issued, fully paid, and nonassessable, and no holder
thereof is entitled to any preemptive rights. All of the outstanding shares of
capital stock of each of Sunrise's Subsidiaries are duly authorized, validly
issued, fully paid, and nonassessable and all such shares are owned by Sunrise
free and clear of all security interests, liens, claims, pledges, agreements,
limitations in Sunrise's voting rights, charges, or other encumbrances of any
nature.
(b) Except for (i) options to purchase, under the Sunrise Option
Plans, an aggregate of not more than 650,758 shares of Sunrise Common Stock and
(ii) warrants to purchase, under the warrant agreements described in Schedule
3.02(b) hereto (the "Warrant Agreements") an aggregate of not more than 505,000
shares of Sunrise Common Stock and 33,333 shares of Sunrise Series C Stock,
there are no equity securities of any class of Sunrise or any of Sunrise's
Subsidiaries, or any security exchangeable into or exercisable for such equity
securities issued, reserved for issuance, or outstanding. Except as set forth
in this Section 3.02, there are no options, warrants, equity securities, calls,
rights, commitments, or agreements of any character to which Sunrise or any of
its Subsidiaries is a party or by which it is bound obligating Sunrise or any of
its Subsidiaries to issue, deliver, or sell, or cause to be issued, delivered,
or sold, additional shares of capital stock of Sunrise or any of its
Subsidiaries or obligating Sunrise or any of its Subsidiaries to grant, extend,
accelerate the vesting of, or enter into any such option, warrant, equity
security, call, right, commitment, or agreement. Neither Sunrise nor any of its
Subsidiaries is a party to, nor is Sunrise aware of, any voting agreement,
voting trust, proxy, or other agreements or understandings with respect to the
shares of capital stock of Sunrise or any agreement, arrangement, or
understanding providing for registration rights with respect to any shares of
capital stock of Sunrise.
3.03. AUTHORITY, NO CONFLICT, REQUIRED FILINGS AND CONSENTS.
(a) Sunrise has all requisite corporate power and authority to enter
into this Agreement and to consummate the transactions contemplated by this
Agreement. The execution and delivery of this Agreement and the consummation of
the transactions contemplated by this Agreement have been duly authorized by all
necessary corporate action on the part of Sunrise,
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subject only to the approval of this Agreement and the Merger by Sunrise's
stockholders under the Delaware Law. This Agreement has been duly executed and
delivered by Sunrise and constitutes the valid and binding obligation of
Sunrise, enforceable in accordance with its terms, subject to applicable
bankruptcy, insolvency, reorganization, moratorium, or other similar laws
affecting the rights of creditors generally and except that the remedy of
specific performance and injunctive and other forms of equitable relief are
subject to certain equitable defenses and to the discretion of the court before
which any proceedings therefor may be brought.
(b) Except as set forth in the Sunrise Disclosure Schedule and
subject to approval of this Agreement and the Merger by Sunrise's
stockholders, the execution and delivery of this Agreement by Sunrise does
not, and the consummation of the transactions contemplated by this Agreement
will not, (i) result in any violation or breach of any provision of the
Certificate of Incorporation or Bylaws of Sunrise, (ii) result in any
violation or breach of, constitute (with or without notice or lapse of time,
or both) a default (or give rise to right of termination, cancellation,
modification or acceleration of any obligation or loss of any benefit) under,
or require any notice under any of the terms, conditions, or provisions of
any Sunrise Material Contract (as defined in Section 3.10 hereof) or any
other material note, bond, mortgage, indenture, lease (including, without
limitation, any Sunrise Property Lease as such term is defined in Section
3.08 hereof), instrument, or other arrangement to which Sunrise or any of its
Subsidiaries is a party or by which any of them or any of their properties or
assets is subject, or (iii) violate any permit, concession, franchise,
license, judgment, order, decree, statute, law, ordinance, rule, or
regulation applicable to Sunrise or any of its Subsidiaries or any of its or
their properties or assets and which is material to the business or
operations of Sunrise.
(c) No consent, approval, order, or authorization of, or
registration, declaration, or filing with, any court, administrative agency,
or commission or other governmental authority or instrumentality
("Governmental Entity"), is required by or with respect to Sunrise or any of
its Subsidiaries in connection with the execution and delivery of this
Agreement or the consummation of the transactions contemplated hereby, except
for (i) the filing of a Registration Statement on Form S-4 with the
Securities and Exchange Commission ("SEC") in accordance with the Securities
Act of 1933, as amended (the "Securities Act"), (ii) the filing of the
Certificate of Merger with the Secretary of State of the State of Delaware,
(iii) the filing of the Joint Proxy Statement (as defined in Section 6.02(a)
below) with the SEC in accordance with the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), and (iv) such consents, approvals, orders,
authorizations, registrations, declarations, and filings as may be required
under the applicable federal and state securities laws and laws of any
foreign country.
(d) Except as set forth in the Sunrise Disclosure Schedule, no
consent or approval is required by or with respect to Sunrise or any of its
Subsidiaries in connection with the execution and delivery of this Agreement
or the consummation of the transactions contemplated by this Agreement under
any of the terms, conditions, or provisions of any Sunrise Material Contract
or any other material agreement, contract, note, bond, mortgage, indenture,
lease (including, without limitation, any Sunrise Property Lease), instrument
or other arrangement to which Sunrise or any of its Subsidiaries is bound or
by which any of them or any of their assets is subject.
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3.04. SEC FILINGS; FINANCIAL STATEMENTS.
(a) Sunrise has filed and made available to EAI all forms, reports,
and documents required to be filed by Sunrise with the SEC since July 31, 1993
(including all exhibits, notes, and schedules thereto and documents incorporated
by reference therein) (collectively, the "Sunrise SEC Reports"). The Sunrise
SEC Reports (i) at the time filed, with respect to all of the Sunrise SEC
Reports other than registration statements filed under the Securities Act, or at
the time of their respective effective dates, with respect to registration
statements filed under the Securities Act, complied as to form in all material
respects with the applicable requirements of the Securities Act or the Exchange
Act, as the case may be, and (ii) did not at the time filed or at the time of
their respective effective dates, as the case may be (or if amended or
superseded by a filing prior to the date of this Agreement, then on the date of
such filing), contain any untrue statement of a material fact or omit to state a
material fact required to be stated in such Sunrise SEC Reports or necessary in
order to make the statements in such Sunrise SEC Reports, in the light of the
circumstances under which they were made, not misleading. None of Sunrise's
Subsidiaries is required to file any forms, reports, or other documents with the
SEC.
(b) Each of the consolidated financial statements (including, in each
case, any related notes) contained in the Sunrise SEC Reports at the time filed
or at the time of their respective effective dates, as the case may be, complied
as to form in all material respects with the applicable published rules and
regulations of the SEC with respect thereto, was prepared in accordance with
generally accepted accounting principles applied on a consistent basis
throughout the periods involved (except as may be indicated in the notes to such
financial statements or, in the case of unaudited statements, as permitted by
Form 10-Q of the SEC) and fairly presented the consolidated financial position
of Sunrise and its Subsidiaries at the respective dates and the consolidated
results of their operations and cash flows for the periods indicated, except
that the unaudited interim financial statements were or are subject to normal
and recurring year-end adjustments and the absence of complete footnote
disclosure. Sunrise has provided EAI with Sunrise's unaudited consolidated
financial statements as of and for the period ended April 30, 1997; such
financial statements, including any related notes, are attached hereto as
Schedule 3.04(b) (the "Unaudited Statements"). The Unaudited Statements comply
as to form in all material respects with the applicable published rules and
regulations of the SEC with respect to financial statements included in a report
on Form 10-Q, have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis with the consolidated
financial statements of Sunrise contained in the Sunrise SEC Reports (except as
may be included in the notes to the Unaudited Statements or as permitted by
Form 10-Q of the SEC) and fairly present the consolidated financial position of
Sunrise and its Subsidiaries at the date and the consolidated results of their
operations and cash flows for the period indicated, except that the Unaudited
Statements are subject to normal and recurring year-end adjustments and the
absence of complete footnote disclosure. The unaudited balance sheet of Sunrise
as of April 30, 1997 is referred to herein as the "Sunrise Balance Sheet."
3.05. NO UNDISCLOSED LIABILITIES. Except as set forth in the Sunrise
Disclosure Schedule or as otherwise disclosed in the Sunrise SEC Reports,
Sunrise and its Subsidiaries do not have any liabilities, either accrued or
contingent (whether or not required to be reflected in financial statements in
accordance with generally accepted accounting principles), and whether
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due or to become due, which individually or in the aggregate, would reasonably
be expected to have a Material Adverse Effect on Sunrise and its Subsidiaries,
taken as a whole, other than (i) liabilities reflected in the Sunrise Balance
Sheet and (ii) normal or recurring liabilities incurred since the date of the
Sunrise Balance Sheet, in the ordinary course of business consistent with past
practices.
3.06. ABSENCE OF CERTAIN CHANGES OR EVENTS. Since the date of the
Sunrise Balance Sheet, Sunrise and its Subsidiaries have conducted their
businesses only in the ordinary course and in a manner consistent with past
practice and, since such date, there has not been (i) any material adverse
change in the financial condition, results of operations, or business (together,
a "Material Adverse Change") of Sunrise and its Subsidiaries, taken as a whole,
(ii) any damage, destruction, or loss (whether or not covered by insurance) with
respect to any property of Sunrise or any of its Subsidiaries having a Material
Adverse Effect on Sunrise and its Subsidiaries, taken as a whole, (iii) any
material change by Sunrise in its accounting methods, principles, or practices
to which EAI has not previously consented in writing, (iv) any revaluation by
Sunrise of any of its assets having a Material Adverse Effect on Sunrise and its
Subsidiaries, taken as a whole, or (v) except as disclosed in the Sunrise
Disclosure Schedule, any other action or event that would have required the
consent of EAI pursuant to Section 5.01 of this Agreement had such action or
event occurred after the date of this Agreement.
3.07. TAXES.
(a) Except as disclosed in the Sunrise Disclosure Schedule, all
returns and reports, including without limitation information and withholding
returns and reports (collectively, "Tax Returns"), of or relating to any
foreign, Federal, state, local or other income, premium, property, sales, excise
and other taxes of any nature whatsoever, including any interest, penalties and
additions to tax in respect thereof ("Tax" or "Taxes") heretofore required to be
filed by Sunrise or any of its Subsidiaries have been duly filed on a timely
basis. All such Tax Returns were complete and accurate in all material
respects. Each of Sunrise and its Subsidiaries has paid or has made adequate
provision for the payment of all Taxes. For purposes of this Section 3.07, the
term "Subsidiaries" shall include former Subsidiaries of Sunrise for the periods
during which any such Subsidiaries were owned directly or indirectly by Sunrise.
(b) Except as disclosed in the Sunrise Disclosure Schedule, as of the
date of this Agreement there are no audits or administrative proceedings, court
proceedings or claims pending against Sunrise or any of its Subsidiaries with
respect to any Taxes, no assessment, deficiency or adjustment has been asserted
or, to the knowledge of Sunrise, proposed with respect to any Tax Return of or
with respect to Sunrise or any of its Subsidiaries and there are no liens for
Taxes upon the assets or properties of Sunrise or any of its Subsidiaries,
except liens for Taxes not yet delinquent.
(c) Except as disclosed in the Sunrise Disclosure Schedule, there are
not in force any waivers of agreements, arrangements, or understandings by or
with respect to Sunrise or any of its Subsidiaries of or for an extension of
time for the assessment or payment of any Taxes. Neither Sunrise nor any of its
Subsidiaries has received a written ruling of a taxing authority relating to
Taxes or entered into a written and legally binding agreement with a taxing
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authority relating to Taxes that would have a continuing effect after the
Closing Date. Except as disclosed in the Sunrise Disclosure Schedule, neither
Sunrise nor any of its Subsidiaries is required to include in income any
adjustment pursuant to Section 481(a) of the Code by reason of a voluntary
change in accounting method initiated by Sunrise or any of its Subsidiaries, and
to the knowledge of Sunrise the Internal Revenue Service ("IRS") has not
proposed any such adjustment or change in accounting method.
(d) Each of Sunrise and its Subsidiaries has withheld and paid all
Taxes required to have been withheld and paid in connection with amounts paid or
owing to any employee, creditor, independent contractor or other third party.
(e) Neither Sunrise nor any of its Subsidiaries has filed a consent
under Section 341(f) of the Code. Sunrise and its Subsidiaries are not parties
to any Tax allocation or Tax sharing arrangements.
3.08. PROPERTIES. Schedule 3.08 hereto is a true and complete list of all
real property owned by Sunrise or its Subsidiaries and real property leased by
Sunrise or its Subsidiaries pursuant to leases ("Sunrise Property Leases") as of
the date hereof, and the name of the lessor, the date of the Sunrise Property
Lease and each amendment to the Sunrise Property Lease, and the aggregate annual
rental or other fees payable under any such Sunrise Property Lease. All such
Sunrise Property Leases are valid and binding in accordance with their
respective terms. All of the Sunrise Property Leases will continue in full
force and effect immediately after the consummation of the transactions
contemplated by this Agreement, there are no material disputes pending or, to
the knowledge of Sunrise, threatened under any of the Sunrise Property Leases,
and neither Sunrise, any Subsidiary of Sunrise, nor any other party thereto is
in default under the terms of any of the Sunrise Property Leases.
