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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
September 23, 1998
------------------------------------------
Date of Report (Date of earliest event reported)
Youth Services International, Inc.
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(Exact name of registrant as specified in its charter)
Maryland 0-23284 52-1715690
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File No.) Identification No.)
2 Park Center Court, Suite 200, Owings Mills, Maryland 21117
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(410) 356-8600
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Not applicable
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(Former name or former address, if changed since last report)
Exhibit Index on Page 4
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Item 5. Other Events.
On September 24, 1998, Youth Services International, Inc. ("YSI") and
Correctional Services Corporation ("CSC") announced that they had reached a
definitive merger agreement in a transaction expected to be a tax free
reorganization and a pooling of interests for accounting purposes. Under an
Agreement and Plan of Merger entered into between the parties on September 23,
1998 (the "Merger Agreement"), each outstanding share of YSI common stock will
be converted into the right to receive .375 shares of CSC common stock, and YSI
will become a wholly-owned subsidiary of CSC. The combined company will retain
the Correctional Services Corporation name with YSI remaining as a wholly-owned
subsidiary based in Owings Mills, Maryland.
Consummation of the merger is subject to a number of conditions
including approval by the stockholders of YSI and CSC, and the receipt of all
regulatory approvals.
The joint press release issued by YSI and CSC with respect to the
announcement of the Merger Agreement is included as Exhibit 99.1 hereto.
The foregoing description of and reference to all of the above-mentioned
agreements and documents are qualified in their entirety by reference to the
complete texts of the agreements and documents, which are filed as exhibits to
this Current Report on Form 8-K.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
2.1. Agreement and Plan of Merger, dated as of September 23, 1998, among
YSI, CSC and Palm Merger Corp.
99.1 Joint Press Release, dated September 24, 1998.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this Report to be signed on its behalf
by the undersigned thereunto duly authorized.
Youth Services International, Inc.
Date: September 24, 1998 By: /s/ Mark S. Demilio
----------------------
Mark S. Demilio
Senior Vice President, General Counsel
and Secretary
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EXHIBIT INDEX
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Exhibit No. Description
2.1. Agreement and Plan of Merger, dated as of September 23, 1998,
among YSI, CSC and Palm Merger Corp.
99.1 Joint Press Release, dated September 24, 1998.
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EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
among
YOUTH SERVICES INTERNATIONAL, INC.,
CORRECTIONAL SERVICES CORPORATION
and
PALM MERGER CORP.
Dated as of September 23, 1998
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TABLE OF CONTENTS
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ARTICLE I THE MERGER.............................................................1
1.1. The Merger...........................................................1
1.2. Closing..............................................................2
1.3. Effective Time.......................................................2
ARTICLE II THE SURVIVING CORPORATION.............................................2
2.1. The Articles of Incorporation........................................2
2.2. The Bylaws...........................................................2
2.3. Directors............................................................3
2.4. Officers.............................................................3
ARTICLE III CONVERSION OF SHARES.................................................3
3.1. Effect on Stock......................................................3
3.2. Exchange of Certificates.............................................4
3.3. Appraisal Rights.....................................................7
3.4. Adjustments to Prevent Dilution......................................7
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY.........................7
4.1. Organization, Good Standing and Qualification........................7
4.2. Capitalization.......................................................8
4.3 Company Subsidiaries.................................................9
4.4. Corporate Authority; Approval and Fairness...........................9
4.5. Governmental Filings; No Violations..................................9
4.6. Company Reports; Financial Statement................................10
4.7. Absence of Certain Changes..........................................11
4.8. Litigation and Liabilities..........................................12
4.9. Employee Benefits...................................................12
4.10. Compliance with Laws; Permits......................................15
4.11. Takeover Statutes..................................................15
4.12. Environmental Matters..............................................16
4.13. Taxes..............................................................16
4.14. Labor Matters......................................................17
4.15. Intellectual Property..............................................18
4.16. Title to Property..................................................19
4.17. Material Contracts.................................................20
4.18. Brokers and Finders................................................21
4.19. Insurance Matters..................................................21
4.20. Affiliated Transactions............................................21
4.21. Year 2000 Liability................................................21
4.22. Accounting and Tax Matters.........................................21
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ARTICLE V REPRESENTATIONS AND WARRANTIES OF PARENT
AND MERGER SUBSIDIARY....................................................22
5.1. Merger Subsidiary...................................................22
5.2. Organization, Good Standing and Qualification.......................23
5.3. Capitalization......................................................23
5.4. Corporate Authority; Approval and Fairness..........................24
5.5. Governmental Filings; No Violations.................................24
5.6. Parent Reports; Financial Statements................................25
5.7. Absence of Certain Changes..........................................26
5.8. Litigation and Liabilities..........................................27
5.9. Employee Benefits...................................................27
5.10. Compliance with Laws; Permits......................................29
5.11. Environmental Matters..............................................30
5.12. Taxes..............................................................31
5.13 Labor Matters......................................................31
5.14. Intellectual Property..............................................32
5.15. Title to Property..................................................33
5.16. Material Contracts.................................................33
5.17. Brokers and Finders................................................34
5.18. Insurance Matters..................................................34
5.19. Accounting and Tax Matters.........................................34
ARTICLE VI
COVENANTS................................................................35
6.1. Interim Operations of the Company...................................35
6.2. Interim Operations of Parent........................................37
6.3. Interim Operations of Merger Subsidiary.............................38
6.4. Acquisition Proposals...............................................38
6.5. Information Supplied................................................39
6.6. Stockholder Meetings................................................40
6.7. Filings; Other Actions; Notification................................40
6.8. Taxation and Accounting.............................................41
6.9. Access..............................................................42
6.10. Affiliates.........................................................43
6.11 Stock Exchange Listing.............................................43
6.12. Publicity..........................................................43
6.13. Benefits...........................................................44
6.14. Expenses...........................................................45
6.15. Indemnification; Directors' and Officers' Insurance................45
6.16. Election to Parent's Board of Directors............................46
6.17. Takeover Statute...................................................47
6.18. Debentures.........................................................47
6.19. Insurance..........................................................47
ARTICLE VII
CONDITIONS...............................................................47
7.1. Conditions to Each Party's Obligation to Effect the Merger..........47
7.2. Conditions to Obligations of Parent and Merger Subsidiary...........49
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7.3. Conditions to Obligation of the Company.............................50
ARTICLE VIII
TERMINATION..............................................................51
8.1. Method of Termination...............................................51
8.2. Effect of Termination...............................................53
ARTICLE IX MISCELLANEOUS AND GENERAL............................................54
9.1. Survival............................................................54
9.2. Modification or Amendment...........................................54
9.3. Waiver of Conditions................................................54
9.4. Counterparts........................................................55
9.5. Governing Law; Waiver of Jury Trial.................................55
9.6. Notices.............................................................55
9.7. Entire Agreement; No Other Representations..........................57
9.8. No Third Party Beneficiaries........................................57
9.9. Severability........................................................57
9.10. Interpretation.....................................................58
9.11. Assignment.........................................................58
9.12. Definitions........................................................58
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (hereinafter called this "Agreement"),
dated as of September 23, 1998 among Youth Services International, Inc., a
Maryland corporation (the "Company"), Correctional Services Corporation, a
Delaware corporation ("Parent"), and Palm Merger Corp., a Maryland corporation
and a wholly-owned subsidiary of Parent ("Merger Subsidiary").
RECITALS
WHEREAS, the respective boards of directors of each of Parent, Merger
Subsidiary and the Company have determined that the merger of the Merger
Subsidiary with and into the Company (the "Merger") upon the terms and subject
to the conditions set forth in this Agreement has significant strategic benefits
to Parent and the Company, and that the Merger is advisable and have approved
the Merger;
WHEREAS, the Company, Parent and Merger Subsidiary desire to make
certain representations, warranties, covenants and agreements in connection with
this Agreement; and
WHEREAS, it is intended that the Merger shall be recorded for accounting
purposes as a pooling of interests.
NOW, THEREFORE, in consideration of the premises, and of the
representations, warranties, covenants and agreements contained herein, the
parties hereto agree as follows:
ARTICLE I
THE MERGER
1.1. THE MERGER.
Upon the terms and subject to the conditions set forth in this
Agreement, at the Effective Time (as defined in SECTION 1.3.) the Merger
Subsidiary shall be merged with and into the Company and the separate corporate
existence of the Merger Subsidiary shall thereupon cease. The Company shall be
the surviving corporation in the Merger (sometimes hereinafter referred to as
the "Surviving Corporation"), and the separate corporate existence of the
Company with all its rights, privileges, immunities, powers and franchises shall
continue unaffected by the Merger except as otherwise provided herein. The
Merger shall have the effects specified in the Maryland General Corporation Law,
as amended (the "MGCL").
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1.2. CLOSING.
The closing of the Merger (the "Closing") shall take place (i) at the
offices of Hogan & Hartson L.L.P., 111 S. Calvert Street, Baltimore, Maryland
21202 at 9:00 A.M. on the first business day after the day on which the last to
be fulfilled or waived of the conditions set forth in Article VII (other than
those conditions that by their nature are to be satisfied at the Closing, but
subject to the fulfillment or waiver of those conditions) shall be satisfied or
waived in accordance with this Agreement or (ii) at such other place and time
and/or on such other date as the Company and Parent may agree in writing (the
"Closing Date").
1.3. EFFECTIVE TIME.
As soon as practicable following the Closing, the Company, Merger
Subsidiary and Parent will cause Articles of Merger (the "Articles of Merger")
to be executed, acknowledged and filed with and accepted for record by the
Maryland State Department of Assessments and Taxation (the "SDAT") as provided
in Section 3-102 of the MGCL. The Merger shall become effective at the time the
Articles of Merger is filed with the SDAT or at such later time agreed by the
Company and Parent and established under the Articles of Merger (the "Effective
Time").
ARTICLE II
THE SURVIVING CORPORATION
2.1. THE ARTICLES OF INCORPORATION.
At the Effective Time, Article I of the articles of incorporation of
Merger Subsidiary shall be amended and restated in its entirety as follows: "I.
The name of the Corporation is Youth Services International, Inc." and, as so
amended, the articles of incorporation of the Merger Subsidiary shall be the
articles of incorporation of the Surviving Corporation, until thereafter amended
as provided therein or by applicable law (the "Articles of Incorporation").
2.2. THE BYLAWS.
The bylaws of Merger Subsidiary in effect at the Effective Time shall be
the Bylaws of the Surviving Corporation (the "Bylaws"), until thereafter amended
as provided therein, as set forth in the Articles of Incorporation or by
applicable law.
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2.3. DIRECTORS.
The directors of Merger Subsidiary at the Effective Time shall, from and
after the Effective Time, be the directors of the Surviving Corporation until
their successors have been duly elected or appointed and qualified or until
their earlier death, resignation or removal in accordance with the Articles of
Incorporation and the Bylaws.
2.4. OFFICERS.
The officers of the Merger Subsidiary at the Effective Time shall, from
and after the Effective Time, be the officers of the Surviving Corporation until
their successors have been duly elected or appointed and qualified or until
their earlier death, resignation or termination.