3.09. INTELLECTUAL PROPERTY.
(a) Subject to the Sunrise Disclosure Schedule, Sunrise owns, or is
licensed or otherwise possesses legally enforceable rights to use, all patents,
trademarks, trade names, service marks, copyrights, and any applications for
such patents, trademarks, trade names, service marks, and copyrights, or
tangible or intangible proprietary information or material that are necessary to
conduct the business of Sunrise as currently conducted (the "Sunrise
Intellectual Property Rights"). Schedule 3.09 hereof lists (i) all trademarks,
registered copyrights, trade names, and service marks, which Sunrise considers
to be material to its business and included in the Sunrise Intellectual Property
Rights, including the jurisdictions in which each such Sunrise Intellectual
Property Rights has been issued or registered or in which any such application
for such issuance and registration has been filed, (ii) all material licenses,
sublicenses, and other agreements to which Sunrise is a party and pursuant to
which any person is authorized to use any Sunrise Intellectual Property Rights,
and (iii) all material licenses, sublicenses, and other agreements to which
Sunrise is a party and pursuant to which Sunrise is authorized to use any third
party patents, trademarks, or copyrights, including software ("Sunrise Third
Party Intellectual Property Rights") that is material to its business.
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(b) Sunrise is not, nor will it be as a result of the execution and
delivery of this Agreement, or the performance of its obligations under this
Agreement, in breach of any license, sublicense, or other agreements relating to
the Sunrise Intellectual Property Rights or Sunrise Third Party Intellectual
Property Rights.
(c) To Sunrise's knowledge, all patents, registered trademarks,
service marks, and copyrights held by Sunrise are valid and subsisting. Except
as set forth on Schedule 3.09 of the Sunrise Disclosure Schedule, Sunrise (i)
has not been sued in any suit, action, or proceeding which involves a claim of
infringement of any patents, trademarks, service marks, or copyrights, or
violation of any trade secret or other proprietary right of any third party, and
(ii) has no knowledge that the conduct of its business as presently conducted
infringes any patent, trademark, service mark, copyright, trade secret, or other
proprietary right of any third party.
3.10. AGREEMENTS, CONTRACTS, AND COMMITMENTS. Sunrise has not breached, in
any material respect, or received in writing any claim or threat that it has
breached, any of the terms and conditions of any agreement, contract, or
commitment filed as an exhibit to Sunrise's Report on Form 10-K for the fiscal
year ended July 27, 1996, any other agreement, contract, or commitment entered
into since July 27, 1996 which, if entered into prior to such date, would have
been required to be included as an exhibit thereto, or any other commitment,
agreement or lease (including, without limitation, any Sunrise Property Lease)
not otherwise disclosed in Sunrise's Report on Form 10-K for the fiscal year
ended July 27, 1996 which involves either (a) payments of $25,000 or more per
year or (b) payments which exceed $100,000 in the aggregate (together, the
"Sunrise Material Contracts") in such a manner as would permit any other party
to cancel or terminate the same or would permit any other party to seek material
damages from Sunrise under any Sunrise Material Contract. Schedule 3.10 hereto
is a true and complete list of all Sunrise Material Contracts. Each Sunrise
Material Contract that has not expired or been terminated is in full force and
effect and is not subject to any material default thereunder of which Sunrise is
aware by any party obligated to Sunrise pursuant to such Sunrise Material
Contract.
3.11. LITIGATION. Except as described in the Sunrise SEC Reports or in the
Sunrise Disclosure Schedule, there are no claims, actions, suits, investigations
or proceedings pending of which it has notice or, to the knowledge of Sunrise,
threatened against or affecting Sunrise or any of its Subsidiaries or any of
their respective assets or properties, at law or in equity, before or by any
Federal, state, municipal or other governmental agency or authority, foreign or
domestic, or before any arbitration board or panel, wherever located, which if
determined adverse to Sunrise would, individually or in the aggregate, have a
Material Adverse Effect on Sunrise and its Subsidiaries, taken as a whole.
3.12. ENVIRONMENTAL MATTERS.
(a) HAZARDOUS SUBSTANCES. To the knowledge of Sunrise, no Hazardous
Substances have ever been buried, spilled, leaked, discharged, emitted,
generated, stored, used or released, and no Hazardous Substances are now
present, in, on, or under any property that Sunrise or any of its Subsidiaries
has at any time owned, operated, occupied or leased, except for immaterial
quantities stored or used by Sunrise or such Subsidiary in the ordinary course
of its business and in accordance with all applicable Environmental Laws.
"Hazardous Substance"
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means any pollutant, contaminant, hazardous substance or waste, solid waste,
petroleum or any fraction thereof, or any other chemical, substance or material
listed or identified in or regulated by any Environmental Law; "Environmental
Law" means the Comprehensive Environmental Response, Compensation and Liability
Act, 42 U.S.C. Section 9601 et seq., the Resource Conservation and Recovery Act,
42 U.S.C. Section 6901 et seq., the Federal Water Pollution Control Act, 33
U.S.C. Sections 1251 to 1387, the Clean Air Act, 42 U.S.C. Section 7401 et seq.,
and any other federal, state, local or other governmental statute, regulation,
law or ordinance dealing with the protection of human health, natural resources
and/or the environment; and "RCRA Hazardous Waste" means a hazardous waste, as
that term is defined in and pursuant to the Resource Conservation and Recovery
Act, 42 U.S.C. Section 6901 et seq.
(b) HAZARDOUS SUBSTANCES ACTIVITIES. To the knowledge of Sunrise, no
property that Sunrise or any of its Subsidiaries has ever owned, operated,
occupied or leased has ever been used in connection with the business of
manufacturing, storing or transporting Hazardous Substances, and no RCRA
Hazardous Wastes have been treated, stored or disposed of there.
(c) UST'S AND AST'S. To the knowledge of Sunrise, there are not now
and never have been any underground or aboveground storage tanks or other
containment facilities of any kind on any property that Sunrise or any of its
Subsidiaries has ever owned, occupied, operated or leased which contain or ever
did contain any Hazardous Substances.
(d) LISTING. To the knowledge of Sunrise, no property that Sunrise
or any of its Subsidiaries has ever owned, operated, occupied or leased has ever
been listed on the National Priorities List, the Comprehensive Environmental
Response, Compensation and Liability Information System or any similar federal,
state or local list, schedule, log, inventory or database.
(e) ENVIRONMENTAL REPORTS. Sunrise has made available to EAI for
inspection true and complete copies of all reports, authorizations, permits,
licenses, disclosures and other documents in its possession, custody or control
describing or relating in any way to Sunrise or any of its Subsidiaries, or any
property that Sunrise or any of its Subsidiaries has ever owned, operated,
occupied or leased, which suggest that any Hazardous Substances may be present
in, on, or under any such property in material quantities or that Sunrise or any
of its Subsidiaries may have breached any Environmental Law.
(f) ENVIRONMENTAL CLAIMS, ETC. To the knowledge of Sunrise, there
are not and there never have been any requests, notices, investigations, claims,
demands, administrative proceedings, hearings, litigation or other legal
proceedings relating in any way to Sunrise or any of its Subsidiaries, or any
property that Sunrise or any of its Subsidiaries has ever owned, operated,
occupied or leased, alleging liability under, violation of or noncompliance with
any Environmental Law or any license, permit or other authorization issued
pursuant thereto. To the knowledge of Sunrise, no such matter is threatened or
impending, nor does there exist any substantial basis therefor.
(g) COMPLIANCE WITH ENVIRONMENTAL LAWS. Sunrise and each of its
Subsidiaries operates, and at all times has operated, its business in all
material respects in accordance with all
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applicable Environmental Laws, and all licenses, permits and other
authorizations required pursuant to any Environmental Law and necessary for the
lawful operation of the business of Sunrise and its Subsidiaries are in
Sunrise's or the appropriate Subsidiary's possession and are in full force and
effect. To Sunrise's knowledge, there is no threat that any such permit,
license or other authorization will be withdrawn, terminated, limited or
materially changed.
3.13. EMPLOYEE BENEFIT PLANS.
(a) There are no defined benefit pension plans subject to Title IV of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or
"multiemployer plans" as defined in Section 3(37) of ERISA, maintained or
contributed to by Sunrise or any of its ERISA Affiliates (as defined in this
Section 3.13(a)) for the benefit of their current or former employees. Sunrise
has set forth on Schedule 3.13 hereto all "employee benefit plans" as defined in
Section 3(3) of ERISA and all bonus, stock option, stock purchase, incentive,
deferred compensation, supplemental retirement, severance, and other similar
employee benefit plans, arrangements, and agreements, whether or not such plans,
arrangements, or agreements are "employee benefit plans," written or otherwise,
for the benefit of or relating to, any current or former employee of Sunrise or
any trade or business (whether or not incorporated) (an "ERISA Affiliate") which
is aggregated with Sunrise or any Subsidiary of Sunrise pursuant to Section 414
of the Code (together the "Sunrise Employee Plans").
(b) With respect to each Sunrise Employee Plan, Sunrise has made
available to EAI a true and correct copy of (i) the most recent annual report
(Form 5500) filed with the IRS, if applicable, (ii) the plan document and
summary plan description for each such Sunrise Employee Plan, (iii) each trust
agreement and group annuity contract, if any, relating to such Sunrise Employee
Plan, (iv) the most recent actuarial report or valuation relating to a Sunrise
Employee Plan subject to Title IV of ERISA, and (v) the most recent IRS
determination letter, where applicable.
(c) With respect to the Sunrise Employee Plans, individually and in
the aggregate, no event has occurred, and to the knowledge of Sunrise, there
exists no condition or set of circumstances in connection with which Sunrise
could be subject to any liability that is reasonably likely to have a Material
Adverse Effect on Sunrise and its Subsidiaries, taken as a whole, under ERISA,
the Code, or any other applicable law.
(d) With respect to the Sunrise Employee Plans, individually and in
the aggregate, there are no benefit obligations required to be funded for which
contributions have not been made or properly accrued and there are no unfunded
benefit obligations which have not been accounted for by reserves, or otherwise
properly footnoted in accordance with generally accepted accounting principles
on the financial statements of Sunrise.
(e) Except as set forth in the Sunrise Disclosure Schedule or as
disclosed in Sunrise SEC Reports filed prior to the date of this Agreement and
except as provided for in this Agreement, neither Sunrise nor any of its
Subsidiaries is party to any oral or written (i) union or collective bargaining
agreement, (ii) agreement with any current or former officer or other employee
of Sunrise or any of its Subsidiaries, the benefits of which are contingent, or
the terms
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of which are altered upon the occurrence of a transaction involving Sunrise of
the nature contemplated by this Agreement, (iii) agreement with any current or
former officer or other employee of Sunrise providing any term of employment,
benefits or compensation guarantee including, without limitation, any such
arrangement which provides for employment on a basis other than "at will," or
(iv) agreement or plan, including any stock option plan, stock appreciation
right plan, restricted stock plan, or stock purchase plan, any of the benefits
of which will be increased, or the vesting of the benefits of which will be
accelerated, by the occurrence of any of the transactions contemplated by this
Agreement or the value of any of the benefits of which will be calculated on the
basis of any of the transactions contemplated by this Agreement.
3.14. COMPLIANCE WITH LAWS. Sunrise has complied with, is not in violation
of, and has not received any notices of violation with respect to, any federal,
state, or local statute, law, or regulation with respect to the conduct of its
business, or the ownership or operation of its business, except for failures to
comply or violations which would not have a Material Adverse Effect on Sunrise
and its Subsidiaries, taken as a whole.
3.15. INTERESTED PARTY TRANSACTIONS. Except as set forth in the Sunrise
Disclosure Schedule or in the Sunrise SEC Reports, since the date of Sunrise's
last proxy statement to its stockholders, no event has occurred that would be
required to be reported by Sunrise as a Certain Relationship or Related
Transaction pursuant to Item 404 of Regulation S-K promulgated by the SEC
(without giving effect to any minimum dollar requirements contained therein).
3.16. NO EXISTING DISCUSSIONS. Sunrise is not engaged, directly or
indirectly, in any discussions or negotiations with any other party with respect
to an Acquisition Proposal (as defined in Section 6.01 hereof).
3.17. NO SECURED DEBT. Except as set forth in the Sunrise Disclosure
Schedule, there is not now any secured debt (including capitalized leases) of
Sunrise or any of its Subsidiaries.
3.18. OPINION OF FINANCIAL ADVISOR. The financial advisor of Sunrise,
Barber & Bronson Incorporated, has delivered to the Board of Directors of
Sunrise an opinion dated the date of this Agreement that, from a financial point
of view, the consideration to be offered to the stockholders of Sunrise in the
Merger contemplated hereby is fair to Sunrise.
3.19. TAX REPRESENTATIONS.
(a) There is no plan or intention by the stockholders of Sunrise who
own 5 percent (5%) or more of the outstanding Sunrise Common Stock (including,
for purposes of this Section 3.19(a), shares of Sunrise Common Stock issuable
upon the conversion of Sunrise Preferred Stock) and to the knowledge of the
management of Sunrise, there is no plan or intention on the part of the
remaining stockholders of Sunrise to sell, exchange, or otherwise dispose of a
number of shares of EAI Common Stock received in the transaction that would
reduce the Sunrise stockholders' ownership of EAI Common Stock to a number of
shares having a value, as of the Effective Time, of less than 50 percent (50%)
of the value of all of the formerly outstanding stock of Sunrise as of the same
date. For purposes of this representation, shares of Sunrise exchanged for cash
in lieu of fractional shares of EAI Common Stock will be treated as
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outstanding Sunrise Common Stock at the Effective Time. Moreover, shares of
Sunrise Common Stock and shares of EAI Common Stock held by Sunrise stockholders
and otherwise sold, redeemed, or disposed of prior or subsequent to the
transaction will be considered in making this representation.
(b) Sunrise is not under the jurisdiction of a court in Title 11 or
similar case within the meaning of Section 368(a)(3)(A) of the Code.