ARTICLE III
CONVERSION OF SHARES
3.1. EFFECT ON STOCK.
At the Effective Time, as a result of the Merger and without any action
on the part of the holder of any stock of the Company:
(a) Merger Consideration. Each share of common stock, par value $.01 per
share, of Company ("Company Common Stock"), (each a "Share" or, collectively,
the "Shares") issued and outstanding immediately prior to the Effective Time
(other than any Shares of Company Common Stock to be canceled pursuant to
SECTION 3.1.(b)) shall be converted into, and become exchangeable for the right
to receive the "Merger Consideration", consisting of .375 shares of Common
Stock, par value $.01 per share, of Parent (the "Parent Common Stock") (the
"Exchange Ratio"). At the Effective Time, all Shares shall no longer be
outstanding and shall automatically be canceled and retired and shall cease to
exist, and each certificate (a "Certificate") formerly representing any of such
Shares shall thereafter represent only the right to receive the Merger
Consideration, cash in lieu of fractional shares pursuant to SECTION 3.2.(e), if
any (without interest), and any distribution or dividend pursuant to SECTION
3.2.(c) (without interest).
(b) Cancellation of Shares. Each Share issued and outstanding
immediately prior to the Effective Time and owned by Parent or owned by the
Company or any direct or indirect Subsidiary of Parent or of the Company (in
each case other than Shares that are owned on behalf of third parties), shall,
by virtue of the Merger and without any action on the part of the holder
thereof, cease to be
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outstanding and shall be canceled and retired without payment of any
consideration therefor.
(c) Merger Subsidiary. At the Effective Time, each share of common stock
of Merger Subsidiary issued and outstanding immediately prior to the Effective
Time shall be converted into one validly issued, fully paid and nonassessable
share of common stock, $.01 par value, of the Surviving Corporation.
3.2. EXCHANGE OF CERTIFICATES.
(a) Exchange Agent. Promptly after the Effective Time, Parent shall
deposit, or shall cause to be deposited, with American Stock Transfer and Trust
Company to act as exchange agent (the "Exchange Agent"), for the benefit of the
holders of Shares, certificates representing the shares of Parent Common Stock
and, after the Effective Time, if applicable, any cash, dividends or other
distributions with respect to Parent Common Stock to be issued or paid in
accordance with SECTION 3.1.(a) (including cash in lieu of fractional Shares) in
exchange for Shares outstanding immediately prior to the Effective Time upon due
surrender of the Certificates (or affidavits of loss in lieu thereof) pursuant
to the provisions of this ARTICLE III (such certificates for shares of Parent
Common Stock, together with the amount of any dividends or other distributions
payable with respect thereto and any cash in lieu of fractional Shares, being
hereinafter referred to as the "Exchange Fund").
(b) Exchange Procedures. Promptly after the Effective Time, Parent shall
cause the Exchange Agent to mail to each holder of record of Shares (i) a letter
of transmittal specifying that delivery shall be effected, and risk of loss and
title to the Certificates shall pass, only upon delivery of the Certificates (or
affidavits of loss in lieu thereof) to the Exchange Agent, such letter of
transmittal to be in such form and have such other provisions as Parent and the
Company may reasonably agree prior to the Effective Time, and (ii) instructions
for use in effecting the surrender of the Certificates in exchange for (A)
certificates representing shares of Parent Common Stock and (B) any unpaid
dividends and other distributions and cash in lieu of fractional shares. Subject
to SECTION 3.2.(h), upon surrender of a Certificate for cancellation to the
Exchange Agent together with such letter of transmittal, duly executed, the
holder of such Certificate shall be entitled to receive in exchange therefor (x)
a certificate representing that number of whole shares of Parent Common Stock
that such holder is entitled to receive pursuant to this ARTICLE III, (y) a
check in the amount (after giving effect to any required tax withholdings) of
any cash in lieu of fractional shares plus any unpaid dividends or other
distributions that such holder has the right to receive pursuant to the
provisions of this ARTICLE III, and the Certificate so surrendered shall
forthwith be canceled. No interest will be paid or accrued on any amount payable
upon due surrender of the Certificates. In the event of a transfer of ownership
of Shares that
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is not registered in the transfer records of the Company, a certificate
representing the proper number of shares of Parent Common Stock, together with a
check for any cash to be paid upon due surrender of the Certificate and any
other dividends or distributions in respect thereof, may be issued and/or paid
to such a transferee if the Certificate formerly representing such Shares is
presented to the Exchange Agent, accompanied by all documents required to
evidence and effect such transfer and to evidence that any applicable stock
transfer taxes have been paid. If any certificate for shares of Parent Common
Stock is to be issued in a name other than that in which the Certificate
surrendered in exchange therefor is registered, it shall be a condition of such
exchange that the Person (as defined below) requesting such exchange shall pay
any transfer or other taxes required by reason of the issuance of certificates
for shares of Parent Common Stock in a name other than that of the registered
holder of the Certificate surrendered, or shall establish to the satisfaction of
Parent or the Exchange Agent that such tax has been paid or is not applicable.
For the purposes of this Agreement, the term "Person" shall mean any individual,
corporation (including not-for-profit), general or limited partnership, limited
liability company, limited liability partnership, joint venture, estate, trust,
association, organization, governmental entity or other entity of any kind or
nature.
(c) Distributions with Respect to Unexchanged Shares; Voting.
(i) All shares of Parent Common Stock to be issued pursuant to the
Merger shall be deemed issued and outstanding as of the Effective Time and
whenever a dividend or other distribution is declared by Parent in respect of
Parent Common Stock, the record date for which is at or after the Effective
Time, that declaration shall include dividends or other distributions in respect
of all shares issuable pursuant to this Agreement. No dividends or other
distributions in respect of Parent Common Stock shall be paid to any holder of
any unsurrendered Certificate until such Certificate is surrendered for exchange
in accordance with this ARTICLE III. Subject to the effect of applicable laws,
following surrender of any such Certificate, there shall be issued and/or paid
to the holder of the certificates representing whole shares of Parent Common
Stock issued in exchange therefor, without interest, (A) at the time of such
surrender, the dividends or other distributions with a record date after the
Effective Time and a payment date on or prior to such time of surrender payable
with respect to such whole shares of Parent Common Stock and not paid and (B) at
the appropriate payment date, the dividends or other distributions payable with
respect to such whole shares of Parent Common Stock with a record date after the
Effective Time but with a payment date subsequent to surrender.
(ii) Holders of unsurrendered Certificates who were the registered
holders at the Effective Time shall be entitled to vote after the Effective Time
at any meeting of Parent stockholders (or consent in connection with any consent
of stockholders in lieu of a meeting) the number of whole shares of Parent
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Common Stock represented by such Certificates, regardless of whether such
holders have exchanged their Certificates.
(d) Transfers. After the Effective Time, there shall be no transfers on
the stock transfer books of the Company of the Shares that were outstanding
immediately prior to the Effective Time.
(e) Fractional Shares. Notwithstanding any other provision of this
Agreement, no fractional shares of Parent Common Stock will be issued and any
holder of Shares entitled to receive a fractional share of Parent Common Stock
but for this SECTION 3.2.(e) shall be entitled to receive a cash payment in lieu
thereof, which payment shall equal the amount determined by multiplying (i) the
fraction of a share of Parent Common Stock to which such holder would otherwise
be entitled by (ii) the average closing price of a share of Parent Common Stock
as reported on the NASDAQ National Market Exchange ("NASDAQ") for the twenty
most recent days that Parent Common Stock has traded ending on the last full
trading day prior to the Effective Time. The fractional share interests of each
holder of Company Common Stock shall be aggregated, so that no such holder shall
receive cash in an amount equal to or greater than the value of one share of
Parent Common Stock.
(f) Termination of Exchange Fund. Any portion of the Exchange Fund
(including the proceeds of any investments thereof and any Parent Common Stock)
that remains unclaimed by the stockholders of the Company for 180 days after the
Effective Time shall be paid to Parent. Any stockholders of the Company who have
not theretofore complied with this ARTICLE III shall thereafter look only to
Parent for payment of their shares of Parent Common Stock and any cash,
dividends and other distributions in respect thereof payable and/or issuable
pursuant to SECTION 3.1. and SECTION 3.2.(c) upon due surrender of their
Certificates (or affidavits of loss in lieu thereof), in each case, without any
interest thereon. Notwithstanding the foregoing, none of Parent, the Surviving
Corporation, the Exchange Agent or any other Person shall be liable to any
former holder of Shares for any amount properly delivered to a public official
pursuant to applicable abandoned property, escheat or similar laws.
(g) Lost, Stolen or Destroyed Certificates. In the event any Certificate
shall have been lost, stolen or destroyed, upon the making and delivery of an
affidavit of that fact by the Person claiming such Certificate to be lost,
stolen or destroyed and, if required by Parent, the posting by such Person of a
bond in customary amount as indemnity against any claim that may be made against
it with respect to such Certificate, the Exchange Agent will issue in exchange
for such lost, stolen or destroyed Certificate the shares of Parent Common Stock
and any cash payable and any unpaid dividends or other distributions in respect
thereof pursuant to SECTION 3.2.(c).
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(h) Affiliates. Notwithstanding anything herein to the contrary,
Certificates surrendered for exchange by any "Affiliate" (as determined pursuant
to SECTION 6.10.) of the Company shall not be exchanged until Parent has
received a written agreement from such Person as provided in SECTION 6.10.
hereof.
3.3. APPRAISAL RIGHTS.
In accordance with Section 3-202(c) of the MGCL, no appraisal rights
shall be available to holders of Shares in connection with the Merger.
3.4. ADJUSTMENTS TO PREVENT DILUTION.
In the event that after the date hereof and prior to the Effective Time
the Company changes the number of Shares or securities convertible or
exchangeable into or exercisable for Shares, or Parent changes the number of
shares of Parent Common Stock or securities convertible or exchangeable into or
exercisable for shares of Parent Common Stock, issued and outstanding prior to
the Effective Time as a result of a reclassification, stock split (including a
reverse split), stock dividend or distribution, recapitalization, merger,
subdivision, issuer tender or exchange offer, or other similar transaction, the
Merger Consideration shall be equitably adjusted.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the corresponding sections or subsections of the
Company disclosure schedule attached to this Agreement (the "Company Disclosure
Schedule"), the Company hereby represents and warrants to Parent and Merger
Subsidiary that:
4.1. ORGANIZATION, GOOD STANDING AND QUALIFICATION.
The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Maryland, and each of its
Subsidiaries (as defined in SECTION 9.12.(b)) is a corporation or other entity
duly organized, validly existing and in good standing under the laws of its
respective jurisdiction of organization. Each of the Company and each of its
Subsidiaries has all requisite corporate or similar power and authority to own
and operate its properties and assets and to carry on its business as presently
conducted and is qualified to do business and is in good standing in each
jurisdiction where the ownership or operation of its properties or conduct of
its business requires such qualification, except where the failure to be so
qualified or in good standing, when taken together with all other such failures,
is not reasonably likely to have a Company Material
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Adverse Effect (as defined in SECTION 9.12.(b)). The Company has made available
to Parent a complete and correct copy of the Company's and each Subsidiary's
charter and by-laws or other organizational documents, each as amended to and as
in effect as of the date hereof.