3.20. CONSENTS OF THIRD PARTIES. All agreements and consents of any parties
to the execution and delivery of this Agreement and the consummation by Sunrise
of the transactions contemplated hereby have been or will by the Effective Time
be obtained.
3.21. VOTING AGREEMENTS. Sunrise has delivered to EAI an Agreement (the
"Sunrise Affiliate Agreement"), in substantially the form of Exhibit 3.21
hereto, from, and executed by, each officer and director of Sunrise and any
entity controlled thereby (each a "Sunrise Affiliate"), by which each
Sunrise Affiliate agrees, among other things, (i) to comply with the applicable
requirements of Rule 145 promulgated under the Securities Act, (ii) to vote any
shares of Sunrise Common Stock or Sunrise Preferred Stock for which they have
voting power in favor of the Merger in any shareholder vote to obtain approval
to proceed with the Merger, (iii) to not sell or otherwise dispose of any shares
of EAI Common Stock for a period of 90 days after the Effective Time and (iv) in
the event such Sunrise Affiliate is a representative of an institution that
holds any shares of Sunrise Common Stock or Sunrise Preferred Stock, to use his
or her best efforts to ensure that such institutions comply with the terms and
conditions of such Sunrise Affiliate Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF EAI AND SUB
EAI and Sub jointly and severally represent and warrant to Sunrise that the
statements contained in this Article IV are true and correct as of the date
hereof, except as set forth in the disclosure schedule delivered by EAI to
Sunrise on or before the date of this Agreement (the "EAI Disclosure Schedule").
The EAI Disclosure Schedule shall be arranged in paragraphs corresponding to the
numbered and lettered paragraphs contained in this Article IV and the disclosure
in any paragraph, including appropriate cross references, shall qualify only the
corresponding paragraph in this Article IV.
4.01. ORGANIZATION OF THE COMPANY. Each of EAI and its Subsidiaries is a
corporation duly organized, validly existing, and in good standing under the
laws of the jurisdiction of its incorporation, has all requisite corporate power
to own, lease, and operate its property and to carry on its business as now
being conducted and as proposed to be conducted, and is duly qualified to do
business and is in good standing as a foreign corporation in each jurisdiction
in which the failure to be so qualified would have a Material Adverse Effect on
EAI and its Subsidiaries, taken as a whole. Except as set forth in the EAI SEC
Reports (as defined in Section 4.04 hereof) or the EAI Disclosure Schedule,
neither EAI nor any of its Subsidiaries
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directly or indirectly owns any equity or similar interest in, or any interest
convertible into or exchangeable or exercisable for, any corporation,
partnership, joint venture, or other business association or entity, excluding
securities in any publicly traded company held for investment by EAI and
comprising less than one percent of the outstanding stock of such company.
4.02. EAI CAPITAL STRUCTURE.
(a) The authorized capital stock of EAI on the date hereof consists
of 25,000,000 shares of EAI Common Stock and 5,000,000 shares of Preferred
Stock, $.01 par value ("EAI Preferred Stock"), of which there were issued and
outstanding (i) 7,489,637 shares of EAI Common Stock and (ii) no shares of EAI
Preferred Stock. As of such date, there were also reserved for issuance up to
an aggregate of 200,000 shares of Series A Junior Participating Preferred Shares
("EAI Junior Preferred Stock") issuable under a Rights Agreement, dated as of
September 8, 1993, between EAI and Norwest Bank Minnesota, N.A., as Rights Agent
(the "EAI Rights Agreement"), pursuant to which each outstanding share of
EAI Common Stock has attached to it certain rights ("Rights"), including rights
under certain circumstances to purchase one one-hundredth of a share of
EAI Junior Preferred Stock at $175.00, at the date hereof, subject to
adjustment. There are no shares of EAI Common Stock held in the treasury of
EAI. Since May 31, 1997, no shares of EAI Common Stock or EAI Preferred Stock
have been issued except, solely with respect to EAI Common Stock, pursuant to
the exercise of options granted under EAI's 1988 Stock Option Plan, as Amended
and Restated (the "EAI Stock Option Plan") and EAI's 1992 Long-Term Executive
Stock Option Plan (the "Executive Option Plan", and, together with the EAI Stock
Option Plan, the "EAI Option Plans"). All outstanding shares of EAI Common
Stock are validly issued, fully paid, and nonassessable, and no holder thereof
is entitled to any preemptive rights. All of the outstanding shares of capital
stock of each of EAI's Subsidiaries are duly authorized, validly issued, fully
paid, and nonassessable and all such shares are owned by EAI free and clear of
all security interests, liens, claims, pledges, agreements, limitations in EAI's
voting rights, charges, or other encumbrances of any nature.
(b) Except for (i) outstanding options to purchase, under the EAI
Option Plans, an aggregate of not more than 1,356,767 shares of EAI Common Stock
and (ii) an aggregate of 516,273 shares of EAI Common Stock available for future
grants of options under the EAI Option Plans, there are no equity securities of
any class of EAI or any of EAI's Subsidiaries, or any security exchangeable into
or exercisable for such equity securities issued, reserved for issuance, or
outstanding. Except as set forth in this Section 4.02, there are no options,
warrants, equity securities, calls, rights, commitments, or agreements of any
character to which EAI or any of its Subsidiaries is a party or by which it is
bound obligating EAI or any of its Subsidiaries to issue, deliver, or sell, or
cause to be issued, delivered, or sold, additional shares of capital stock of
EAI or any of its Subsidiaries or obligating EAI or any of its Subsidiaries to
grant, extend, accelerate the vesting of, or enter into any such option,
warrant, equity security, call, right, commitment, or agreement. Neither EAI
nor any of its Subsidiaries is a party to, nor is EAI aware of, any voting
agreement, voting trust, proxy, or other agreements or understandings with
respect to the shares of capital stock of EAI or any agreement, arrangement, or
understanding providing for registration rights with respect to any shares of
capital stock of EAI.
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4.03. AUTHORITY; NO CONFLICT; REQUIRED FILINGS AND CONTRACTS.
(a) EAI has all requisite corporate power and authority to enter into
this Agreement and to consummate the transactions contemplated by this
Agreement. The execution and delivery of this Agreement and the consummation of
the transactions contemplated by this Agreement have been duly authorized by all
necessary corporate action on the part of EAI, subject only to the approval of
the EAI Voting Proposals (as defined in Section 6.04 hereof) by EAI's
shareholders. This Agreement has been duly executed and delivered by EAI and
constitutes the valid and binding obligation of EAI, enforceable in accordance
with its terms, subject to applicable bankruptcy, insolvency, reorganization,
moratorium, or other similar laws affecting the rights of creditors generally
and except that the remedy of specific performance and injunctive relief and
other forms of equitable defenses are subject to the discretion of the court
before which any proceedings therefor may be brought.
(b) Except as set forth in the EAI Disclosure Schedule, the execution
and delivery of this Agreement by EAI does not, and the consummation of the
transactions contemplated by this Agreement will not, (i) result in any
violation or breach of any provision of the Articles of Incorporation or Bylaws
of EAI, (ii) result in any violation or breach of, constitute (with or without
notice or lapse of time, or both) a default (or give rise to a right of
termination, cancellation, modification or acceleration of any obligation or
loss of any material benefit) under, or require any notice under any of the
terms, conditions, or provisions of any EAI Material Contract (as defined in
Section 4.10 hereof) or any other material note, bond, mortgage, indenture, or
lease, instrument, or other arrangement or any material contract or other
material agreement, instrument, or obligation to which EAI or any of its
Subsidiaries is a party or by which any of them or any of their properties or
assets is subject, or (iii) violate any permit, concession, franchise, license,
judgment, order, decree, statute, law, ordinance, rule, or regulation applicable
to EAI or any of its Subsidiaries or their properties or assets and which is
material to the business or operations of EAI.
(c) No consent, approval, order, or authorization of, or
registration, declaration, or filing with, any Governmental Entity, is required
by or with respect to EAI or any of its Subsidiaries in connection with the
execution and delivery of this Agreement or the consummation of the transactions
contemplated hereby, except for (i) the filing of a Form S-4 Registration
Statement with the SEC in accordance with the Securities Act, (ii) the filing of
the Certificate of Merger with the Secretary of State of the State of Delaware,
(iii) the filing of the Joint Proxy Statement with the SEC in accordance with
the Exchange Act, and (iv) such consents, approvals, orders, authorizations,
registrations, declarations, and filings as may be required under applicable
federal and state securities laws and the laws of any foreign country.
(d) Except as set forth in the EAI Disclosure Schedule, no consent or
approval is required by or with respect to EAI or any of its Subsidiaries in
connection with the execution and delivery of this Agreement or the consummation
of the transactions contemplated by this Agreement under any terms, conditions,
or provisions of any EAI Material Contract or any other material agreement,
contract, note, bond, mortgage, indenture, lease, instrument or other
arrangement to which EAI or any of its Subsidiaries is bound or by which any of
them or any of their assets is subject.
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4.04. SEC FILINGS; FINANCIAL STATEMENTS.
(a) EAI has filed and made available to Sunrise all forms, reports,
and documents required to be filed by EAI with the SEC since June 30, 1993
(including all exhibits, notes, and schedules thereto and documents incorporated
by reference therein) (collectively, the "EAI SEC Reports"). The EAI SEC
Reports (i) at the time filed, with respect to all of the EAI SEC Reports other
than registration statements filed under the Securities Act, or at the time of
their respective effective dates, with respect to registration statements filed
under the Securities Act, complied as to form in all material respects with the
applicable requirements of the Securities Act or the Exchange Act, as the case
may be, and (ii) did not at the time filed or at the time of their respective
effective dates, as the case may be (or if amended or superseded by a filing
prior to the date of this Agreement, then on the date of such filing), contain
any untrue statement of a material fact or omit to state a material fact
required to be stated in such EAI SEC Reports or necessary in order to make the
statements in such EAI SEC Reports, in the light of the circumstances under
which they were made, not misleading. None of EAI's Subsidiaries is required to
file any forms, reports, or other documents with the SEC.
(b) Each of the consolidated financial statements (including, in each
case, any related notes) contained in the EAI SEC Reports at the time filed or
at the time of their respective effective date, as the case may be, complied as
to form in all material respects with the applicable published rules and
regulations of the SEC with respect thereto, was prepared in accordance with
generally accepted accounting principles applied on a consistent basis
throughout the periods involved (except as may be indicated in the notes to such
financial statements or, in the case of unaudited statements, as permitted by
Form 10-Q of the SEC) and fairly presented the consolidated financial position
of EAI and its Subsidiaries at the respective dates and the consolidated results
of its operations and cash flows for the periods indicated, except that the
unaudited interim financial statements were or are subject to normal and
recurring year-end adjustments. EAI has provided Sunrise with EAI's unaudited
consolidated financial statements as of and for the period ended March 31, 1997;
such financial statements, including any related notes, are attached hereto as
Schedule 4.04(b) (the "EAI Unaudited Statements"). The EAI Unaudited Statements
comply as to form in all material respects with the applicable published rules
and regulations of the SEC with respect to financial statements included in a
report on Form 10-Q, have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis with the consolidated
financial statements of EAI contained in the EAI SEC Reports (except as may be
included in the notes to the EAI Unaudited Statements or as permitted by
Form 10-Q of the SEC) and fairly present the consolidated financial position of
EAI and its Subsidiaries at the date and the consolidated results of their
operations and cash flows for the period indicated, except that the
EAI Unaudited Statements are subject to normal and recurring year-end
adjustments. The unaudited balance sheet of EAI as of March 31, 1997, is
referred to herein as the "EAI Balance Sheet."
4.05. NO UNDISCLOSED LIABILITIES. Except as set forth in the EAI Disclosure
Schedule or as otherwise disclosed in the EAI SEC Reports, EAI and its
Subsidiaries do not have any liabilities, either accrued or contingent (whether
or not required to be reflected in financial statements in accordance with
generally accepted accounting principles), and whether due or to become due,
which individually or in the aggregate would reasonably be expected to have a
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Material Adverse Effect on EAI and its Subsidiaries, taken as a whole, other
than (i) liabilities reflected in the EAI Balance Sheet and (ii) normal or
recurring liabilities incurred since the date of the EAI Balance Sheet in the
ordinary course of business consistent with past practices. Sub will have no
liabilities assumed by Sunrise and will not transfer to Sunrise any assets
subject to liabilities.
4.06. ABSENCE OF CERTAIN CHANGES OR EVENTS. Since the date of the EAI
Balance Sheet, EAI and its Subsidiaries have conducted their businesses only in
the ordinary course and in a manner consistent with past practice and, since
such date, there has not been (i) any Material Adverse Change in EAI and its
Subsidiaries, taken as a whole; (ii) any damage, destruction, or loss (whether
or not covered by insurance) with respect to any property of EAI or any of its
Subsidiaries having a Material Adverse Effect on EAI and its Subsidiaries, taken
as whole; (iii) any material change by EAI in its accounting methods,
principles, or practices; (iv) any revaluation by EAI of any of its assets
having a Material Adverse Effect on EAI and its Subsidiaries, taken as a whole;
or (v) except as disclosed in the EAI Disclosure Schedule, any other action or
event that would have required the consent of Sunrise pursuant to Section 5.01
of this Agreement had such action or event occurred after the date of this
Agreement.
4.07. TAXES.
(a) Except as disclosed in the EAI Disclosure Schedule, all Tax
Returns, of or relating to any Tax heretofore required to be filed by EAI or any
of its Subsidiaries have been duly filed on a timely basis. All such Tax
Returns were complete and accurate in all material respects. Each of EAI and
its Subsidiaries has paid or has made adequate provision for the payment of all
Taxes. For purposes of this Section 4.07, the term "Subsidiaries" shall include
former Subsidiaries of EAI for the periods during which any such Subsidiaries
were owned directly or indirectly by EAI.