4.2. CAPITALIZATION.
The authorized capital stock of the Company consists of 70,000,000
Shares, of which 11,313,957 Shares were outstanding as of the close of business
on September 11, 1998. All of the outstanding Shares have been duly authorized
and are validly issued, fully paid and nonassessable. The Company has no
commitments to issue or deliver Shares except that, as of September 11, 1998,
there were (a) 971,187 Shares subject to issuance pursuant to the Company's
Stock Option Plan, 1995 Employee Stock Option Plan, 1996 Employee Stock Option
Plan, 1997 Employee Stock Option Plan, 1995 Director Stock Option Plan and 1998
Director Stock Option Plan (the "Company Stock Plans"), (b) 28,857 Shares
subject to issuance pursuant to warrants, (c) 2,582,197 Shares subject to
issuance pursuant to the Company's 7% Convertible Subordinated Debentures due
January 29, 2006 (the "Debentures") and (d) shares issuable pursuant to the
Directors' Compensation Plan on terms disclosed on SECTION 4.2. of the Company
Disclosure Schedule. SECTION 4.2. of the Company Disclosure Schedule contains a
list, as of the date hereof, of (x) each option to purchase or acquire Shares
under each of the Company Stock Plans (each a "Company Option"), including the
plan, the holder, date of grant, exercise price and number of Shares subject
thereto and (y) each warrant to purchase capital stock of the Company,
including, the holder, date of grant, expiration date, exercise price and number
of Shares subject thereto. Each of the outstanding shares of capital stock or
other securities of each of the Company's Subsidiaries is duly authorized,
validly issued, fully paid and nonassessable and owned by the Company or a
direct or indirect wholly-owned subsidiary of the Company, free and clear of any
lien, pledge, security interest, claim or other encumbrance. Except as described
in SECTION 4.2. of the Company Disclosure Schedule, there are no preemptive or
other outstanding rights, options, warrants, conversion rights, stock
appreciation rights, redemption rights, repurchase rights, agreements,
arrangements or commitments to issue or sell any shares of capital stock or
other securities of the Company or any of its Subsidiaries or any securities or
obligations convertible or exchangeable into or exercisable for, or giving any
Person a right to subscribe for or acquire, any securities of the Company or any
of its Subsidiaries, and no securities or obligations evidencing such rights are
authorized, issued or outstanding. Except as described in SECTION 4.2. of the
Company Disclosure Schedule, the Company does not have outstanding any bonds,
debentures, notes or other obligations the holders of which have the right to
vote (or, except as referred to in this SECTION 4.2., convertible into or
exercisable for securities having the right to vote) with the stockholders of
the Company on any matter.
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4.3 COMPANY SUBSIDIARIES.
Except for the Company's Subsidiaries as set forth on SECTION 4.3. of
the Company Disclosure Schedule, the Company does not directly or indirectly own
any equity or similar interest in, or any interest convertible into or
exchangeable or exercisable for any equity or similar interest in, any
corporation, partnership, joint venture or other business association or entity
that directly or indirectly conducts any activity which is material to the
Company.
4.4. CORPORATE AUTHORITY; APPROVAL AND FAIRNESS.
(a) The Company has all requisite corporate power and authority and has
taken all corporate action necessary in order to execute, deliver and perform
its obligations under this Agreement and subject only to approval of the Merger
by the holders of at least a majority of the outstanding Shares (the "Company
Requisite Vote"), to consummate the Merger. This Agreement is a valid and
binding obligation of the Company enforceable against the Company in accordance
with its terms, except as enforceability may be limited or affected by
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and
other similar laws and equitable principles now or hereafter in effect and
affecting the rights and remedies of creditors generally.
(b) The Board of Directors of the Company (at a meeting duly called and
held) by unanimous vote (i) has approved this Agreement and the Merger and the
other transactions contemplated hereby and (ii) has resolved to submit the
Merger and the other transactions contemplated by this Agreement to, and
recommend approval thereof by, the stockholders of the Company. The Board of
Directors of the Company has received the opinion of its financial advisor
SunTrust Equitable Securities, to the effect that, as of the date of such
opinion, the Exchange Ratio is fair from a financial point of view to the
holders of Shares.
4.5. GOVERNMENTAL FILINGS; NO VIOLATIONS.
(a) Other than the filings, permits, authorizations, consents, approvals
and/or notices pursuant to or required by (i) SECTIONS 1.3. and 4.5(b) hereof,
(ii) the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act"), (iii) the Securities Exchange Act of 1934 (the "Exchange Act"), (iv)
the Securities Act of 1933, as amended (the "Securities Act"), (v) state
securities or "blue-sky" laws, (vi) NASDAQ, and except as may result from any
facts or circumstances relating solely to Parent or Merger Subsidiary or its
affiliates, in connection with the execution and delivery of this Agreement by
the Company and the consummation by the Company of the Merger and the other
transactions contemplated hereby and thereby, there are no filings,
authorizations, consents,
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approvals or notices required with or by any Court, administrative agency,
commission, government or regulatory authority, domestic or foreign, except
those that the failure to make or obtain will not, individually or in the
aggregate, have a Company Material Adverse Effect or prevent, materially delay
or materially impair the ability of the Company to consummate transactions
contemplated by this Agreement.
(b) Subject to compliance with the filings described in SECTION 4.5.(a)
and obtaining Private Consents (as defined below) applicable to the Company and
its Subsidiaries, the execution, delivery and performance of this Agreement by
the Company do not, and the consummation by the Company of the Merger and the
other transactions contemplated hereby will not, constitute or result in (i) a
breach or violation of, or a default under, the articles of incorporation or
by-laws of the Company or the comparable governing instruments of any of its
Subsidiaries, (ii) a breach or violation of, or a default under, or the
acceleration of any obligations or the creation of a lien, pledge, security
interest or other encumbrance on the assets of the Company or any of its
Subsidiaries (with or without notice, lapse of time or both) pursuant to, any
agreement, lease, contract, note, mortgage, indenture, arrangement or other
obligation ("Contracts") to which the Company or any of its Subsidiaries is a
party or by which any of its assets or properties are bound or affected, (iii)
any change in the rights or obligations of any party under any of those
Contracts, (iv) the impairment of the Company's or any of the Company's
Subsidiaries' business or adversely affect any licenses or approvals necessary
to enable the Company and its Subsidiaries to carry on their business as
presently conducted, except for any conflict, breach, violation, default,
acceleration, declaration, imposition or impairment that would not reasonably be
expected to have a Company Material Adverse Effect or prevent, materially delay
or materially impair the ability of the Company to consummate the transactions
contemplated by this Agreement. SECTION 4.5.(b) of the Company Disclosure
Schedule sets forth, to the knowledge of the Responsible Executive Officers of
the Company (as defined in SECTION 9.12.(b)), a list of contracts (by category
and type, where applicable) material to the Company and its Subsidiaries, taken
as a whole, pursuant to which consents or waivers ("Private Consents") are or
may be required prior to consummation of the transactions contemplated by this
Agreement (subject to the exception set forth above).
4.6. COMPANY REPORTS; FINANCIAL STATEMENT.
The Company has delivered or made available to Parent true and complete
copies of each registration statement, report, proxy statement or information
statement prepared by it since December 31, 1997 (the "Company Audit Date"),
including (a) the Company's Annual Report on Form 10-K for the year ended
December 31, 1997, (b) the Company's definitive Proxy Statement for its 1998
Annual Meeting of Stockholders dated April 22, 1998, and (c) the Company's
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Quarterly Reports on Form 10-Q for the quarterly periods ended March 31 and June
30, 1998, each in the form (including exhibits, annexes and any amendments
thereto) filed with the Securities and Exchange Commission (the "SEC")
(collectively, including any such reports filed subsequent to the date hereof,
the "Company Reports"). As of their respective dates the Company Reports
complied, and any Company reports filed with the SEC subsequent to the date
hereof will comply, as to form in all material respects with the requirements of
the Securities Act or the Exchange Act, as applicable, and the rules and
regulations of the SEC. As of their respective dates, the Company Reports did
not, and any Company Reports filed with the SEC subsequent to the date hereof
will not, contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
made therein, in light of the circumstances under which they were made, not
misleading. Each of the consolidated balance sheets included in or incorporated
by reference into the Company Reports (including the related notes and
schedules) fairly presents, or will fairly present, the consolidated financial
position of the Company and its Subsidiaries as of its date and each of the
consolidated statements of income and statements of cash flows included in or
incorporated by reference into the Company Reports (including any related notes
and schedules) fairly presents, or will fairly present, the consolidated results
of operations, retained earnings and cash flows, as the case may be, of the
Company and its Subsidiaries for the periods set forth therein (subject, in the
case of unaudited statements, to the absence of notes and normal year-end audit
adjustments that will not be material in amount or effect), in each case in
accordance with generally accepted accounting principles ("GAAP") consistently
applied during the periods involved, except as may be noted therein or in
SECTION 4.6. of the Company Disclosure Schedule.
4.7. ABSENCE OF CERTAIN CHANGES.
Except as disclosed in the Company Reports filed prior to the date
hereof, in any Company press releases issued prior to the date hereof, or as set
forth on SECTION 4.7. of the Company Disclosure Schedule and except as otherwise
provided in or contemplated by this Agreement, since the Company Audit Date, the
Company and its Subsidiaries have conducted their respective businesses only in,
and have not engaged in any material transaction other than according to, the
ordinary and usual course of such businesses and there has not been: (a) any
change in the business, assets, liabilities, condition (financial or otherwise)
or results of operations of the Company and its Subsidiaries, or any
transaction, commitment, dispute or other event or, to the knowledge of the
Responsible Executive Officers of the Company any other development or
combination of developments, that, individually or in the aggregate, has had or
is reasonably likely to result in a Company Material Adverse Effect; (b) any
material damage, destruction or other casualty loss with respect to any material
asset or property owned, leased or otherwise used by the Company or any of its
Subsidiaries, whether or not covered
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<PAGE> 16
by insurance; (c) any authorization, declaration, setting aside or payment of
any dividend or other distribution in respect of the stock of the Company,
except as permitted by SECTION 6.1. hereof; (d) any change by the Company in
accounting principles, practices or methods other than as required by changes in
applicable GAAP; (e) any repurchase or redemption of any Shares; or (f) any
material amendment, modification or termination of any material contract,
license or permit to which the Company is a party or which it holds. Since the
Company Audit Date, except as provided for herein or as disclosed in the Company
Reports filed prior to the date hereof or as set forth on SECTION 4.7. of the
Company Disclosure Schedule, there has not been any increase in the compensation
payable or that could become payable by the Company or any of its Subsidiaries
to officers at the senior vice president level or above or any amendment of any
of the Company Compensation and Benefit Plans (as defined in SECTION 4.9.(a)).
4.8. LITIGATION AND LIABILITIES.
Except as disclosed in the Company Reports filed prior to the date
hereof or as set forth on SECTION 4.8. of the Company Disclosure Schedule, there
are no (a) civil, criminal or administrative actions, suits, claims, hearings,
investigations, proceedings, judgments, decrees, orders or injunctions
outstanding, pending or, to the knowledge of the Responsible Executive Officers
of the Company, threatened against the Company or any of its Subsidiaries or (b)
obligations or liabilities of any nature, whether or not accrued, contingent or
otherwise and whether or not required to be disclosed, or any other facts or
circumstances of which the Responsible Executive Officers of the Company have
knowledge, that have resulted in or could reasonably be expected to result in
any claims against, or obligations or liabilities of, the Company or any of the
Subsidiaries, except for such actions, suits, claims, hearings, investigations,
proceedings, obligations and liabilities that would not, individually or in the
aggregate, have a Company Material Adverse Effect or prevent or materially
impair the ability of the Company to consummate the transactions contemplated by
this Agreement.
4.9. EMPLOYEE BENEFITS.
(a) A copy of each bonus, deferred compensation, pension, retirement,
profit-sharing, thrift, savings, employee stock ownership, stock bonus, stock
purchase, restricted stock, stock option, employment, termination, severance,
change of control, compensation, medical, health or other employee benefit plan,
agreement, policy or arrangement that covers employees, directors, former
employees or former directors of the Company and its Subsidiaries (the "Company
Compensation and Benefit Plans") and any trust agreement or insurance contract
forming a part of such Company Compensation and Benefit Plans has been made
available to Parent prior to the date hereof. For the three most recent plan
years, all annual reports (Form 5500 series) on each Company Compensation and
Benefit
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<PAGE> 17
Plan that have been filed with any governmental agency and the current
summary plan description and subsequent summaries of material modifications for
each Company Compensation and Benefit Plan have been made available to Parent
prior to the date hereof. The Compensation and Benefit Plans are listed on
SECTION 4.9. of the Company Disclosure Schedule.
(b) All Company Compensation and Benefit Plans are in substantial
compliance with all applicable law, including, to the extent applicable, the
Internal Revenue Code of 1986, as amended (the "Code") and the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"). Each Company
Compensation and Benefit Plan that is an "employee pension benefit plan" within
the meaning of Section 3(2) of ERISA (a "Pension Plan") and that is intended to
be qualified under Section 401(a) of the Code has received a favorable
determination letter from the Internal Revenue Service (the "IRS"), and the
Company is not aware of any circumstances likely to result in revocation of any
such favorable determination letter. There is no pending or, to the knowledge of
the Responsible Executive Officers of the Company, threatened litigation
relating to the Company Compensation and Benefit Plans. Neither the Company nor
any of its Subsidiaries has engaged in a transaction with respect to any Company
Compensation and Benefit Plan that, assuming the taxable period of such
transaction expired as of the date hereof, would subject the Company or any of
its Subsidiaries to a material tax or penalty imposed by either Section 4975 of
the Code or Section 502 of ERISA.
(c) As of the date hereof, no liability under Subtitle C or D of Title
IV of ERISA has been or is expected to be incurred by the Company or any of its
Subsidiaries with respect to any ongoing, frozen or terminated "single-employer
plan," within the meaning of Section 4001(a)(15) of ERISA, currently or formerly
maintained by any of them, or the single-employer plan of any entity which is
considered one employer with the Company under Section 4001 of ERISA or Section
414 of the Code (an "ERISA Affiliate"). The Company and its Subsidiaries have
not incurred and do not expect to incur any withdrawal liability with respect to
a multiemployer plan under Subtitle E to Title IV of ERISA. The Company and its
Subsidiaries have not contributed, or been obligated to contribute, to a
multiemployer plan under Subtitle E of Title IV of ERISA at any time since
September 26, 1980. No notice of a "reportable event", within the meaning of
Section 4043 of ERISA for which the 30-day reporting requirement has not been
waived, has been required to be filed for any Pension Plan or by any ERISA
Affiliate of the Company within the 12-month period ending on the date hereof or
will be required to be filed in connection with the transactions contemplated by
this Agreement.
(d) All contributions required to be made under the terms of any Company
Compensation and Benefit Plan as of the date hereof have been timely made or
have been reflected on the most recent consolidated balance sheet filed or
incorporated by reference in the Company Reports prior to the date hereof.
Neither
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<PAGE> 18
any Pension Plan nor any single-employer plan of an ERISA Affiliate of the
Company has an "accumulated funding deficiency" (whether or not waived) within
the meaning of Section 412 of the Code or Section 302 of ERISA. Neither the
Company nor its Subsidiaries has provided, or is required to provide, security
to any Pension Plan or to any single-employer plan of an ERISA Affiliate of the
Company pursuant to Section 401(a)(29) of the Code.
(e) Under each Pension Plan of the Company which is a single-employer
plan, as of the last day of the most recent plan year ended prior to the date
hereof, the actuarially determined present value of all "benefit liabilities",
within the meaning of Section 4001(a)(16) of ERISA (as determined on the basis
of the actuarial assumptions contained in the Pension Plan's most recent
actuarial valuation), did not exceed the then current value of the assets of
such Pension Plan, and there has been no material change in the financial
condition of such Pension Plan since the last day of the most recent plan year.
For each Pension Plan of the Company, the Company has furnished to Parent a true
and complete copy of the actuarial valuation reports issued by the actuaries of
that Pension Plan for the three most recent years, setting forth: (i) the
actuarial present value (based upon the same actuarial assumptions as were used
for that period for funding purposes) of all vested and nonvested accrued
benefits under that Pension Plan; (ii) the actuarial present value (based upon
the same actuarial assumptions, other than turnover assumptions, as were used
for that period for funding purposes) of vested benefits under that Pension
Plan; (iii) the net fair market value of that Pension Plan's assets; and (iv) a
detailed description of the funding method used under that Pension Plan.
(f) Neither the Company nor its Subsidiaries have any obligations for
retiree health and life benefits under any Company Compensation and Benefit
Plan. The Company or its Subsidiaries may amend or terminate any such plan under
the terms of such plan at any time without incurring any material liability
thereunder.
(g) The Merger will not result in any breach or violation of, or a
default under, any of the Company Compensation and Benefit Plans or except as
set forth in SECTION 4.9. of the Company Disclosure Schedule, (i) entitle any
employees of the Company or its Subsidiaries to severance pay, or (ii)
accelerate the time of payment or vesting or trigger any payment of compensation
or benefits under, increase the amount payable or trigger any other material
obligation pursuant to, any of the Company Compensation and Benefit Plans.
(h) All Company Compensation and Benefit Plans covering current or
former non-U.S. employees of the Company and its Subsidiaries comply in all
material respects with applicable local law. The Company and its Subsidiaries
have no material unfunded liabilities with respect to any Pension Plan that
covers such non-U.S. employees.
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<PAGE> 19
4.10. COMPLIANCE WITH LAWS; PERMITS.
Except as set forth in the Company Reports filed prior to the date
hereof or on SECTION 4.10. of the Company Disclosure Schedule, the businesses of
each of the Company and its Subsidiaries have been, and are being, conducted in
compliance with all applicable federal, state, local or foreign law, statute,
ordinance, rule, regulation, judgment, order, injunction, decree, arbitration
award, agency requirement, license or permit of any governmental entity
("Laws"), and all notices, reports, documents and other information required to
be filed thereunder within the last three years were properly filed and were in
compliance with such Laws, except in any such case for noncompliance that,
individually or in the aggregate, would not reasonably be expected to have a
Company Material Adverse Effect or prevent or materially impair the ability of
the Company to consummate the transactions contemplated by this Agreement.
Except as set forth in the Company Reports filed prior to the date hereof or on
SECTION 4.10. of the Company Disclosure Schedule and except for routine
examinations and audits by state governmental entities charged with supervision
of educational and rehabilitative facilities of the type operated by the Company
and the Subsidiaries ("State Regulators"), no investigation or review by any
governmental entity with respect to the Company or any of its Subsidiaries is
pending or, to the knowledge of the Responsible Executive Officers of the
Company, threatened, nor has any governmental entity indicated an intention to
conduct the same, except for those the outcome of which would not, individually
or in the aggregate, reasonably be expected to have a Company Material Adverse
Effect or prevent or materially impair the ability of the Company to consummate
the transactions contemplated by this Agreement. No material change is required
in the Company's or any of its Subsidiaries' processes, properties or procedures
in connection with any such Laws, and the Company has not received any notice or
communication of any noncompliance with any such Laws that would reasonably be
expected to have a Material Adverse Effect or that has not been cured as of the
date hereof. The Company and its Subsidiaries each has all permits, licenses,
franchises, variances, exemptions, orders and other governmental authorizations,
consents and approvals necessary to conduct its business as presently conducted
except those the absence of which would not, individually or in the aggregate,
have a Company Material Adverse Effect or prevent or materially impair the
ability of the Company to consummate the Merger and the other transactions
contemplated by this Agreement.
4.11. TAKEOVER STATUTES.
No restrictive provision of any "fair price," "moratorium," "control
share" or other similar anti-takeover statute or regulation, including, but not
limited to, Section 3-602 of the MGCL, (each a "Takeover Statute") or
restrictive provision of any applicable anti-takeover provision in the Articles
of Incorporation or Bylaws
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<PAGE> 20
of the Company, is, or at the Effective Time will be, applicable to the Company,
Parent, the Shares, the Merger or any other transaction contemplated by this
Agreement.
4.12. ENVIRONMENTAL MATTERS.
Except as disclosed in the Company Reports filed prior to the date
hereof or on SECTION 4.12. of the Company Disclosure Schedule, and except for
such matters that, alone or in the aggregate, would not have a Company Material
Adverse Effect: (a) the Company and its Subsidiaries have complied with all
applicable Environmental Laws (as defined in SECTION 9.12.(b)); (b) to the
knowledge of the Responsible Executive Officers of the Company, the properties
currently owned or operated by the Company (including soils, groundwater,
surface water, buildings or other structures) are not contaminated with any
Hazardous Substances (as defined in SECTION 9.12.(b)) and do not contain
wetlands, dumps, filled in land, PCBs, asbestos or underground storage tanks;
(c) to the knowledge of the Responsible Executive Officers of the Company, the
properties formerly owned or operated by the Company or any of its Subsidiaries
were not contaminated with Hazardous Substances during the period of ownership
or operation by the Company or any of its Subsidiaries; (d) to the knowledge of
the Responsible Executive Officers of the Company, neither the Company nor any
Subsidiary is subject to liability for any Hazardous Substance disposal or
contamination on any third party property; (e) to the knowledge of the
Responsible Executive Officers of the Company, no Hazardous Substance has been
transported from any of the properties owned or operated by the Company or any
of its Subsidiaries other than as permitted under applicable Environmental Law;
(f) neither the Company nor any of its Subsidiaries has received any written
notice, demand, letter, claim or request for information from any Governmental
Entity or third party indicating that the Company or any of its Subsidiaries may
be in violation of or liable under any Environmental Law; (g) the Company and
its Subsidiaries are not subject to any court order, administrative order or
decree arising under any Environmental Law and are not subject to any indemnity
or other agreement with any third party relating to liability under any
Environmental Law or relating to Hazardous Substances; and (h) there are no
circumstances or conditions involving the Company or any of its Subsidiaries
that could reasonably be expected to result in any material claims, liability,
investigations, costs or restrictions on the ownership, use, or transfer of any
property of the Company pursuant to any Environmental Law.