(b) Except as disclosed in the EAI Disclosure Schedule, as of the
date of this Agreement there are no audits or administrative proceedings, court
proceedings or claims pending against EAI or any of its Subsidiaries with
respect to any Taxes, no assessment, deficiency or adjustment has been asserted
or, to the knowledge of EAI, proposed with respect to any Tax Return of or with
respect to EAI or any of its Subsidiaries and there are no liens for Taxes upon
the assets or properties of EAI or any of its Subsidiaries, except liens for
Taxes not yet delinquent.
(c) Except as disclosed in the EAI Disclosure Schedule, there are not
in force any waivers of agreements, arrangements, or understandings by or with
respect to EAI or any of its Subsidiaries of or for an extension of time for the
assessment or payment of any Taxes. Neither EAI nor any of its Subsidiaries has
received a written ruling of a taxing authority relating to Taxes or entered
into a written and legally binding agreement with a taxing authority relating to
Taxes that would have a continuing effect after the Closing Date. Except as
disclosed in the EAI Disclosure Schedule, neither EAI nor any of its
Subsidiaries is required to include in income any adjustment pursuant to
Section 481(a) of the Code by reason of a voluntary change in accounting method
initiated by EAI or any of its Subsidiaries, and to the best knowledge of EAI
the IRS has not proposed any such adjustment or change in accounting method.
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(d) Each of EAI and its Subsidiaries has withheld and paid all Taxes
required to have been withheld and paid in connection with amounts paid or owing
to any employee, creditor, independent contractor or other third party.
(e) Neither EAI nor any of its Subsidiaries has filed a consent under
Section 341(f) of the Code.
4.08. PROPERTIES. Schedule 4.08 hereto is a true and complete list of all
real property owned by EAI or its Subsidiaries and real property leased by EAI
or its Subsidiaries pursuant to leases ("EAI Property Leases") as of the date
hereof, and the name of the Lessor, the date of the EAI Property Lease and each
amendment to the EAI Property Lease, and the aggregate annual rental or other
fees payable under any such EAI Property Lease. All such EAI Property Leases
are valid and binding in accordance with their respective terms. All of the EAI
Property Leases will continue in full force and effect immediately after the
consummation of the transactions contemplated by this Agreement, there are no
material disputes pending or, to the knowledge of EAI, threatened under any of
the EAI Property Leases, and neither EAI, any Subsidiary of EAI, nor any other
party thereto is in default under the terms of any of the EAI Property Leases.
4.09. INTELLECTUAL PROPERTY.
(a) Subject to the EAI Disclosure Schedule, EAI owns, or is licensed
or otherwise possesses legally enforceable rights to use, all patents,
trademarks, trade names, service marks, copyrights, and any applications for
such patents, trademarks, trade names, service marks and copyrights, and
tangible or intangible proprietary information or material that are necessary to
conduct the business of EAI as currently conducted (the "EAI Intellectual
Property Rights"). Schedule 4.09 lists (i) all trademarks, registered
copyrights, trade names, and service marks which EAI considers to be material to
its business and included in the EAI Intellectual Property Rights, including the
jurisdictions in which each such EAI Intellectual Property Right has been issued
or registered or in which any such application for such issuance and
registration has been filed, (ii) all material licenses, sublicenses, and other
agreements to which EAI is a party and pursuant to which any person is
authorized to use any EAI Intellectual Property Rights, and (iii) all material
licenses, sublicenses, and other agreements to which EAI is a party and pursuant
to which EAI is authorized to use any third party patents, trademarks or
copyrights, including software ("EAI Third Party Intellectual Property Rights")
that is material to its business.
(b) EAI is not, nor will it be as a result of the execution and
delivery of this Agreement or the performance of its obligations under this
Agreement, in breach of any license, sublicense, or other agreement relating to
the EAI Intellectual Property Rights or EAI Third Party Intellectual Property
Rights.
(c) To EAI's knowledge, all patents, registered trademarks, service
marks, and copyrights held by EAI are valid and subsisting. Except as set forth
on Schedule 4.09 hereof, EAI (i) has not been sued in any suit, action, or
proceeding which involves a claim of infringement of any patents, trademarks,
service marks, or copyrights, or violation of any trade secret or other
proprietary right of any third party; and (ii) has no knowledge that the conduct
of its business as
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presently conducted infringes any patent, trademark, service mark, copyright,
trade secret, or other proprietary right of any third party.
4.10. AGREEMENTS, CONTRACTS AND COMMITMENTS. EAI has not breached, in any
material respect, or received in writing any claim or threat that it has
breached, any of the terms or conditions of any material agreement, contract, or
commitment filed as an exhibit to EAI Report on Form 10-K for the fiscal year
ended June 30, 1996 or any other agreement, contract, or commitment entered into
since June 30, 1996 which, if entered into prior to such date, would have been
required to be included as an exhibit thereto or any other commitment, agreement
or lease (including, without limitation, any EAI Property Lease) not otherwise
disclosed in EAI's Report on Form 10-K for the fiscal year ended June 30, 1996
which involves payments either (a) of $25,000 or more per year or (b) which
exceed $100,000 in the aggregate (together, the "EAI Material Contracts") in
such a manner as would permit any other party to cancel or terminate the same or
would permit any other party to seek material damages from EAI under any EAI
Material Contract. Schedule 4.10 hereto is a true and complete list of all
EAI Material Contracts. Each EAI Material Contract that has not expired or been
terminated is in full force and effect and is not subject to any material
default thereunder of which EAI is aware by any party obligated to EAI pursuant
to the EAI Material Contract.
4.11. LITIGATION. Except as described in the EAI SEC Reports or in the EAI
Disclosure Schedule, there are no claims, actions, suits, investigations or
proceedings pending of which it has notice or, to the knowledge of EAI,
threatened against or affecting EAI or any of its Subsidiaries or any of their
respective assets or properties, at law or in equity, before or by any Federal,
state, municipal or other governmental agency or authority, foreign or domestic,
or before any arbitration board or panel, wherever located, which if determined
adverse to EAI would, individually or in the aggregate, have a Material Adverse
Effect on EAI and its Subsidiaries, taken as a whole.
4.12. ENVIRONMENTAL MATTERS.
(a) HAZARDOUS SUBSTANCES. To the knowledge of EAI, no Hazardous
Substances have ever been buried, spilled, leaked, discharged, emitted,
generated, stored, used or released, and no Hazardous Substances are now
present, in, on, or under any property that EAI or any of its Subsidiaries has
at any time owned, operated, occupied or leased, except for immaterial
quantities stored or used by EAI or such Subsidiary in the ordinary course of
its business and in accordance with all applicable Environmental Laws.
(b) HAZARDOUS SUBSTANCES ACTIVITIES. To the knowledge of EAI, no
property that EAI or any of its Subsidiaries has ever owned, operated, occupied
or leased has ever been used in connection with the business of manufacturing,
storing or transporting Hazardous Substances, and no RCRA Hazardous Wastes have
been treated, stored or disposed of there.
(c) UST'S AND AST'S. To the knowledge of EAI, there are not now and
never have been any underground or aboveground storage tanks or other
containment facilities of any kind on any property that EAI or any of its
Subsidiaries has ever owned, occupied, operated or leased which contain or ever
did contain any Hazardous Substances.
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(d) LISTING. To the knowledge of EAI, no property that EAI or any of
its Subsidiaries has ever owned, operated, occupied or leased has ever been
listed on the National Priorities List, the Comprehensive Environmental
Response, Compensation and Liability Information System or any similar federal,
state or local list, schedule, log, inventory or database.
(e) ENVIRONMENTAL REPORTS. EAI has made available to Sunrise for
inspection true and complete copies of all reports, authorizations, permits,
licenses, disclosures and other documents in its possession, custody or control
describing or relating in any way to EAI or any of its Subsidiaries, or any
property that EAI or any of its Subsidiaries has ever owned, operated, occupied
or leased, which suggest that any Hazardous Substances may be present in, on, or
under any such property in material quantities or that EAI or any of its
Subsidiaries may have breached any Environmental Law.
(f) ENVIRONMENTAL CLAIMS, ETC. To the knowledge of EAI, there are
not and there never have been any requests, notices, investigations, claims,
demands, administrative proceedings, hearings, litigation or other legal
proceedings relating in any way to EAI or any of its Subsidiaries, or any
property that EAI or any of its Subsidiaries has ever owned, operated, occupied
or leased, alleging liability under, violation of or noncompliance with any
Environmental Law or any license, permit or other authorization issued pursuant
thereto. To the knowledge of EAI, no such matter is threatened or impending,
nor does there exist any substantial basis therefor.
(g) COMPLIANCE WITH ENVIRONMENTAL LAWS. EAI and each of its
Subsidiaries operates, and at all times has operated, its business in all
material respects in accordance with all applicable Environmental Laws, and all
licenses, permits and other authorizations required pursuant to any
Environmental Law and necessary for the lawful operation of the business of EAI
and its Subsidiaries are in EAI's or the appropriate Subsidiary's possession and
are in full force and effect. To EAI's knowledge, there is no threat that any
such permit, license or other authorization will be withdrawn, terminated,
limited or materially changed.
4.13. EMPLOYEE BENEFIT PLANS.
(a) There are no defined benefit pension plans subject to Title IV of
ERISA, or "multiemployer plans" as defined in Section 3(37) of ERISA, maintained
or contributed to by EAI or any of its ERISA Affiliates (as defined in this
Section 4.13(a) for the benefit of their current or former employees. EAI has
set forth in Schedule 4.12 hereto all "employee benefit plans" as defined in
Section 3(3) of ERISA and all bonus, stock option, stock purchase, incentive,
deferred compensation, supplemental retirement, severance, and other similar
employee benefit plans, arrangements and agreements, whether or not such plans,
arrangements or agreements are "employee benefit plans," written or otherwise,
for the benefit of or relating to, any current or former employee of EAI or any
trade or business (whether or not incorporated) (an "ERISA Affiliate") which is
aggregated with EAI or any Subsidiary of EAI pursuant to Section 414 of the code
(together, the "EAI Employee Plans").
(b) With respect to each EAI Employee Plan, EAI has made available to
Sunrise a true and correct copy of (i) the most recent annual report (Form 5500)
filed with the
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IRS, if applicable, (ii) the plan document and summary plan description for each
EAI Employee Plan, (iii) each trust agreement and group annuity contract, if
any, relating to any EAI Employee Plan, (iv) the most recent actuarial report or
valuation relating to an EAI Employee Plan subject to Title IV of ERISA, and (v)
the most recent IRS determination letter, where applicable.
(c) With respect to the EAI Employee Plans, individually and in the
aggregate, no event has occurred, and to the knowledge of EAI, there exists no
condition or set of circumstances in connection with which EAI could be subject
to any liability that is reasonably likely to have a Material Adverse Effect on
EAI and its Subsidiaries, taken as whole, under ERISA, the Code, or any other
applicable law.
(d) With respect to the EAI Employee Plans, individually and in the
aggregate, there are no benefit obligations required to be funded for which
contributions have not been made or properly accrued and there are no unfunded
benefit obligations which have not been accounted for by reserves, or otherwise
properly footnoted in accordance with generally accepted accounting principles,
on the financial statements of EAI.
(e) Except as set forth in the EAI Disclosure Schedule or as
disclosed in EAI SEC Reports filed prior to the date of this Agreement, and
except as provided for in this Agreement, neither EAI nor any of its
Subsidiaries is a party to any oral or written (i) union or collective
bargaining agreement, (ii) agreement with any officer or other key employee of
EAI or any of its Subsidiaries, the benefits of which are contingent or the
terms of which are materially altered, upon the occurrence of a transaction
involving EAI of the nature contemplated by this Agreement, (iii) agreement with
any officer or other employee of EAI providing any term of employment or
compensation guarantee extending for a period longer than one year from the date
hereof or for the payment of compensation in excess of $100,000 per annum, or
(iv) agreement or plan, including any stock option plan, stock appreciation
right plan, restricted stock plan, or stock purchase plan, any of the benefits
of which will be increased, or the vesting of the benefits of which will be
accelerated, by the occurrence of any of the transactions contemplated by this
Agreement or the value of any of the benefits of which will be calculated on the
basis of any of the transactions contemplated by this Agreement.
4.14. COMPLIANCE WITH LAWS. EAI has complied with, is not in violation of,
and has not received any notices of violation with respect to, any federal,
state, or local statute, law, or regulation with respect to the conduct of its
business, or the ownership or operation of its business, except for failures to
comply or violations which would not have a Material Adverse Effect on EAI and
its Subsidiaries, taken as a whole.
4.15. INTERESTED PARTY TRANSACTIONS. Except as set forth in the EAI
Disclosure Schedule or in the EAI SEC Reports, since the date of EAI's last
proxy statement to its shareholders, no event has occurred that would be
required to be reported by EAI as a Certain Relationship or Related Transaction
pursuant to Item 404 of Regulation S-K promulgated by the SEC (without giving
effect to any minimum dollar requirements contained therein).
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4.16. NO EXISTING DISCUSSIONS. EAI is not engaged, directly or indirectly,
in any discussions or negotiations with any other party with respect to an
Acquisition Proposal (as defined in Section 6.01 hereof).
4.17. NO SECURED DEBT. Except as set forth in the EAI Disclosure Schedule,
there is not now any secured debt (including capitalized leases) of EAI or any
of its Subsidiaries.
4.18. OPINION OF FINANCIAL ADVISOR. The financial advisor of EAI, Lehman
Brothers Inc., has delivered to the Board of Directors of EAI an opinion dated
the date of this Agreement that, from a financial point of view, the
consideration to be offered to the stockholders of Sunrise in the Merger
contemplated hereby is fair to EAI.