4.13. TAXES.
Except as set forth on SECTION 4.13. of the Company Disclosure Schedule:
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(a) the Company and each of its Subsidiaries have (or, in the case of
returns becoming due after the date hereof and on or before the Closing Date,
will have prior to the Closing Date) timely and accurately filed all Tax Returns
(as defined in SECTION 9.12.(b)) which are required by all applicable laws to be
filed by them, and have paid, or made adequate provision for the payment of, all
Taxes (as defined in SECTION 9.12.(b)) which have or may become due and payable
pursuant to said Tax Returns and all other Taxes, governmental charges and
assessments received to date other than those Taxes being contested in good
faith for which adequate provision has been made on the most recent balance
sheet included in the Company Reports. The Tax Returns of the Company and its
Subsidiaries have been (or, in the case of returns becoming due after the date
hereof and on or before the Closing Date, will be) prepared, in all material
respects, in accordance with all applicable laws consistently applied;
(b) all Taxes which the Company and its Subsidiaries are required by law
to withhold and collect have been duly withheld and collected, and have been
paid over, in a timely manner, to the proper Taxing Authorities (as defined in
SECTION 9.12.(b)) to the extent due and payable;
(c) no liens for Taxes exist with respect to any of the assets or
properties of the Company or its Subsidiaries, except for statutory liens for
Taxes not yet due or payable or that are being contested in good faith; and
(d) all Tax Returns have been examined by the relevant taxing
authorities, or closed without audit by applicable statutes, and all
deficiencies proposed as a result of such examinations have been paid or
settled, for all taxable years prior to and including the taxable year ended
June 30, 1995; and
(e) there is no audit, examination, deficiency, or refund litigation
pending with respect to any Taxes and during the past three years no Taxing
Authority has given written notice of the commencement of any audit,
examination, deficiency or refund litigation, with respect to any Taxes.
(f) SECTION 4.13 of the Company Disclosure Schedule sets forth the net
operating loss carryover and capital loss carryover available for Federal income
tax purposes to the affiliated group filing consolidated Federal income tax
returns of which the Company is the common parent corporation as of the end of
the taxable period ended June 30, 1998.
4.14. LABOR MATTERS.
(a) Neither the Company nor any of its Subsidiaries is a party to or
otherwise bound by any collective bargaining agreement, contract or other
agreement or understanding with a labor union or labor organization. There are
no strikes or work stoppages pending or, to the knowledge of the Responsible
Executive
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<PAGE> 22
Officers of the Company, threatened with respect to the employees of the Company
or any of its Subsidiaries. There is no representation claim or petition or
complaint pending before the National Labor Relations Board or any state or
local labor agency and, to the knowledge of the Responsible Executive Officers
of the Company, no question concerning representation has been raised or
threatened. Except as set forth on SECTION 4.14 of the Company Disclosure
Schedule, no charges with respect to or relating to the business of the Company
or any its Subsidiaries are pending before the Equal Employment Opportunity
Commission, or any state or local agency responsible for the prevention of
unlawful employment practices, which would if adversely determined have a
Company Material Adverse Effect.
(b) SECTION 4.14. of the Company Disclosure Schedule contains a complete
and correct list of all current employment, management or other consulting
agreements with any Persons employed or retained by the Company or any of its
Subsidiaries which are not terminable at will. True, complete and correct copies
of all such written agreements have been delivered to Parent.
4.15. INTELLECTUAL PROPERTY.
(a) Except as set forth on SECTION 4.15. of the Company Disclosure
Schedule, the Company and/or each of its Subsidiaries owns, or is licensed or
otherwise possesses rights to use all patents, trademarks, trade names, service
marks, copyrights, and any applications therefor, technology, know-how, computer
software programs or applications, and tangible or intangible proprietary
information or materials that are used in the business of the Company and its
Subsidiaries as currently conducted, and all patents, trademarks, trade names,
service marks and copyrights held by the Company and/or its Subsidiaries are
valid and subsisting.
(b) Except as disclosed in Company Reports filed prior to the date
hereof or SECTION 4.15. of the Company Disclosure Schedule:
(i) the Company is not, nor will it be as a result of the execution
and delivery of this Agreement or the performance of its obligations hereunder
or as contemplated hereby, in violation of any licenses, sublicenses and other
agreements as to which the Company is a party and pursuant to which the Company
is authorized to use any third-party patents, trademarks, service marks, and
copyrights ("Company Third-Party Intellectual Property Rights");
(ii) no claims with respect to (A) the patents, registered and
unregistered trademarks and service marks, copyrights, trade names, and any
applications therefor owned by the Company or any its Subsidiaries (the "Company
Intellectual Property Rights"); (B) any trade secret material to the Company; or
(C) Company Third-Party Intellectual Property Rights are currently pending or
threatened by any Person;
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<PAGE> 23
(iii) (A) the sale, licensing or use of any product as now used,
sold or licensed or proposed for use, sale or license by the Company or any of
its Subsidiaries, does not infringe in any respect that would have a Company
Material Adverse Effect on any copyright, patent, trademark, service mark or
trade secret; and (B) there are no valid grounds for any material claims against
the use by the Company or any of its Subsidiaries, of any material trademarks,
trade names, trade secrets, copyrights, patents, technology, know-how or
computer software programs and applications used in the business of the Company
or any of its Subsidiaries as currently conducted challenging the ownership,
validity or effectiveness of any of the Company Intellectual Property Rights or
other trade secret material to the Company or challenging the license or legally
enforceable right to use of the Company Third-Party Intellectual Rights by the
Company or any of its Subsidiaries; and
(iv) to the knowledge of the Responsible Executive Officers of the
Company, there is no unauthorized use, infringement or misappropriation of any
of the Company Intellectual Property Rights by any third party, including any
employee or former employee of the Company or any of its Subsidiaries.
(c) SECTION 4.15. of the Company Disclosure Schedule lists all material
(i) patents, patent applications, registered and unregistered trademarks, trade
names and service marks, registered and unregistered copyrights, and maskworks
included in the Company Intellectual Property Rights and (ii) licenses,
sublicenses and other agreements as to which the Company is a party and pursuant
to which any person is authorized to use any of the Company Intellectual
Property Rights.
4.16. TITLE TO PROPERTY.
Except as set forth in the Company Reports or on SECTION 4.16. of the
Company Disclosure Schedule, the Company and each of its Subsidiaries had good
title to all of their properties and assets as set forth on the June 30, 1998
balance sheet included in the Company Reports, free and clear of all
encumbrances, except liens for taxes not yet due and payable and such
encumbrances or other imperfections of title, if any, as do not materially
detract from the value of or materially interfere with the present use of the
property affected thereby or which would not reasonably be expected to have a
Company Material Adverse Effect, and except for encumbrances which secure
indebtedness reflected in the financial statements included in the Company
Reports. SECTION 4.16. of the Company Disclosure Schedule sets forth a true and
correct list of all leases, subleases or other agreements under which the
Company or any of its Subsidiaries is lessee or lessor of any material real
property or has any interest in material real property and, except as set forth
in SECTION 4.16. of the Company Disclosure Schedule, there are no rights or
options held by the Company or any of its Subsidiaries, or any contractual
obligations on its part, to purchase or otherwise acquire (including by
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<PAGE> 24
way of lease or sublease) any interest in or use of any material real property,
nor any rights or options granted by the Company or any of its Subsidiaries, or
any contractual obligations entered into by it, to sell or otherwise dispose of
(including by way of lease or sublease) any interest in or use of any material
real property. All such leases, subleases and other agreements are in full force
and effect and, to the knowledge of the Responsible Executive Officers of the
Company, constitute legal, valid and binding obligations of the respective
parties thereto, with no existing or claimed default or event of default, or
event which with notice or lapse of time or both would constitute a default or
event of default, by the Company or any of its Subsidiaries, or, to the
knowledge of the Responsible Executive Officers of the Company, by any other
party thereto, which would materially and adversely affect the Company or any of
its Subsidiaries.
4.17. MATERIAL CONTRACTS.
All of the material contracts of the Company and its Subsidiaries that
are required to be described in the Company Reports or to be filed as exhibits
thereto pursuant to Item 601 of Regulation S-K promulgated by the SEC are
described in the Company Reports or filed as exhibits thereto and are in full
force and effect. SECTION 4.17. of the Company Disclosure Schedule sets forth a
list of all other contracts currently in force between the Company or any
Subsidiary and any agency or other party to place youths in the juvenile justice
programs of the Company or its Subsidiaries. True and complete copies of all
contracts referred to in the previous two sentences (the "SECTION 4.17.
Contracts") have been made available by the Company to Parent. Neither the
Company nor any of its Subsidiaries nor, to the knowledge of the Responsible
Executive Officers of the Company, any other party, is in breach of or in
default under any SECTION 4.17. Contract, and to the knowledge of the
Responsible Executive Officers of the Company, no condition exists which with
the lapse of time or notice or both, will result in any such breach or default,
except for such breaches and defaults as individually or in the aggregate have
not had and would not reasonably be expected to have a Company Material Adverse
Effect. Except as set forth on SECTION 4.17 of the Company Disclosure Schedule,
to the knowledge of the Responsible Executive Officers of the Company, no third
party to any SECTION 4.17. Contract is currently seeking to terminate, amend,
modify or fail to renew any such contract which is material to the business of
the Company, whether or not as a result of the Merger nor, to the knowledge of
the Responsible Executive Officers of the Company, is there any development or
combination of developments that are reasonably likely to result in any such
termination, amendment, modification or failure to renew any such contract which
is material to the business of the Company. Neither the Company nor any of its
Subsidiaries is party to any agreement containing any provision or covenant
limiting in any respect that would reasonably be expected to have a Company
Material Adverse Effect the ability of the Company or any of its Subsidiaries to
(a) sell any products or services of or to any other person, (b) engage
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in any line of business or (c) compete with or obtain products or services from
any person or limiting the ability of any person to provide products or services
to the Company or any of its Subsidiaries.
4.18. BROKERS AND FINDERS.
Neither the Company nor any of its executive officers, directors or
employees has employed any broker or finder or incurred any liability for any
brokerage fees, commissions or finders fees in connection with the Merger or the
other transactions contemplated in this Agreement, except that the Company has
employed SunTrust Equitable Securities as its financial advisor, the
arrangements with respect to which are set forth on SECTION 4.18. of the Company
Disclosure Schedule.
4.19. INSURANCE MATTERS.
The Company has heretofore provided Parent with true, complete and
correct copies of all material fire and casualty, general liability, business
interruption, product liability and other insurance policies maintained by the
Company and its Subsidiaries. All such policies are in full force and effect and
no event has occurred that would give any insurance carrier a right to terminate
any such policy. Neither the Company nor any of its Subsidiaries has been denied
or had any policy of insurance revoked or rescinded. All such policies are
adequate to insure against risks to which the Company and its properties are
exposed in such amounts and subject to such terms as are commercially
reasonable.
4.20. AFFILIATED TRANSACTIONS.
The Company has not engaged in any transaction required to be described
in the Company Reports pursuant to Item 404 of Regulation S-K, which has not
been so described in the Company Reports.
4.21. YEAR 2000 LIABILITY.
To the knowledge of the Responsible Executive Officers of the Company,
the cost of upgrading and enhancing the Company's computer software systems to
recognize years beginning with 2000, will not be material to the Company's
financial position, liquidity or results of operations.
4.22. ACCOUNTING AND TAX MATTERS.
(a) As of the date hereof, neither the Company nor any of its Affiliates
has taken or agreed to take any action, nor do the Responsible Executive
Officers of the Company have any knowledge of any fact or circumstance, that
would prevent Parent or the Company from accounting for the business combination
to be effected by the Merger as a "pooling-of-interests" or prevent the
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Merger and the other transactions contemplated by this Agreement from qualifying
as a "reorganization" within the meaning of Section 368(a) of the Code.
(b) The Company has provided to the Company's and Parent's independent
accountants all information concerning actions taken or agreed to be taken by
the Company or any of its Affiliates on or before the date of this Agreement
that could reasonably be expected to adversely affect the ability of Parent to
account for the business combination to be effected by the Merger as a pooling
of interests.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF
PARENT AND MERGER SUBSIDIARY
Except as set forth in the corresponding sections or subsections of the
Parent Disclosure Schedule attached to this Agreement (the "Parent Disclosure
Schedule"), Parent and Merger Subsidiary hereby, jointly and severally,
represent and warrant to the Company that:
5.1. MERGER SUBSIDIARY.
(a) Merger Subsidiary is a corporation duly organized, validly existing
and in good standing under the laws of the State of Maryland.
(b) The authorized capital stock of Merger Subsidiary consists of 1,000
shares of common stock, par value $.01 per share, all of which are validly
issued and outstanding and are, and at the Effective Time will be, owned solely
by Parent, and there are (i) no other voting securities of Merger Subsidiary,
(ii) no securities of Merger Subsidiary convertible into or exchangeable for
shares of common stock or other voting securities of Merger Subsidiary and (iii)
no options or other rights to acquire from Merger Subsidiary, and no obligations
of Merger Subsidiary to issue or deliver, shares of common stock or other voting
securities or securities convertible into or exchangeable for shares of common
stock or other voting securities of Merger Subsidiary.
(c) Merger Subsidiary has not conducted any business prior to the date
hereof and has no, and prior to the Effective Time will have no, assets,
liabilities or obligations of any nature other than those incident to its
formation and pursuant to this Agreement and the Merger and the other
transactions contemplated by this Agreement.
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5.2. ORGANIZATION, GOOD STANDING AND QUALIFICATION.
Parent is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware, and each of its Subsidiaries
is a corporation or other entity duly organized, validly existing and in good
standing under the laws of its respective jurisdiction of organization. Each of
Parent and each of its Subsidiaries has all requisite corporate or similar power
and authority to own and operate its properties and assets and to carry on its
business as presently conducted and is qualified to do business and is in good
standing in each jurisdiction where the ownership or operation of its properties
or conduct of its business requires such qualification, except where the failure
to be so qualified or in good standing, when taken together with all other such
failures, is not reasonably likely to have a Parent Material Adverse Effect (as
defined in SECTION 9.12.(b)). Parent has made available to the Company a
complete and correct copy of Parent's and each Subsidiaries' charter and by-laws
or other organizational documents, each as amended to and as in effect as of the
date hereof.
5.3. CAPITALIZATION.
The authorized capital stock of Parent consists of 30,000,000 shares of
Parent Common Stock, par value $.01 per share, of which 7,791,142 shares were
outstanding as of the close of business on September 14, 1998, and 1,000,000
shares of preferred stock, par value $.01 per share (the "Parent Preferred
Shares" and together with Parent Common Stock, the "Parent Shares"), none of
which were outstanding as of the close of business on September 14, 1998. All of
the outstanding Parent Shares have been duly authorized and are validly issued,
fully paid and nonassessable. Parent has no commitments to issue or deliver
Parent Shares, except that (i) as of September 9, 1998, there were 677,925
shares of Parent Common Stock subject to issuance pursuant to Parent's 1993
Stock Option Plan and 1994 Directors' Stock Option plan (the "Parent Stock
Plans") and 205,000 shares of Parent Common Stock subject to issuance pursuant
to other options held by employees and (ii) as of September 23, 1998, there were
685,066 shares of Parent Common Stock subject to issuance pursuant to warrants.
SECTION 5.3. of the Parent Disclosure Schedule contains a list, which is
complete and accurate in all respects as of the date specified therein, of each
outstanding option to purchase or acquire Shares under each of the Parent Stock
Plans (each a "Parent Option"), including the plan, the holder, date of grant,
exercise price and number of Parent Shares subject thereto. Each of the
outstanding shares of capital stock or other securities of each of Parent's
Subsidiaries is duly authorized, validly issued, fully paid and nonassessable
and owned by Parent or a direct or indirect wholly-owned subsidiary of Parent,
free and clear of any lien, pledge, security interest, claim or other
encumbrance. Except as described in SECTION 5.3. of the Parent Disclosure
Schedule, there are no preemptive or other outstanding rights, options,
warrants, conversion rights, stock appreciation rights, redemption rights,
repurchase rights,
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agreements, arrangements or commitments to issue or sell any shares of capital
stock or other securities of Parent or any of its Subsidiaries or any securities
or obligations convertible or exchangeable into or exercisable for, or giving
any Person a right to subscribe for or acquire, any securities of Parent or any
of its Subsidiaries, and no securities or obligations evidencing such rights are
authorized, issued or outstanding. Parent does not have outstanding any bonds,
debentures, notes or other obligations the holders of which have the right to
vote (or, except as referred to in this SECTION 5.3., convertible into or
exercisable for securities having the right to vote) with the stockholders of
Parent on any matter.
5.4. CORPORATE AUTHORITY; APPROVAL AND FAIRNESS.
(a) Each of Parent and Merger Subsidiary has all requisite corporate
power and authority and has taken all corporate action necessary in order to
execute, deliver and perform its obligations under this Agreement, and, with
respect to Parent, subject only to approval of the issuance of Parent Common
Stock by the holders of at least a majority of the outstanding shares of Parent
Common Stock (the "Parent Requisite Vote"), to consummate the Merger. This
Agreement is a valid and binding obligation of each of Parent and Merger
Subsidiary, as the case may be, enforceable against Parent and Merger Subsidiary
in accordance with its terms, except as enforceability may be limited or
affected by bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance and other similar laws and equitable principles now or hereafter in
effect and affecting the rights and remedies of creditors generally.
(b) The Board of Directors of Parent (at a meeting duly called and held)
by unanimous vote (i) has approved this Agreement and the Merger and the other
transactions contemplated hereby and thereby and (ii) has resolved to submit the
proposed issuance of Parent Common Stock in the Merger and the other
transactions contemplated by this Agreement to, and recommend approval thereof
by, the stockholders of the Parent. The Parent Common Stock, when issued in
connection with the consummation of the transactions contemplated hereby, will
be validly issued, fully paid and nonassessable, and no stockholder of Parent
will have any preemptive right of subscription or purchase in respect thereof.
The Parent Common Stock, when so issued, will be registered under the Securities
Act and Exchange Act and registered or exempt from registration under any
applicable state securities or "blue sky" laws.
5.5. GOVERNMENTAL FILINGS; NO VIOLATIONS.
(a) Other than the filings, permits, authorizations, consents, approvals
and/or notices pursuant to or required by (i) SECTIONS 1.3. and 5.5.(b) hereof,
(ii) the HSR Act, (iii) the Exchange Act, (iv) the Securities Act, (v) state
securities or "blue-sky" laws, (vi) NASDAQ and except as may result from any
facts
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or circumstances relating solely to the Company or its affiliates, in
connection with the execution and delivery of this Agreement by Parent and
Merger Subsidiary and the consummation by Parent and Merger Subsidiary of the
Merger and the other transactions contemplated hereby, there are no filings,
authorizations, consents, approvals or notices required with or by any Court,
administrative agency, commission, government or regulatory authority, domestic
or foreign, except those that the failure to make or obtain would not,
individually or in the aggregate, have a Parent Material Adverse Effect or
prevent, materially delay or materially impair the ability of Parent or Merger
Subsidiary to consummate transactions contemplated by this Agreement.
(b) Subject to compliance with the filings described in SECTION 5.5.(a)
and obtaining Private Consents applicable to the Parent and its Subsidiaries,
the execution, delivery and performance of this Agreement and by Parent and the
Merger Subsidiary, as the case may be, does not, and the consummation by Parent
or Merger Subsidiary of the Merger and the other transactions contemplated
hereby or thereby will not, constitute or result in (i) a breach or violation
of, or a default under, the certificate of incorporation or bylaws of Parent or
Merger Subsidiary, or the comparable governing instruments of any of Parent's
other Subsidiaries, (ii) a breach or violation of, or a default under, the
acceleration of any obligations or the creation of a lien, pledge, security
interest or other encumbrance on the assets of Parent or any of its Subsidiaries
(with or without notice, lapse of time or both) pursuant to, any Contracts to
which Parent or any of its Subsidiaries is a party or by which any of its assets
or properties are bound or affected, (iii) any change in the rights or
obligations of any party under any of those Contracts, (iv) the impairment of
Parent's or any of Parent's Subsidiaries' business or adversely affect any
licenses or approvals necessary to enable Parent and its Subsidiaries to carry
on their business as presently conducted, except for any conflict, breach,
violation, default, acceleration, declaration, imposition or impairment that
would not reasonably be expected to have a Parent Material Adverse Effect or
prevent, materially delay or materially impair the ability of Parent or Merger
Subsidiary to consummate the transactions contemplated by this Agreement, as the
case may be. SECTION 5.5.(b) of the Parent Disclosure Schedule sets forth, to
the knowledge of the Responsible Executive Officers of Parent (as defined in
SECTION 9.12.(b)) a list of contracts (by category and type, where applicable)
material to Parent and its Subsidiaries, taken as a whole, pursuant to which
Private Consents are or may be required prior to consummation of the
transactions contemplated by this Agreement (subject to the exception set forth
above).