4.19. OWNERSHIP AND INTERIM OPERATIONS OF SUB. All outstanding capital
stock of Sub is owned by EAI and EAI is in control of Sub within the meaning of
Section 368(e) of the Code. Sub was formed solely for the purpose of engaging
in the transactions contemplated by this Agreement, has engaged in no other
business activities, and has conducted its operations only as contemplated by
this Agreement.
4.20. CONSENT OF THIRD PARTIES. All agreements and consents of any parties
to the execution and delivery of this Agreement and the consummation by EAI of
the transactions contemplated hereby have been or will by the Effective Time be
obtained.
4.21. VOTING AGREEMENTS. EAI has delivered to Sunrise an Agreement (the
"EAI Affiliate Agreement"), in substantially the form of Exhibit 4.21 hereto,
from, and executed by, each officer and director of EAI and any entity
controlled thereby (each an "EAI Affiliate") by which each EAI Affiliate agrees,
among other things, (i) to vote any share of EAI Common Stock for which they
have voting power in favor of the EAI Voting Proposals (as defined in Section
6.04 hereof) in any shareholder vote to obtain approval to proceed with the
Voting Proposals, (ii) to not sell or otherwise dispose of any shares of EAI
Common Stock for a period of 90 days after the Effective Time and (iii) in the
event such EAI Affiliate is a representative of an institution that holds any
shares of EAI Common Stock, to use his or her best efforts to ensure that such
institutions comply with the terms and conditions of such EAI Affiliate
Agreement.
ARTICLE V
CONDUCT OF BUSINESS
5.01. COVENANTS OF SUNRISE. During the period from the date of this
Agreement and continuing until the earlier of the termination of this Agreement
or the Effective Time, Sunrise agrees as to itself and its respective
Subsidiaries (except to the extent that EAI shall otherwise consent in writing,
which consent shall not be unreasonably withheld, or as otherwise expressly
contemplated or permitted by this Agreement) to carry on its business in the
usual, regular, and ordinary course in substantially the same manner as
previously conducted, to pay its debts and taxes when due subject to good faith
disputes over such debts or taxes, to pay or perform other obligations when due,
and, to the extent consistent with such business, to use all reasonable
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efforts consistent with its past practices and policies to preserve intact its
present business organization, to keep available the services of its present
officers and key employees and preserve its relationships with customers,
suppliers, franchisees, distributors, licensers, licensees, and others having
business dealings with it, to the end that its goodwill and ongoing businesses
shall be unimpaired at the Effective Time. Sunrise shall promptly notify EAI of
any event or occurrence not in the ordinary course of business of Sunrise.
Sunrise further agrees to promptly provide copies to EAI of all written
correspondence and all internal memoranda and written communications relating to
the services that Sunrise provides to charter school operations and agrees to
meet with representatives of EAI no less than once a month after the date hereof
to provide an update on the status of such operations. Except as expressly
contemplated by this Agreement, subject to Section 6.01 hereof, or disclosed in
Schedule 5 hereto (such Schedule 5 being arranged in paragraphs corresponding to
the numbered and lettered paragraphs contained in this Article V with the
disclosures in any paragraph, including appropriate cross references, qualifying
only the corresponding paragraph in this Article V), Sunrise shall not (and
shall not permit any of its respective Subsidiaries to), without the prior
written consent of EAI, which consent shall not be unreasonably withheld, do any
of the following:
(a) Accelerate, amend, or change the period of exercisability of
options or restricted stock granted under any employee stock plan or otherwise
or authorize cash payments in exchange for any options granted under any of such
plans;
(b) Transfer or license to any person or entity or otherwise extend,
amend, or modify any rights to the Sunrise Intellectual Property Rights, other
than to PSI (as hereinafter defined) in the ordinary course of business
consistent with past practices;
(c) Declare or pay any dividends on or make any other distributions
(whether in cash, stock, or property) in respect of any of its capital stock or
split, combine, or reclassify any of its capital stock or issue or authorize the
issuance of any other securities in respect of, in lieu of, or in substitution
for shares of its capital stock, or purchase or otherwise acquire, directly or
indirectly, any shares of its capital stock, other than the payment of dividends
on Sunrise Series C Stock in accordance with the terms of its Certificate of
Designation;
(d) Issue, deliver, or sell or authorize or propose the issuance,
delivery, or sale of, or purchase or propose the purchase of, any shares of its
capital stock or securities convertible into shares of its capital stock, or
subscriptions, rights, warrants, or options to acquire, or other agreements or
commitments of any character obligating it to issue, any such shares or other
convertible securities, other than (i) the issuance of shares upon the exercise
of options outstanding as of the date hereof, (ii) the granting of options to
Sunrise preschool directors as disclosed in Schedule 3.02(b) hereto, and
(iii) the granting of options to the current non-employee directors of Sunrise
pursuant to the terms of the Sunrise Non-Employee Option Plan.
(e) Acquire or agree to acquire by merging or consolidating with, or
by purchasing a substantial equity interest in or substantial portion of the
assets of, or by any other manner, any business or any corporation, partnership,
association, or other business organization or division, or otherwise acquire or
agree to acquire any assets for which it is not contractually
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bound at the date hereof by a contract, commitment or agreement listed on
Schedule 5.01(e) hereto with an individual cost in excess of $5,000 or an
aggregate cost in excess of $25,000;
(f) Sell, lease, license, or otherwise dispose of any of its
properties or assets with an aggregate value in excess of $25,000;
(g) (i) increase or agree to increase the compensation payable or to
become payable to its officers or employees, except for increases in salary or
wages of employees other than its officers in accordance with past practices,
(ii) increase or agree to increase the compensation payable or to become payable
to its officers or grant any additional severance or termination pay to, or
enter into any employment or severance agreements with such officers,
(iii) grant any severance or termination pay to, or enter into any employment or
severance agreement with, any employee, (iv) enter into any collective
bargaining agreement, (v) establish, adopt, enter into, or amend any bonus,
profit sharing, thrift, compensation, stock option, restricted stock, pension,
retirement, deferred compensation, employment, termination, severance, or other
plan, trust, fund, policy, or arrangement for the benefit of any directors,
officers, or employees, or (vi) establish any new executive employee position;
(h) Revalue any of its assets, including writing down the value of
inventory or writing off notes or accounts receivable, other than revaluations
that the auditors for such entity require in accordance with generally accepted
accounting principles or in the ordinary course of business;
(i) Incur, except pursuant to existing credit agreements, any
indebtedness for borrowed money or guarantee any such indebtedness or issue or
sell any debt securities or warrants or rights to acquire any debt securities of
Sunrise or any of its Subsidiaries or guarantee any debt securities of others,
or voluntarily prepay any outstanding indebtedness;
(j) Amend or propose to amend its charter documents or Bylaws, except
as contemplated by this Agreement;
(k) Acquire or commit to acquire or lease any interest in any real
property, including, without limitation, any sites which are proposed or
intended to be used for educational facilities;
(l) Make any capital expenditure or commitment for which it is not
contractually bound at the date hereof by a contract, commitment or agreement
listed on Schedule 5.01(l) hereto, except expenditures and commitments incurred
in the ordinary course not to exceed $10,000 in the aggregate;
(m) Enter into or commit to enter into any other agreement, contract
or commitment for goods or services which involves payment by Sunrise in excess
of $25,000 in the aggregate;
(n) Take, or agree in writing or otherwise to take, any of the
actions described in Sections (a) through (m) above, or any action which is
reasonably likely to make any of its
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representations or warranties contained in this Agreement untrue or incorrect in
any material respect on the date made (to the extent so limited) or as of the
Effective Time.
5.02. COVENANTS OF EAI. During the period from the date of this Agreement
and continuing until the earlier of the termination of this Agreement or the
Effective Time, EAI agrees as to itself and its respective Subsidiaries (except
to the extent that Sunrise shall otherwise consent in writing), to carry on its
business in the usual, regular, and ordinary course in substantially the same
manner as previously conducted, to pay its debts and taxes when due subject to
good faith disputes over such debts or taxes, to pay or perform other
obligations when due, and, to the extent consistent with such business, to use
all reasonable efforts consistent with past practices and policies to preserve
intact its present business organization, to keep available the services of its
present officers and key employees and preserve its relationships with
customers, suppliers, franchisees, distributors, licensers, licensees, and
others having business dealings with it, to the end that its goodwill and
ongoing businesses shall be unimpaired at the Effective Time. EAI shall
promptly notify Sunrise of any event or occurrence not in the ordinary course of
business of EAI. Notwithstanding anything contained herein to the contrary, EAI
may (i) complete the acquisition of a target identified to Sunrise, the
consideration for which is currently contemplated to be a combination of cash
and EAI Common Stock not to exceed $7,000,000 in the aggregate, (ii) enter into
any agreements to acquire sites for potential education facilities and
(iii) open up to five new school facilities, in each case without requiring the
prior consent of Sunrise.
5.03. COOPERATION. Subject to compliance with applicable law, from the date
hereof until the Effective Time, each of EAI and Sunrise shall confer on a
regular and frequent basis with one or more representatives of the other party
to report operational matters of materiality and the general status of ongoing
operations and shall promptly provide the other party and its counsel with
copies of all filings made by such party with any Governmental Entity in
connection with this Agreement, the Merger, and the transactions contemplated
hereby and thereby.
ARTICLE VI
ADDITIONAL AGREEMENTS AND COVENANTS
6.01. NO SOLICITATION.
(a) Sunrise shall not directly or indirectly, through any officer,
director, employee, representative, or agent thereof or of any of their
respective Subsidiaries, (i) solicit, initiate, or encourage any inquiries or
proposals that constitute, or could reasonably be expected to lead to, a
proposal or offer for a merger, consolidation, business combination, sale of
substantial assets, sale of shares of capital stock (including without
limitation by way of a tender offer), or similar transaction involving Sunrise
or any of its Subsidiaries other than the transactions contemplated by this
Agreement (any of the foregoing inquiries or proposals being referred to in this
Agreement as an "Acquisition Proposal"), (ii) engage in negotiations or
discussions concerning, or provide any non-public information to any person or
entity relating to, any Acquisition Proposal, or (iii) agree to, approve, or
recommend any Acquisition Proposal;
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provided, however, that nothing contained in this Agreement shall prevent
Sunrise or its Board of Directors, from (x) furnishing non-public information
to, or entering into discussions or negotiations with, any person or entity in
connection with an unsolicited bona fide Acquisition Proposal by such person or
entity or recommending an unsolicited bona fide written Acquisition Proposal to
the shareholders, if and only to the extent that (A) the Board of Directors
determines in good faith after consultation with outside legal counsel that
failure to provide such non-public information would create a material risk that
the Board of Directors would be in breach of their fiduciary duties and the
Board of Directors believes in good faith, after consultation with their
financial advisor, that such Acquisition Proposal is bona fide and is, from a
financial point of view, significantly more favorable to the stockholders of
Sunrise than the Merger and (B) prior to furnishing such non-public information
to, or entering into discussions or negotiations with, such person or entity,
the Board of Directors receives from such person or entity an executed
confidentiality agreement with terms no more favorable to such party than those
contained in the Confidentiality and Nondisclosure Agreement dated July 25, 1996
between EAI and Sunrise (the "Confidentiality Agreement") or (y) complying with
Rule 14e-2 or Rule 14d-9 promulgated under the Exchange Act with regard to an
Acquisition Proposal.
(b) Sunrise shall notify EAI immediately (and no later than 24 hours)
after receipt by Sunrise (or its advisors), of any Acquisition Proposal or any
request for non-public information in connection with an Acquisition Proposal or
for access to the properties, books, or records thereof by any person or entity
that informs Sunrise that it is considering making, or has made, an Acquisition
Proposal. Such notice by Sunrise shall be made orally and in writing and shall
indicate in reasonable detail the identity of the offer or and the terms and
conditions of such proposal, inquiry, or contact.
6.02. JOINT PROXY STATEMENT; REGISTRATION STATEMENT.
(a) As promptly as practical after the execution of this Agreement,
EAI and Sunrise shall prepare and file with the SEC a joint proxy
statement/prospectus to be sent to the shareholders of EAI and Sunrise in
connection with the meeting of EAI's shareholders (the "EAI Shareholders'
Meeting") and Sunrise's stockholders (the "Sunrise Stockholders' Meeting") to
consider the Merger (the "Joint Proxy Statement"), and EAI shall prepare and
file with the SEC a registration statement on Form S-4 pursuant to which the
shares of EAI Common Stock to be issued as a result of the Merger will be
registered with the SEC (the "Registration Statement"), in which the Joint Proxy
Statement will be included as a prospectus. EAI and Sunrise shall use all
reasonable efforts to cause the Registration Statement to become effective as
soon after such filing as practical. The Joint Proxy Statement shall include
the recommendation of the Board of Directors of Sunrise in favor of this
Agreement and the Merger and the recommendation of the Board of Directors of EAI
in favor of the EAI Voting Proposals, provided that the Board of Directors of
either Sunrise or EAI may withdraw such recommendation if such Board of
Directors shall have determined in good faith, after consultation with its
outside legal counsel, that the withdrawal of such recommendation is necessary
for such Board of Directors to comply with its fiduciary duties under applicable
law. EAI and Sunrise shall make all other necessary filings with respect to the
Merger under the Securities Act and the Exchange Act and the rules and
regulations thereunder.