5.6. PARENT REPORTS; FINANCIAL STATEMENTS.
Parent has delivered or made available to the Company true and complete
copies of each registration statement, report, proxy statement or
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information statement prepared by it since December 31, 1997 (the "Parent Audit
Date"), including (a) Parent's Annual Report on Form 10-K for the year ended
December 31, 1997, (b) Parent's definitive Proxy Statement for its 1998 Annual
Meeting of Stockholders dated June 18, 1998, and (c) Parent's Quarterly Report
on Form 10-Q for the quarterly periods ended March 31 and June 30, 1998, each in
the form (including exhibits, annexes and any amendments thereto) filed with the
SEC (collectively, including any such reports filed subsequent to the date
hereof, the "Parent Reports"). As of their respective dates, the Parent Reports
complied, and any Parent Reports filed with the SEC subsequent to the date
hereof will comply, as to form in all material respects with the requirements of
the Securities Act or the Exchange Act, as applicable, and the rules and
regulations of the SEC. As of their respective dates, the Parent Reports did
not, and any Parent Reports filed with the SEC subsequent to the date hereof
will not, contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
made therein, in light of the circumstances under which they were made, not
misleading. Each of the consolidated balance sheets included in or incorporated
by reference into the Parent Reports (including the related notes and schedules)
fairly presents, or will fairly present, the consolidated financial position of
Parent and its Subsidiaries as of its date and each of the consolidated
statements of income and of statements of cash flows included in or incorporated
by reference into the Parent Reports (including any related notes and schedules)
fairly presents, or will fairly present, the consolidated results of operations,
retained earnings and cash flows, as the case may be, of Parent and its
Subsidiaries for the periods set forth therein (subject, in the case of
unaudited statements, to the absence of notes and normal year-end audit
adjustments that will not be material in amount or effect), in each case in
accordance with GAAP consistently applied during the periods involved, except as
may be noted therein or in SECTION 5.6. of the Parent Disclosure Schedule.
5.7. ABSENCE OF CERTAIN CHANGES.
Except as disclosed in the Parent Reports filed prior to the date hereof
or as set forth on SECTION 5.7. of the Parent Disclosure Schedule and except as
otherwise provided in or contemplated by this Agreement, since the Parent Audit
Date, Parent and its Subsidiaries have conducted their respective businesses
only in, and have not engaged in any material transaction other than according
to, the ordinary and usual course of such businesses and there has not been: (a)
any change in the business, assets, liabilities, condition (financial or
otherwise) or results of operations of Parent and its Subsidiaries, or any
transaction, commitment, dispute or other event or, to the knowledge of the
Responsible Executive Officers of Parent, any other development or combination
of developments, that, individually or in the aggregate, has had or is
reasonably likely to result in a Parent Material Adverse Effect; (b) any
material damage, destruction or other casualty loss with respect to any material
asset or property owned, leased or otherwise used by Parent or any of
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its Subsidiaries, whether or not covered by insurance; (c) any authorization,
declaration, setting aside or payment of any dividend or other distribution in
respect of the stock of Parent, except as permitted by SECTION 6.2. hereof; (d)
any change by Parent in accounting principles, practices or methods other than
as required by changes in applicable GAAP or statutory accounting principles;
(e) any repurchase or redemption of any shares of Parent Common Stock; or (f)
any material amendment, modification or termination of any material contract,
license or permit to which Parent is a party or which it holds. Since the Parent
Audit Date, except as provided for herein or as disclosed in the Parent Reports
filed prior to the date hereof or as set forth on SECTION 5.7. of the Parent
Disclosure Schedule, there has not been any increase in the compensation payable
or that could become payable by Parent or any of its Subsidiaries to officers at
the senior vice president level or above or any amendment of any of the Parent
Compensation and Benefit Plans (as defined in SECTION 5.10.(a)).
5.8. LITIGATION AND LIABILITIES.
Except as disclosed in the Parent Reports filed prior to the date hereof
or as set forth on SECTION 5.8. of the Parent Disclosure Schedule, there are no
(a) civil, criminal or administrative actions, suits, claims, hearings,
investigations, proceedings, judgments, decrees, orders or injunctions
outstanding, pending or, to the knowledge of the Responsible Executive Officers
of Parent, threatened against Parent or any of its Subsidiaries or (b)
obligations or liabilities of any nature, whether or not accrued, contingent or
otherwise and whether or not required to be disclosed, or any other facts or
circumstances of which the Responsible Executive Officers of Parent have
knowledge, that have resulted in or could reasonably be expected to result in
any claims against, or obligations or liabilities of, Parent or any of its
Subsidiaries, except for such actions, suits, claims, hearings, investigations,
proceedings, obligations and liabilities that would not, individually or in the
aggregate, have a Parent Material Adverse Effect or prevent or materially impair
the ability of Parent or Merger Subsidiary to consummate the transactions
contemplated by this Agreement.
5.9. EMPLOYEE BENEFITS.
(a) A copy of each bonus, deferred compensation, pension, retirement,
profit-sharing, thrift, savings, employee stock ownership, stock bonus, stock
purchase, restricted stock, stock option, employment, termination, severance,
change of control, compensation, medical, health or other benefit plan,
agreement, policy or arrangement that covers employees, directors, former
employees or former directors of Parent and its Subsidiaries (the "Parent
Compensation and Benefit Plans") and any trust agreement or insurance contract
forming a part of such Parent Compensation and Benefit Plans has been made
available to the Company prior to the date hereof. For the three most recent
plan years, all annual reports
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(Form 5500 series) on each Parent Compensation and Benefit Plan that have been
filed with any governmental agency and the current summary plan description and
subsequent summaries of material modifications for each Parent Compensation and
Benefit Plan have been made available to the Company prior to the date hereof.
The Parent Compensation and Benefit Plans are listed on SECTION 5.9. of the
Parent Disclosure Schedule.
(b) All Parent Compensation and Benefit Plans are in substantial
compliance with all applicable law, including, to the extent applicable, the
Code and ERISA. Each Parent Compensation and Benefit Plan that is a Pension Plan
and that is intended to be qualified under Section 401(a) of the Code has
received a favorable determination letter from the IRS, and Parent is not aware
of any circumstances likely to result in revocation of any such favorable
determination letter. There is no pending or, to the knowledge of the
Responsible Executive Officers of Parent, threatened litigation relating to the
Parent Compensation and Benefit Plans. Neither Parent nor any of its
Subsidiaries has engaged in a transaction with respect to any Parent
Compensation and Benefit Plan that, assuming the taxable period of such
transaction expired as of the date hereof, would subject Parent or any of its
Subsidiaries to a material tax or penalty imposed by either Section 4975 of the
Code or Section 502 of ERISA.
(c) As of the date hereof, no liability under Subtitle C or D of Title
IV of ERISA has been or is expected to be incurred by Parent or any of its
Subsidiaries with respect to any ongoing, frozen or terminated "single-employer
plan", within the meaning of Section 4001(a)(15) of ERISA, currently or formerly
maintained by any of them, or the single-employer plan of any entity which is
considered an ERISA Affiliate of Parent. Parent and its Subsidiaries have not
incurred and do not expect to incur any withdrawal liability with respect to a
multiemployer plan under Subtitle E to Title IV of ERISA. Parent and its
Subsidiaries have not contributed, or been obligated to contribute, to a
multiemployer plan under Subtitle E of Title IV of ERISA at any time since
September 26, 1980. No notice of a "reportable event", within the meaning of
Section 4043 of ERISA for which the 30-day reporting requirement has not been
waived, has been required to be filed for any Pension Plan or by any ERISA
Affiliate of Parent within the 12-month period ending on the date hereof or will
be required to be filed in connection with the transactions contemplated by this
Agreement.
(d) All contributions required to be made under the terms of any
Parent Compensation and Benefit Plan as of the date hereof have been timely made
or have been reflected on the most recent consolidated balance sheet filed or
incorporated by reference in the Parent Reports prior to the date hereof.
Neither any Pension Plan nor any single-employer plan of an ERISA Affiliate of
Parent has an "accumulated funding deficiency" (whether or not waived) within
the meaning of Section 412 of the Code or Section 302 of ERISA. Neither Parent
nor its
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Subsidiaries has provided, or is required to provide, security to any Pension
Plan or to any single-employer plan of an ERISA Affiliate of Parent pursuant to
Section 401(a)(29) of the Code.
(e) Under each Pension Plan of the Parent which is a single-employer
plan, as of the last day of the most recent plan year ended prior to the date
hereof, the actuarially determined present value of all "benefit liabilities",
within the meaning of Section 4001(a)(16) of ERISA (as determined on the basis
of the actuarial assumptions contained in the Pension Plan's most recent
actuarial valuation), did not exceed the then current value of the assets of
such Pension Plan, and there has been no material change in the financial
condition of such Pension Plan since the last day of the most recent plan year.
For each Pension Plan of the Parent, Parent has furnished to the Company a true
and complete copy of the actuarial valuation reports issued by the actuaries of
that Pension Plan for the three most recent years, setting forth: (i) the
actuarial present value (based upon the same actuarial assumptions as were used
for that period for funding purposes) of all vested and nonvested accrued
benefits under that Pension Plan; (ii) the actuarial present value (based upon
the same actuarial assumptions, other than turnover assumptions, as were used
for that period for funding purposes) of vested benefits under that Pension
Plan; (iii) the net fair market value of that Pension Plan's assets; and (iv) a
detailed description of the funding method used under that Pension Plan.
(f) All Parent Compensation and Benefit Plans covering current or
former non-U.S. employees of Parent and its Subsidiaries comply in all material
respects with applicable local law. Parent and its Subsidiaries have no material
unfunded liabilities with respect to any Pension Plan that covers such non-U.S.
employees.
5.10. COMPLIANCE WITH LAWS; PERMITS.
Except as set forth in the Parent Reports filed prior to the date hereof
or on SECTION 5.10. of the Parent Disclosure Schedule, the businesses of each of
Parent and its Subsidiaries have been, and are being, conducted in compliance
with all applicable Laws, and all notices, reports, documents and other
information required to be filed thereunder within the last three years were
properly filed and were in compliance with such Laws, except in any such case
for noncompliance that, individually or in the aggregate, would not reasonably
be expected to have a Parent Material Adverse Effect or prevent or materially
impair the ability of Parent or Merger Subsidiary to consummate the transactions
contemplated by this Agreement. Except as set forth in the Parent Reports filed
prior to the date hereof or on SECTION 5.10. of the Parent Disclosure Schedule
and except for routine examinations by State Regulators, no investigation or
review by any governmental entity with respect to Parent or any of its
Subsidiaries is pending or, to the
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knowledge of the Responsible Executive Officers of Parent, threatened, nor has
any governmental entity indicated an intention to conduct the same, except for
those the outcome would not, individually or in the aggregate, reasonably be
expected to have a Parent Material Adverse Effect or prevent or materially
impair the ability of Parent or Merger Subsidiary to consummate the
transactions contemplated by this Agreement. No material change is required in
Parent's or any of its Subsidiaries' processes, properties or procedures in
connection with any such Laws, and Parent has not received any notice or
communication of any material noncompliance with any such Laws that has not
been cured as of the date hereof. Parent and its Subsidiaries each has all
permits, licenses, trademarks, patents, trade names, copyrights, service marks,
franchises, variances, exemptions, orders and other governmental
authorizations, consents and approvals necessary to conduct its business as
presently conducted except those the absence of which would not, individually
or in the aggregate, have a Parent Material Adverse Effect or prevent or
materially impair the ability of Parent or Merger Subsidiary to consummate the
Merger and the other transactions contemplated by this Agreement.