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(b) Sunrise shall take such action as may be necessary to insure that
(i) the information to be supplied by Sunrise for inclusion in the Registration
Statement shall not at the time the Registration Statement is declared effective
by the SEC contain any untrue statement of a material fact or omit to state any
material fact required to be stated in the Registration Statement or necessary
in order to make the statements in the Registration Statement, in light of the
circumstances under which they were made, not misleading, and (ii) the
information supplied by Sunrise for inclusion in the Joint Proxy Statement shall
not, on the date the Joint Proxy Statement is first mailed to shareholders of
Sunrise or EAI, at the time of the Sunrise Stockholders' Meeting and the EAI
Shareholders' Meeting, and at the Effective Time, contain any statement which,
at such time and in light of the circumstances under which it shall be made, is
false or misleading with respect to any material fact, or omit to state any
material fact necessary in order to make the statements made in the Joint Proxy
Statement not false or misleading, or omit to state any material fact necessary
to correct any statement in any earlier communication with respect to the
solicitation of proxies for the Sunrise Stockholders' Meeting or EAI
Shareholders' Meeting which has become false or misleading. If at any time
prior to the Effective Time any event relating to Sunrise or any of its
Affiliates, officers, or directors should be discovered by Sunrise which should
be set forth in an amendment to the Registration Statement or a supplement to
the Joint Proxy Statement, Sunrise shall promptly so inform EAI.
(c) EAI shall take such action as may be necessary to insure that (i)
the information supplied by EAI for inclusion in the Registration Statement
shall not at the time the Registration Statement is declared effective by the
SEC contain any untrue statement of a material fact or omit to state any
material fact required to be stated in the Registration Statement or necessary
in order to make the statements in the Registration Statement, in light of the
circumstances under which they were made, not misleading, and (ii) the
information supplied by EAI for inclusion in the Joint Proxy Statement shall not
on the date the Joint Proxy Statement is first mailed to shareholders of EAI or
Sunrise, at the time of the EAI Shareholders' Meeting and Sunrise Shareholders'
Meeting, and at the Effective Time, contain any statement which, at such time
and in light of the circumstances under which it shall be made, is false or
misleading with respect to any material fact, or omit to state any material fact
necessary in order to make the statements made in the Joint Proxy Statement not
false or misleading, or omit to state any material fact necessary to correct any
statement in any earlier communication with respect to the solicitation of
proxies for the EAI Shareholders' Meeting or Sunrise Shareholders' Meeting which
has become false or misleading. If at any time prior to the Effective Time any
event relating to EAI or any of its Affiliates, officers, or directors should be
discovered by EAI which should be set forth in an amendment to the Registration
Statement or a supplement to the Joint Proxy Statement, EAI shall promptly so
inform Sunrise.
6.03. ACCESS TO INFORMATION. Upon reasonable notice and to the extent
permitted under applicable law and the provisions of agreements to which EAI or
Sunrise, as the case may be, is a party, Sunrise and EAI shall each (and shall
cause each of their respective Subsidiaries to) afford to the officers,
employees, accountants, counsel, and other representatives of the other, access,
during normal business hours during the period prior to the Effective Time, to
all its properties, books, contracts, commitments, and records and, during such
period, each of Sunrise and EAI shall (and shall cause each of their respective
Subsidiaries to) furnish promptly to the other (a) a copy of each report,
schedule, registration statement, and other document filed or received by it
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during such period pursuant to the requirements of federal securities laws and
(b) all other information concerning its business, properties, and personnel as
such other party may reasonably request. Unless otherwise required by law, the
parties will hold any such information which is non-public in confidence in
accordance with the Confidentiality Agreement. No information or knowledge
obtained in any investigation pursuant to this Section 6.03 shall affect or be
deemed to modify a representation or warranty construed in this Agreement or the
conditions to the obligations of the parties to consummate the Merger.
6.04. SHAREHOLDERS MEETINGS. Sunrise and EAI each shall call a meeting of
its respective shareholders to be held as promptly as practicable for the
purpose of voting, in the case of Sunrise, upon this Agreement and the Merger
and, in the case of EAI, upon (i) the issuance of shares of EAI Common Stock
pursuant to the Merger and (ii) the amendment to the EAI Option Plans to
increase the number of shares covered thereby (together the "EAI Voting
Proposals"). Subject to Sections 6.01 and 6.02 hereof, Sunrise and EAI will,
through their respective Boards of Directors, recommend to their respective
shareholders approval of such matters and will coordinate and cooperate with
respect to the timing of such meetings and shall use their best efforts to hold
such meetings on the same day and as soon as practicable after the date hereof.
Subject to Section 6.02 hereof, each party shall use all reasonable efforts to
solicit from its shareholders proxies in favor of such matters.
6.05. LEGAL CONDITIONS TO MERGER. Subject to Section 6.01 hereof, each of
EAI and Sunrise will take all reasonable actions necessary to comply promptly
with all legal requirements which may be imposed on it with respect to the
Merger (which actions shall include, without limitation, furnishing all
information required under the HSR Act and in connection with approvals of or
filings with any other Governmental Entity) and will promptly cooperate with and
furnish information to each other in connection with any such requirements
imposed upon either of them or any of their Subsidiaries in connection with the
Merger. Each of EAI and Sunrise will, and will cause its Subsidiaries to, take
all reasonable actions necessary to obtain (and will cooperate with each other
in obtaining) any consent, authorization, order, or approval of, or any
exemption by, any Governmental Entity or other public third party, required to
be obtained or made by EAI, Sunrise, or any of their Subsidiaries in connection
with the Merger or the taking of any action contemplated thereby or by this
Agreement.
6.06. PAYMENT OF TAXES.
(a) Sunrise shall pay prior to the Effective Time (i) all Taxes
required to be paid prior to that day, and (ii) shall withhold with respect to
its employees all federal and state income taxes, FICA, FUTA, and other Taxes
required to be withheld.
(b) EAI shall pay prior to the Effective Time (i) all Taxes required
to be paid prior to that day, and (ii) shall withhold with respect to its
employees all federal and state income taxes, FICA, FUTA, and other Taxes
required to be withheld.
6.07. PUBLIC DISCLOSURE. Any public disclosures by EAI or Sunrise with
respect to the Merger or this Agreement, or with respect to anything involving
or referring to the other, shall be made in accordance with the terms of the
Confidentiality Agreement.
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6.08. TAX-FREE REORGANIZATION.
(a) EAI and Sunrise shall each use its best efforts to cause the
Merger to be treated as a reorganization within the meaning of Section 368(a) of
the Code.
(b) To the extent permitted under applicable tax laws, the Merger
shall be reported as a reorganization within the meaning of Section 368(a)(1)(A)
and Section 368(a)(2)(D) of the Code in all federal, state, and local tax
returns after the Effective Time.
(c) Following the Merger, EAI will cause Sub to hold at least 90% of
the fair market value of Sunrise's net assets and 70% of the fair market value
of Sunrise's gross assets held immediately prior to the Merger. For purposes of
this subsection (c), amounts paid by Sunrise to Sunrise Shareholders who receive
cash or other property, to pay reorganization expenses, and in connection with
redemptions and distributions (except for regular, normal distributions) will be
treated as assets of Sunrise held immediately prior to the Merger.
(d) Following the Merger, EAI will cause Sub to continue the historic
business of Sunrise or use a significant portion of Sunrise's business assets in
a business.
(e) Following the Merger, EAI will cause Sub not to issue additional
shares of its stock to any person other than EAI.
(f) EAI has no present plan or intention to reacquire, following the
Merger, any of its stock issued in the Merger.
(g) EAI has no present plan or intention to liquidate Sub, merge Sub
with or into another corporation, sell or dispose of the stock of Sub (except
for transfers to other corporations controlled by EAI), or cause Sub to sell or
dispose of any of its assets or the assets acquired from Sunrise, except for
dispositions in the ordinary course of business or transfers described in
Section 368(a)(2)(C) of the Code.
(h) EAI, Sub, Sunrise and the stockholders of Sunrise will pay their
respective expenses, if any, incurred in connection with the Merger.
(i) No indebtedness between EAI and Sunrise or between Sub and
Sunrise was issued, acquired or will be settled at a discount.
(j) The fair market value of the assets of Sunrise transferred to Sub
exceed the sum of liabilities assumed by Sub, plus the amount of liabilities, if
any, to which the transferred assets are subject, and all such liabilities of
Sunrise assumed by Sub to which the transferred assets are subject were incurred
by Sunrise in the ordinary course of its business.
(k) At the Effective Time, none of EAI, Sunrise or Sub is an
investment company as defined in Section 368(a)(2)(F)(iii) and (iv) of the Code.
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6.09. NASDAQ QUOTATION. EAI shall use its best efforts to cause the shares
of EAI Common Stock to be issued in the Merger to be approved for quotation on
the Nasdaq National Market, subject to official notice of issuance, prior to the
Closing Date.
6.10. STOCK PLANS, WARRANTS AND OTHER OPTIONS.
(a) At the Effective Time, each outstanding option to purchase shares
of Sunrise Common Stock (a "Sunrise Stock Option") under each Sunrise Option
Plan, whether vested or unvested, shall become an option to acquire, under the
EAI Stock Option Plan, on the same terms and conditions as were applicable under
the respective Sunrise Option Plan, the same number of shares of EAI Common
Stock as the holder of such Sunrise Stock Option would have been entitled to
receive pursuant to the Merger had such holder exercised such option in full
immediately prior to the Effective Time, at the price per share set forth in the
Sunrise Stock Option, divided by the Exchange Ratio, rounded to the nearest full
cent; provided, however, that in the case of any Sunrise Stock Option to which
Section 422 of the Code applies ("incentive stock options"), the option price,
the number of shares purchasable pursuant to such option and the terms and
conditions of exercise of such option shall be determined in order to comply
with Section 424(a) of the Code.
(b) At the Effective Time, each outstanding warrant to purchase
shares of Sunrise Common Stock or Sunrise Series C Stock, as the case may be, (a
"Sunrise Warrant") under any Warrant Agreement, shall become a warrant to
acquire, on the same terms and conditions as were applicable under such Warrant
Agreement, the same number of shares of EAI Common Stock as the holder of such
Warrant Agreement would have been entitled to receive pursuant to the Merger had
such holder exercised such warrant in full immediately prior to the Effective
Time, at the price per share set forth in such Warrant Agreement, DIVIDED BY the
Exchange Ratio in the case of warrants to purchase Sunrise Common Stock, and
DIVIDED BY the Series C Conversion Factor, in the case of warrants to purchase
Sunrise Series C Stock, rounded to the nearest full cent.
(c) EAI shall take all corporate action necessary to reserve for
issuance a sufficient number of shares of EAI Common Stock for delivery under
the Sunrise Stock Options and the Sunrise Warrants assumed in accordance with
this Section 6.10. As soon as practicable after the Effective Time, but in no
event later than 10 business days after the Effective Time, EAI shall file a
registration statement on Form S-8 (or any successor or other appropriate forms)
with respect to the shares of EAI Common Stock subject to the assumed options
and shall use its best efforts to maintain the effectiveness of such
registration statement for so long as such options remain outstanding.
6.11. GUARANTEES. EAI shall use all reasonable efforts to obtain releases
of those personal guarantees of lease payments by James R. Evans and Barbara L.
Owens which are identified on Schedule 3.08 hereto and shall indemnify such
persons in full for any amounts required to be paid under such personal
guarantees after the Effective Time.
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6.12. CONSENTS. Each of EAI and Sunrise shall use all reasonable efforts to
obtain all necessary consents, waivers, and approvals under any of EAI's or
Sunrise's material agreements, contracts, licenses, or leases in connection with
the Merger.
6.13. BROKERS OR FINDERS. Each of EAI and Sunrise represents, as to itself,
its Subsidiaries and its Affiliates, that it has no liability or obligation to
pay any fees, commissions or other payments to, or otherwise reimburse expenses
for, any agent, broker, investment banker, financial advisor, attorney or other
firm or person in connection with any of the transactions contemplated by this
Agreement except (i) in the case of Sunrise, as set forth on Schedule 6.12
hereto, which such amounts shall be paid by Sunrise in accordance with Sunrise's
agreement with such firms (copies of which have been delivered by Sunrise to EAI
prior to the date of this Agreement), and, (ii) in the case of EAI, Lehman
Brothers, Inc., whose fees and expenses will be paid by EAI in accordance with
EAI's agreement with such firm (a copy of which has been delivered by EAI to
Sunrise prior to the date of this Agreement), Arthur Andersen LLP and Faegre &
Benson LLP.
6.14 EMPLOYEE BENEFITS; EMPLOYEE ISSUES. Following the Effective Time, all
employees of Sunrise shall be given credit for their periods of service with
Sunrise as if such service were with EAI in determining their eligibility for
inclusion in, and the level of benefits granted after the Effective Time under
EAI's current employee benefit plans. Following the Effective Time, the level
of benefits granted to employees of Sunrise shall be equal to or greater than
the level of benefits under Sunrise's employee benefit plans immediately prior
to the Effective Time.
6.15. REPORTS. From and after the Effective Time and so long as necessary
in order to permit each officer and director of Sunrise to sell the EAI shares
of Common Stock received by them as a result of the Merger pursuant to Rule 145
and, to the extent applicable, Rule 144 under the Securities Act, EAI will use
its best efforts to file on a timely basis all reports required to be filed by
it pursuant to Section 13 or 15(d) of the Exchange Act, referred to in paragraph
(c)(1) of Rule 144 under the Securities Act (or, if applicable, EAI will use its
best efforts to make publicly available the information regarding itself
referred to in paragraph (c)(2) of Rule 144).
6.16. NOTIFICATION OF CERTAIN MATTERS. Sunrise will give prompt notice to
EAI upon discovery thereof, and EAI will give prompt notice to Sunrise upon
discovery thereof, of (a) the occurrence, or failure to occur, of any event
which occurrence or failure would be likely to cause any representation or
warranty contained in this Agreement to be untrue or inaccurate in any material
respect at any time from the date hereof to the Effective Time, and (b) any
material failure of Sunrise or EAI, or any director, officer, employee, agent or
representative thereof, to comply with or satisfy any covenant, condition, or
agreement to be complied with or satisfied by it hereunder.
6.17. ADDITIONAL AGREEMENTS; REASONABLE EFFORTS. Subject to the terms and
conditions of this Agreement, each of the parties agrees to use all reasonable
efforts to take, or cause to be taken, all action and to do, or cause to be
done, all things necessary, proper, or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated by
this Agreement, subject to the appropriate vote of shareholders of EAI and
Sunrise described in Section 6.04 hereof, including cooperating fully with the
other party. In case at any time after
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the Effective Time any further action is necessary or desirable to carry out the
purposes of this Agreement or to vest the Continuing Corporation with full title
to all properties, assets, rights, approvals, immunities, and franchises of
either of the Constituent Corporations, the proper officers and directors of
each party to this Agreement shall take all such necessary action.
ARTICLE VII
CONDITIONS TO MERGER
7.01. CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction at or prior to the Closing Date of the
following conditions:
(a) SHAREHOLDER APPROVAL. This Agreement and the Merger, and, in the
case of EAI only, the EAI Voting Proposals, shall have been approved and adopted
by the requisite vote of the stockholders of Sunrise and EAI as may be required
by law, by the rules of the Nasdaq National Market, and by any applicable
provisions of their respective charter and bylaws.
(b) APPROVALS. There shall have been obtained permits, consents and
approvals of securities or "blue sky" commissions or agencies of any
jurisdiction and of other governmental bodies or agencies that may reasonably be
deemed necessary so that the consummation of the Merger and the transactions
contemplated hereby will be in compliance with applicable laws, the failure to
comply with which would have a Material Adverse Effect on Surviving Corporation
and its subsidiaries taken as a whole after consummation of the Merger.
(c) REGISTRATION STATEMENT. The Registration Statement shall have
become effective under the Securities Act and shall not be the subject of any
stop order or proceedings seeking a stop order. The Joint Proxy Statement shall
have been delivered to the shareholders of Sunrise and EAI in accordance with
the requirements of the Securities Act and the Exchange Act.
(d) NASDAQ. The shares of EAI Common Stock to be issued in the
Merger or to be issued pursuant to options and warrants granted pursuant to the
Merger shall have been approved for quotation on the Nasdaq National Market.
7.02. ADDITIONAL CONDITIONS TO OBLIGATIONS OF EAI AND SUB. The
obligations of EAI to effect the Merger are subject to the satisfaction of each
of the following conditions, any of which may be waived in writing exclusively
by EAI and Sub.
(a) ACCURACY OF REPRESENTATIONS AND WARRANTIES; COMPLIANCE WITH
COVENANTS. The representations and warranties of Sunrise contained in this
Agreement shall be true and correct in all material respects (i) as of the
date of this Agreement, and (ii) immediately prior to the Effective Time with
the same effect as if such representations and warranties had been made
immediately prior to the Effective Time; Sunrise shall have performed and
complied in all material respects with the agreements and obligations
contained in this Agreement required to be performed and complied with by it
at or prior to
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the Effective Time; and EAI and Sub shall have received a certificate signed
on behalf of Sunrise by the Chief Executive Officer and the Chief Financial
Officer of Sunrise to the effects set forth in this paragraph (a).
(b) ABSENCE OF MATERIAL ADVERSE EFFECT. There shall not have been,
since April 30, 1997 (i) any damage, destruction or loss, whether covered by
insurance or not, that has had, or is reasonably likely to have, a Material
Adverse Effect on Sunrise and its Subsidiaries taken as a whole; (ii) any suit,
action, investigation, inquiry or other proceeding by or before any court or
governmental or other regulatory or administrative agency or commission
requesting an order, judgment or decree (except those in which EAI or Sub is a
plaintiff directly or derivatively) which, in the reasonable judgment of EAI,
would be reasonably likely, if issued, to have a Material Adverse Effect on
Sunrise and its Subsidiaries, taken as a whole; or (iii) any other event or
condition (financial or otherwise) of any character or any operations or results
of operations that has had, or is reasonably likely to have, a Material Adverse
Effect on Sunrise and its Subsidiaries, taken as whole.
(c) BLUE SKY LAWS. EAI shall have received all state securities or
"Blue Sky" permits and other authorizations necessary to issue shares of EAI
Common Stock pursuant to the Merger.
(d) ABSENCE OF LITIGATION, INJUNCTIONS. There shall not be
threatened, instituted or pending any suit, action, investigation, inquiry or
other proceeding by or before any court or governmental or other regulatory or
administrative agency or commission requesting an order, judgment or decree
(except those in which EAI or Sub is a plaintiff directly or derivatively)
which, in the reasonable judgment of EAI would, if issued, restrain or prohibit
the consummation of the transactions contemplated hereby or require rescission
of this Agreement or such transactions or result in material damages to EAI, Sub
or Surviving Corporation if the transactions contemplated hereby are
consummated, and there shall not be in effect any injunction, writ, preliminary
restraining order or any order of any nature issued by a court or governmental
agency of competent jurisdiction directing that the transactions contemplated
hereby not be consummated as so provided or any statute, rule or regulation
enacted or promulgated that makes consummation of the transactions contemplated
hereby illegal.
(e) OPINION OF SUNRISE'S COUNSEL. EAI shall have received written
opinions of counsel to Sunrise dated as of the Closing Date, substantially in
the form of Exhibit 7.02(e) hereto.
(f) UPDATED FAIRNESS OPINION. On the date of the Joint Proxy
Statement, the Board of Directors of EAI shall have received from Lehman
Brothers, Inc. a written update, dated as of such date, confirming the opinion
referred to in Section 4.18 hereof.
(g) COMFORT LETTER. On the date of the Joint Proxy Statement and the
EAI prospectus constituting a part of the Registration Statement, EAI and
Sunrise shall have received a letter (in form and substance as is customary in a
registered public offering) from (i) Arthur
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Andersen LLP, independent public accountants of EAI, and (ii) Ernst & Young LLP,
independent accountants of Sunrise, in each case, dated as of such date, in
connection with such accountants' review of certain data and information
contained in the Registration Statement and the Joint Proxy Statement.
(h) CONSENTS. Sunrise shall have obtained all necessary consents,
waivers, and approvals required under any Sunrise Property Lease or any other
contracts or licenses of Sunrise, including, without limitation, any of the
Sunrise Material Agreements.
(i) DISSENTING SHARES. The holders of not more than 5% of the total
of the issued and outstanding shares of Sunrise Common Stock and Sunrise
Preferred Stock determined, with respect to the Sunrise Preferred Stock, on an
as converted basis, shall have taken such action prior to or at the time of the
stockholders' vote as is necessary as of that time to entitle them to the
statutory dissenters' rights referred to in Section 2.01(f) hereof.
(j) PRESCHOOL SERVICES, INC. Each of the current directors and
officers of Preschool Services, Inc. ("PSI") is listed on Schedule 7.02(j)
hereto. The makeup of the directors and officers of PSI as of the Closing Date
shall be acceptable to EAI and all actions required to be taken to properly and
legally affect any change in such directors or officers after the date hereof
shall have been properly taken in accordance with PSI's charter documents and
applicable law.
(k) PAYMENT OF FEES AND EXPENSES. EAI shall have received an
acknowledgment from each of the entities named on Schedule 6.12 that (i) all of
the fees set forth opposite their name have been paid in full, (ii) neither EAI
nor Sub shall have any obligation for any other fees and expenses incurred by
Sunrise or its Subsidiaries in connection with this Agreement and the
transactions contemplated hereby, and (iii) any and all agreements between
Sunrise and such entity will terminate at or prior to the Effective Time.
7.03. ADDITIONAL CONDITIONS TO OBLIGATIONS OF SUNRISE. The obligation of
Sunrise to effect the Merger is subject to the satisfaction of each of the
following conditions, any of which may be waived, in writing, exclusively by
Sunrise.
(a) ACCURACY OF REPRESENTATIONS AND WARRANTIES; COMPLIANCE WITH
COVENANTS. The representations and warranties of EAI and Sub contained in this
Agreement shall be true and correct in all material respects (i) as of the date
of this Agreement, and (ii) immediately prior to the Effective Time with the
same effect as if such representations and warranties had been made immediately
prior to the Effective Time; EAI and Sub shall have performed and complied in
all material respects with the agreements and obligations contained in this
Agreement required to be performed and complied with by it at or prior to the
Effective Time; and Sunrise shall have received a certificate signed on behalf
of EAI by the Chief Executive Officer and Chief Financial Officer of EAI to the
effects set forth in this paragraph (a).
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(b) ABSENCE OF MATERIAL ADVERSE EFFECT. There shall not have been,
since March 31, 1997 (i) any damage, destruction or loss, whether covered by
insurance or not, that has had, or is reasonably likely to have, a Material
Adverse Effect on EAI and its Subsidiaries taken as a whole; (ii) any suit,
action, investigation, inquiry or other proceeding by or before any court or
governmental or other regulatory or administrative agency or commission
requesting an order, judgment or decree (except those in which Sunrise is a
plaintiff directly or derivatively) which, in the reasonable judgment of
Sunrise, would be reasonably likely, if issued, to have a Material Adverse
Effect on EAI and its Subsidiaries, taken as a whole; or (iii) any other event
or condition (financial or otherwise) of any character or any operations or
results of operations that has had, or is reasonably likely to have, a Material
Adverse Effect on EAI and its Subsidiaries, taken as whole.
(c) ABSENCE OF LITIGATION, INJUNCTIONS. There shall not be
threatened, instituted or pending any suit, action, investigation, inquiry or
other proceeding by or before any court or governmental or other regulatory or
administrative agency or commission requesting an order, judgment or decree
(except those in which Sunrise is a plaintiff directly or derivatively) which,
in the reasonable judgment of Sunrise would, if issued, restrain or prohibit the
consummation of the transactions contemplated hereby or require rescission of
this Agreement or such transactions nor shall there be in effect any injunction,
writ, preliminary restraining order or any order of any nature issued by a court
or governmental agency of competent jurisdiction directing that the transactions
contemplated hereby not be consummated as so provided or any statute, rule or
regulation enacted or promulgated that makes consummation of the transactions
contemplated hereby illegal.
(d) OPINION OF EAI'S COUNSEL. Sunrise shall have received a written
opinion of counsel to EAI dated as of the Closing Date, substantially in the
form of Exhibit 7.03(d) hereto.
(e) UPDATED FAIRNESS OPINION. On the date of the Joint Proxy
Statement, the Board of Directors of Sunrise shall have received from Barber &
Bronson Incorporated a written update, dated as of such date, confirming the
opinion referred to in Section 3.18 hereof.
(f) COMFORT LETTER. On the date of the Joint Proxy Statement and the
EAI prospectus constituting a part of the Registration Statement, EAI and
Sunrise shall have received a letter (in form and substance as is customary in a
registered public offering) from (i) Ernst & Young LLP, independent public
accountants of Sunrise and (ii) Arthur Andersen LLP, independent public
accountants of EAI, in each case, dated as of such date, in connection with such
accountants' review of certain data and information contained in the
Registration Statement and the Joint Proxy Statement.
(g) TAX OPINION. Sunrise shall have received the opinion of Squire,
Sanders & Dempsey L.L.P., counsel to Sunrise, to the effect the Merger will be
treated for federal income tax purposes as a tax-free reorganization within the
meaning of Section 368(a) of the Code.
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ARTICLE VIII
TERMINATION AND AMENDMENT
8.01. TERMINATION. This Agreement may be terminated and the Merger and the
other transactions contemplated herein may be abandoned at any time prior to the
Effective Time, by written notice by the terminating party to the other party,
whether before or after approval of the matters presented in connection with the
Merger by the shareholders of Sunrise or EAI:
(a) by mutual written consent of the Board of Directors of EAI and
Sunrise; or
(b) by either EAI or Sunrise by action of its Board of Directors if
the Merger shall not have been consummated within 120 days of the date hereof
(provided that the right to terminate this Agreement under this Section 8.01(b)
shall not be available to a party whose failure to fulfill any obligation under
this Agreement has been the cause of or resulted in the failure of the Merger to
occur on or before such date);
(c) by either EAI or Sunrise by action of its Board of Directors if a
court of competent jurisdiction or other Governmental Entity shall have issued a
nonappealable final order, decree, or ruling or taken any other action, in each
case having the effect of permanently restraining, enjoining, or otherwise
prohibiting the Merger, except, if the party relying on such order, decree, or
ruling or other action has not complied with its obligations under Section 6.05
of this Agreement;
(d) by EAI or Sunrise by action of its Board of Directors, if, at the
EAI Shareholders' Meeting or the Sunrise Stockholders' Meeting (including any
adjournment or postponement thereof), the requisite vote of the shareholders of
EAI in favor of the EAI Voting Proposals or the stockholders of Sunrise in favor
of this Agreement and the Merger shall not have been obtained;
(e) by EAI by action of its Board of Directors, if (i) the Board of
Directors of Sunrise shall have withdrawn or modified its recommendation of this
Agreement or the Merger in any way detrimental to EAI or shall have resolved to
so withdraw or modify such recommendation (and Sunrise acknowledges that a
determination by its Board of Directors not to call the Sunrise Stockholders'
Meeting shall be deemed to be a withdrawal of its recommendation); (ii) the
Board of Directors of Sunrise shall have recommended to the stockholders of
Sunrise an Alternative Transaction (as defined in Section 8.04 hereof); or (iii)
a tender offer or exchange offer for 15% or more of the outstanding shares of
Sunrise Common Stock is commenced (other than by EAI or an Affiliate of EAI) and
the Board of Directors of Sunrise recommends that the stockholders of Sunrise
tender their shares in such tender or exchange offer;
(f) by Sunrise by action of its Board of Directors, if (i) the Board
of Directors of EAI shall have withdrawn or modified its recommendation of the
EAI Voting Proposals in any way detrimental to Sunrise or shall have resolved to
so withdraw or modify such recommendation
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(and EAI acknowledges that a determination by its Board of Directors not to
call the EAI Shareholders' Meeting shall be deemed to be a withdrawal of its
recommendation); or
(g) by EAI or Sunrise by action of its Board of Directors, if there
has been a material breach of any representation, warranty, covenant, or
agreement on the part of the other party set forth in this Agreement, which
breach shall not have been cured, in the case of a representation or warranty,
prior to the Closing or, in the case of a covenant or agreement, within 10
business days following receipt by the breaching party of written notice of such
breach from the other party.
8.02. EFFECT OF TERMINATION. In the event of termination of this Agreement
as provided in Section 8.01 hereof, this Agreement shall immediately become void
and there shall be no liability or obligation on the part of EAI, Sunrise, Sub
or their respective officers, directors, shareholders, or Affiliates, except as
set forth in Section 8.03 hereof or except to the extent the termination is a
result of a material breach by a party to this Agreement of any representation,
warranty or covenant contained in this Agreement; provided that the provisions
of Section 8.03 of this Agreement shall remain in full force and effect and
survive any termination of this Agreement.
8.03. FEES AND EXPENSES.
(a) Except as set forth in this Section 8.03, all fees and expenses
incurred in connection with this Agreement and the transactions contemplated
hereby shall be paid by the party incurring such expenses, whether or not the
Merger is consummated; provided, however, that EAI and Sunrise shall share
equally all fees and expenses, other than accountants, attorneys' and other
professional fees, incurred in relation to the printing and filing of the Joint
Proxy Statement (including any related preliminary materials) and the
Registration Statement (including financial statements and exhibits) and any
amendments or supplements.
(b) In the event of termination of this Agreement pursuant to Section
8.01(e) or (f) hereof then, in addition to any damages which may be available as
a result of a material breach by either party of any representation, warranty or
covenant contained in this Agreement, Sunrise in the case of a termination
pursuant to Section 8.01(e) hereof and EAI, in the case of a termination
pursuant to Section 8.01(f) hereof shall pay to the other party an amount equal
to $100,000 plus all of the other party's reasonable out-of-pocket expenses
incurred in connection with this Agreement.
8.04. ALTERNATIVE TRANSACTION DEFINITION. As used in this Agreement,
"Alternative Transaction" means either (i) a transaction pursuant to which any
person (or group of persons) other than EAI or its Affiliates (a "Third Party")
acquires more than 15% of the outstanding shares of Sunrise Common Stock
pursuant to a tender offer or exchange offer or otherwise, (ii) a merger or
other business combination involving Sunrise pursuant to which any Third Party
acquires more than 15% of the outstanding equity securities of Sunrise or the
entity surviving such merger or business combination, (iii) any other
transaction pursuant to which any Third Party acquires control of assets
(including for this purpose the outstanding equity securities of Subsidiaries of
Sunrise, and the entity surviving any merger or business combination including
any of them) of Sunrise having a fair market value (as determined by the Board
of Directors of EAI in
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good faith) equal to more than 15% of the fair market value of all the assets of
Sunrise, and its Subsidiaries, taken as a whole, immediately prior to such
transaction, or (iv) any public announcement of a proposal, plan, or intention
to do any of the foregoing or any agreement to engage in any of the foregoing.
8.05. AMENDMENT. This Agreement may be amended by the parties hereto, by
action taken or authorized by their respective Boards of Directors, at any time
before or after approval of the matters presented in connection with the Merger
by the shareholders of Sunrise or of EAI, but, after any such approval, no
amendment shall be made which by law requires further approval by such
shareholders without such further approval. This Agreement may not be amended
except by an instrument in writing signed on behalf of each of the parties
hereto.
8.06. EXTENSION; WAIVER. At any time prior to the Effective Time, the
parties hereto, by action taken or authorized by their respective Boards of
Directors, may to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant hereto and (iii) waive compliance
with any of the agreements or conditions contained herein. Any agreement of a
party hereto to any such extension or waiver shall be valid only if set forth in
a written instrument signed on behalf of such party.
ARTICLE IX
MISCELLANEOUS
9.01. NONSURVIVAL OF REPRESENTATIONS, WARRANTIES, AND AGREEMENTS. None of
the representations, warranties, and agreements in this Agreement or in any
instrument delivered pursuant to this Agreement shall survive the Effective
Time, except for the (i) agreements contained in (x) Sections 1.05, 2.01, 2.02,
2.03, 2.04, 6.07, 6.08, 6.10, 6.12, 6.13, 6.14, 6.16 and 8.03 hereof, (y) the
last sentence of Section 8.05, (z) and Article IX and (ii) the Sunrise Affiliate
Agreements delivered pursuant to Section 3.22 hereof, and the EAI Affiliate
Agreements delivered pursuant to Section 4.21 hereof. The Confidentiality
Agreement shall survive the execution and delivery of this Agreement.
9.02. NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally, telecopied (which is
confirmed), or mailed by registered or certified mail (return receipt requested)
to the parties at the following addresses (or at such other address for a party
as shall be specified by like notice):
(a) if to EAI or Sub, to:
1300 Norwest Financial Center
7900 Xerxes Avenue South
Minneapolis, Minnesota 55431
Attention: John T. Golle
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with a required copy to (which alone shall not constitute
notice):
Faegre & Benson LLP
2200 Norwest Center
90 South Seventh Street
Minneapolis, Minnesota 55402-3901
Attention: Steven C. Kennedy, Esq.
(b) if to Sunrise, to:
Sunrise Educational Services, Inc.
9128 East San Salvador Drive
Phoenix, Arizona 85258
Attention: James R. Evans
with a required copy to (which alone shall not constitute
notice):
Squire, Sanders & Dempsey L.L.P.
Two Renaissance Square
40 North Central Avenue, Suite 2700
Phoenix, Arizona 85004
Attention: Christopher D. Johnson, Esq.
9.03. INTERPRETATION. When a reference is made in this Agreement to
Sections, such reference shall be to a Section of this Agreement unless
otherwise indicated. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. Whenever the words "include,"
"includes," or "including" are used in this Agreement they shall be deemed to be
followed by the words "without limitation." The phrase "made available" in this
Agreement shall mean that the information referred to has been made available if
requested by the party to whom such information is to be made available. The
phrases "the date of this Agreement," "the date hereof," and terms of similar
import, unless the context otherwise requires, shall be deemed to refer to the
date set forth in the first paragraph of this Agreement.
9.04. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
9.05. ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES. This Agreement
(including the documents and the instruments referred to herein) (a) constitute
the entire agreement and supersede all prior agreements and understandings, both
written and oral, among the parties with respect to the subject matter hereof,
and (b) except as specifically provided herein are not intended to confer upon
any person other than the parties hereto any rights or remedies hereunder.
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9.06. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF MINNESOTA WITHOUT REGARD TO ANY
APPLICABLE CONFLICTS OF LAW.
9.07. ASSIGNMENT. Neither this Agreement nor any of the rights, interests,
or obligations hereunder shall be assigned by any of the parties hereto (whether
by operation of law or otherwise) without the prior written consent of the other
parties. Subject to the preceding sentence, this Agreement will be binding
upon, inure to the benefit of, and be enforceable by the parties and their
respective successors and assigns.
9.08. KNOWLEDGE. All references in this Agreement to knowledge of a
corporation shall be deemed to mean knowledge of any one or more of its
executive officers.
ARTICLE X
DEFINITIONS
As used in this Agreement, the term "Subsidiary" shall mean, with respect
to any party, corporation, or other organization, whether incorporated or
unincorporated, of which (i) such party or any other Subsidiary of such party is
a general partner (excluding partnerships, the general partnership interests of
which held by such party or any Subsidiary of such party do not have a majority
of the voting interest in such partnership) or (ii) at least a majority of the
securities or other interests having by their terms ordinary voting power to
elect a majority of the Board of Directors or others performing similar
functions with respect to such corporation or other organization is directly or
indirectly owned or controlled by such party or by any one or more of its
Subsidiaries, or by such party and one or more of its Subsidiaries.
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IN WITNESS WHEREOF, EAI, Sub, and Sunrise have caused this Agreement to be
signed by their respective officers thereunto duly authorized as of the date
first written above.
EDUCATION ALTERNATIVES, INC.
By /s/ John T. Golle
--------------------------------
Its Chairman and CEO
SUN DELAWARE, INC.
By /s/ John T. Golle
--------------------------------
Its Chairman and CEO
SUNRISE EDUCATIONAL
SERVICES, INC.
By /s/ James R. Evans
--------------------------------
Its President
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FROM: FOR:
Swenson/Falker Associates, Inc. Education Alternatives, Inc.
121 S. 8th Street 7900 Xerxes Avenue South
1111 TCF Tower 1300 Norwest Financial Center
Minneapolis, MN 55402 Minneapolis, MN 55431
Contact: Doug Ewing Contact: John Golle, CEO
(612) 371-0000 Gerald Haugen, CFO
(612) 832-0092
Sunrise Educational Services, Inc.
9128 E. San Salvardor Drive
Scottsdale, AZ 85258
Contact: Rudy R. Miller
The Miller Group
(800) 264-1870
FOR IMMEDIATE RELEASE
EDUCATION ALTERNATIVES AND SUNRISE EDUCATIONAL SERVICES
SIGN DEFINITIVE MERGER AGREEMENT
STRATEGIC BUSINESS COMBINATION TO RESULT IN INTEGRATED
EDUCATIONAL SERVICES COMPANY
MINNEAPOLIS and SCOTTSDALE, AZ, September 2 -- Education Alternatives, Inc.
(Nasdaq: EAIN) and Sunrise Educational Services, Inc. (Nasdaq: SUNR and SUNRP)
jointly announced today the signing of a definitive agreement to combine the two
companies into one integrated educational company through the merger of Sunrise
into a wholly-owned subsidiary of Education Alternatives.
Sunrise Educational Services operates preschools and private and public
charter schools, primarily in Arizona. Education Alternatives (EAI) operates
five private TesseractT-Registered Trademark- schools and has been awarded a
contract to operate 12 charter schools in Arizona.
John T. Golle, chairman and chief executive officer of Education
Alternatives, said, "Over the past year we have been focusing on the development
of a new strategic vision for EAI that will position our company to increase its
share of the market for educational management services, which is estimated to
be $300 billion annually.
"This business combination with Sunrise represents a first step in
implementing that strategic vision for the future. It will position us to begin
leveraging the existing resources of our company for long-term growth and
success in the education management industry."
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TRANSACTION DETAILS
The definitive agreement provides for common shareholders of Sunrise
Educational Services to receive a per share value of $1.92 and preferred
shareholders to receive a value of $15.00 per share. Subject to the average
trading price prior to the closing of the transaction, EAI expects to issue
shares and cash to Sunrise shareholders with a value of approximately $13.5
million.
Sunrise common shareholders may elect to receive cash, limited to 50
percent of their total consideration, with the balance to be paid in shares of
EAI common stock. Sunrise preferred shareholders will receive all of their
consideration in EAI common stock. The value of the EAI shares to be issued in
exchange for the Sunrise shares will be based on an average trading price prior
to the close of the transaction, with the maximum number of EAI shares to be
issued for such Sunrise common share and preferred share, as converted, not to
exceed .450 and .498, and the minimum number of shares not be less than .350 and
.387, respectively.
It is expected that the exchange of shares will be tax-free to Sunrise
shareholders and that the merger, which is subject to the approval of
shareholders of both companies and certain other conditions, will be completed
by early January, 1998.
STRATEGIC COMBINATION EXPECTED TO BENEFIT FROM SYNERGY AND EXPERIENCE
James R. Evans, chairman and president of Sunrise Educational Services,
said, "I am very pleased with this strategic combination which will join Sunrise
with an experienced, energetic and growth-minded company. EAI's strong capital
base and educational expertise will enable us to accelerate our plans to
transform our existing locations into educational centers with improving
operating margins. Together, we believe that we can grow faster and more
profitably while rendering superior educational services to our customers."
Golle said, "We have spent many years developing systems, curriculum, and
training programs to successfully operate both public and private schools, and
clearly see opportunities for synergy and economies in combining our two
companies. We are eager to share our knowledge and resources with Sunrise to
assist them as they effect a planned transition of their business from a child
care provider to a company offering quality educational services."
ABOUT EDUCATION ALTERNATIVES AND SUNRISE EDUCATIONAL SERVICES
Education Alternatives, Inc., founded in 1986, currently owns and operates
five private TesseractT-Registered Trademark- Schools, including one school in
Paradise Valley, AZ, which opened in 1988. Education Alternatives was recently
awarded a contract to operate 12 charter schools in the State of Arizona. For
the year ended June 30, 1997, EAI reported revenues of $4.8 million
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and net earnings of $566,000. At fiscal year-end, EAI had total shareholders'
equity of $24,880,000, and cash and securities totaling $23,246,000.
Sunrise Educational Services, founded in 1980, is a Scottsdale,
Arizona-based child care provider operating approximately 35 preschool centers
primarily in the State of Arizona. Sunrise has expanded into the operation of
private schools and has a management contract to operate public charter schools
that have recently opened in many of its Arizona centers. Sunrise reported
revenues of $9.9 million and net earnings of $235,000 for the nine months ended
April 30, 1997.
Lehman Brothers, Inc., New York, is advising Education Alternatives in the
transaction. BC Capital Corp., an affiliate of Barber & Bronson Incorporated,
Miami, and Miller Capital Corporation, Phoenix, are acting as co-advisors for
Sunrise Educational Services.
09/02/97
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