5.11. ENVIRONMENTAL MATTERS.
Except as disclosed in the Parent Reports filed prior to the date hereof
or in SECTION 5.11. of the Parent Disclosure Schedule, and except for such
matters that, alone or in the aggregate, would not have a Parent Material
Adverse Effect: (a) Parent and its Subsidiaries have complied with all
applicable Environmental Laws; (b) to the knowledge of the Responsible Executive
Officers of Parent, the properties currently owned or operated by Parent
(including soils, groundwater, surface water, buildings or other structures) are
not contaminated with any Hazardous Substances and do not contain wetlands,
dumps, filled in land, PCBs, asbestos or underground storage tanks; (c) to the
knowledge of the Responsible Executive Officers of Parent, the properties
formerly owned or operated by Parent or any of its Subsidiaries were not
contaminated with Hazardous Substances during the period of ownership or
operation by Parent or any of its Subsidiaries; (d) to the knowledge of the
Responsible Executive Officers of Parent, neither Parent nor any Subsidiary is
subject to liability for any Hazardous Substance disposal or contamination on
any third party property; (e) to the knowledge of the Parent Responsible
Executive Officers, no Hazardous Substance has been transported from any of the
properties owned or operated by Parent or any of its Subsidiaries other than as
permitted under applicable Environmental Law; (f) neither Parent nor any of its
Subsidiaries has received any written notice, demand, letter, claim or request
for information from any Governmental Entity or third party indicating that
Parent or any of its Subsidiaries may be in violation of or liable under any
Environmental Law; (g) Parent and its Subsidiaries are not subject to any court
order, administrative order or decree arising under any Environmental Law and
are not subject to any indemnity or other agreement with any third party
relating to liability under any Environmental Law or relating to Hazardous
Substances; and
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(h) there are no circumstances or conditions involving Parent or any of its
Subsidiaries that could reasonably be expected to result in any material claims,
liability, investigations, costs or restrictions on the ownership, use, or
transfer of any property of Parent pursuant to any Environmental Law.
5.12. TAXES.
Except as provided in SECTION 5.12. of the Parent Disclosure Schedule:
(a) Parent and each of its Subsidiaries have (or, in the case of
returns becoming due after the date hereof and on or before the Closing Date,
will have prior to the Closing Date) timely and accurately filed all Tax Returns
which are required by all applicable laws to be filed by them, and have paid, or
made adequate provision for the payment of, all Taxes which have or may become
due and payable pursuant to said Tax Returns and all other Taxes, governmental
charges and assessments received to date other than those Taxes being contested
in good faith for which adequate provision has been made on the most recent
balance sheet included in the Parent Reports. The Tax Returns of Parent and its
Subsidiaries have been (or, in the case of returns becoming due after the date
hereof and on or before the Closing Date will be) prepared, in all material
respects, in accordance with all applicable laws consistently applied;
(b) all Taxes which Parent and its Subsidiaries are required by law to
withhold and collect have been duly withheld and collected, and have been paid
over, in a timely manner, to the proper Taxing Authorities to the extent due and
payable;
(c) no liens for Taxes exist with respect to any of the assets or
properties of Parent or its Subsidiaries, except for statutory liens for Taxes
not yet due or payable or that are being contested in good faith; and
(d) all Tax Returns have been examined by the relevant taxing
authorities, or closed without audit by applicable statutes, and all
deficiencies proposed as a result of such examinations have been paid or
settled, for all taxable years prior to and including the taxable year ended
December 31, 1993; and
(e) there is no audit, examination, deficiency, or refund litigation
pending with respect to any Taxes and during the past three years no Taxing
Authority has given written notice of the commencement of any audit,
examination, deficiency or refund litigation, with respect to any Taxes.
5.13 LABOR MATTERS.
Neither Parent nor any of its Subsidiaries is a party to or otherwise
bound by any collective bargaining agreement, contract or other agreement or
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understanding with a labor union or labor organization. There are no strikes or
work stoppages pending or, to the knowledge of the Responsible Executive
Officers of Parent, threatened with respect to the employees of Parent or any of
its Subsidiaries. There is no representation claim or petition or complaint
pending before the National Labor Relations Board or any state or local labor
agency and, to the knowledge of the Responsible Executive Officers of Parent, no
question concerning representation has been raised or threatened. No charges
with respect to or relating to the business of Parent or any its Subsidiaries
are pending before the Equal Employment Opportunity Commission, or any state or
local agency responsible for the prevention of unlawful employment practices,
which would if adversely determined have a Parent Material Adverse Effect.
5.14. INTELLECTUAL PROPERTY.
(a) Except as set forth on SECTION 5.14. of the Parent Disclosure
Schedule, Parent and/or each of its Subsidiaries owns, or is licensed or
otherwise possesses rights to use all patents, trademarks, trade names, service
marks, copyrights, and any applications therefor, technology, know-how, computer
software programs or applications, and tangible or intangible proprietary
information or materials that are used in the business of Parent and its
Subsidiaries as currently conducted, and all patents, trademarks, trade names,
service marks and copyrights held by Parent and/or its Subsidiaries are valid
and subsisting.
(b) Except as disclosed in the Parent Reports filed prior to the date
hereof or SECTION 5.14. of the Parent Disclosure Schedule:
(i) Parent is not, nor will it be as a result of the execution and
delivery of this Agreement or the performance of its obligations hereunder or as
contemplated hereby, in violation of any licenses, sublicenses and other
agreements as to which Parent is a party and pursuant to which Parent is
authorized to use any third-party patents, trademarks, service marks, and
copyrights ("Parent Third-Party Intellectual Property Rights");
(ii) no claims with respect to (A) the patents, registered and
unregistered trademarks and service marks, copyrights, trade names, and any
applications therefor owned by Parent or any its Subsidiaries (the "Parent
Intellectual Property Rights"); (B) any trade secret material to Parent; or (C)
Parent Third-Party Intellectual Property Rights are currently pending or
threatened by any Person;
(iii) (A) the sale, licensing or use of any product as now used,
sold or licensed or proposed for use, sale or license by Parent or any of its
Subsidiaries, does not infringe in any respect that would have a Parent Material
Adverse Effect on any copyright, patent, trademark, service mark or trade
secret; and (B) there are no valid grounds for any material claims against the
use by
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Parent or any of its Subsidiaries, of any material trademarks, trade names,
trade secrets, copyrights, patents, technology, know-how or computer software
programs and applications used in the business of Parent or any of its
Subsidiaries as currently conducted challenging the ownership, validity or
effectiveness of any of Parent Intellectual Property Rights or other trade
secret material to Parent or challenging the license or legally enforceable
right to use of the Parent Third-Party Intellectual Rights by Parent or any of
its Subsidiaries; and
(iv) to the knowledge of the Responsible Executive Officers of
Parent, there is no unauthorized use, infringement or misappropriation of any of
Parent Intellectual Property Rights by any third party, including any employee
or former employee of Parent or any of its Subsidiaries.
(c) SECTION 5.14. of the Parent Disclosure Schedule lists all material
(i) patents, patent applications, registered and unregistered trademarks, trade
names and service marks, registered and unregistered copyrights, and maskworks
included in the Parent Intellectual Property Rights, and (ii) licenses,
sublicenses and other agreements as to which the Parent is a party and pursuant
to which any person is authorized to use any of the Parent Intellectual Property
Rights.
5.15. TITLE TO PROPERTY.
Except as set forth in the Parent Reports or on SECTION 5.15. of the
Parent Disclosure Schedule, Parent and each of its Subsidiaries have good title
to all of their properties and assets, free and clear of all encumbrances,
except liens for taxes not yet due and payable and such encumbrances or other
imperfections of title, if any, as do not materially detract from the value of
or materially interfere with the present use of the property affected thereby or
which would not reasonably be expected to have a Parent Material Adverse Effect,
and except for encumbrances which secure indebtedness reflected in the financial
statements included in the Parent Reports.
5.16. MATERIAL CONTRACTS.
All of the material contracts of Parent and its Subsidiaries that are
required to be described in the Parent Reports or to be filed as exhibits
thereto pursuant to Item 601 of Regulation S-K promulgated by the SEC are
described in the Parent Reports or filed as exhibits thereto and are in full
force and effect. True and complete copies of all such material contracts have
been made available by Parent to the Company. Neither Parent nor any of its
Subsidiaries nor, to the knowledge of the Responsible Executive Officers of
Parent, any other party is in breach of or in default under any such contract,
except for such breaches and defaults as individually or in the aggregate have
not had and would not reasonably be expected to have a Parent Material Adverse
Effect. Neither Parent nor any of its
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Subsidiaries is party to any agreement containing any provision or covenant
limiting in any respect that would reasonably be expected to have a Parent
Material Adverse Effect the ability of Parent or any of its Subsidiaries to (a)
sell any products or services of or to any other person, (b) engage in any line
of business or (c) compete with or obtain products or services from any person
or limiting the ability of any person to provide products or services to Parent
or any of its Subsidiaries.
5.17. BROKERS AND FINDERS.
Neither Parent nor any of its executive officers, directors or employees
has employed any broker or finder or incurred any liability for any brokerage
fees, commissions or finders fees in connection with the Merger or the other
transactions contemplated in this Agreement, except that Parent has employed
J.C. Bradford as its financial advisors, the arrangements with respect to which
are set forth on SECTION 5.17. of the Parent Disclosure Schedule.
5.18. INSURANCE MATTERS.
Parent has heretofore provided the Company with true, complete and
correct copies of all material fire and casualty, general liability, business
interruption, product liability and other insurance policies maintained by
Parent and its Subsidiaries. All such policies are in full force and effect and
no event has occurred that would give any insurance carrier a right to terminate
any such policy. Neither Parent nor any of its Subsidiaries has been denied or
had any policy of insurance revoked or rescinded. All such policies are adequate
to insure against risks to which Parent and its properties are exposed in such
amounts and subject to such terms as are commercially reasonable.
5.19. ACCOUNTING AND TAX MATTERS.
(a) As of the date hereof, neither Parent nor any of its Affiliates
has taken or agreed to take any action, nor do the Responsible Executive
Officers of Parent have any knowledge of any fact or circumstance, that would
prevent Parent or the Company from accounting for the business combination to be
effected by the Merger as a "pooling-of-interests" or prevent the Merger and the
other transactions contemplated by this Agreement from qualifying as a
"reorganization" within the meaning of Section 368(a) of the Code.
(b) Parent has provided to Parent's and the Company's independent
accountants all information concerning actions taken or agreed to be taken by
Parent or any of its Affiliates on or before the date of this Agreement that
could reasonably be expected to adversely affect the ability of Parent to
account for the business combination to be effected by the Merger as a pooling
of interests.
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ARTICLE VI
COVENANTS
6.1. INTERIM OPERATIONS OF THE COMPANY.
The Company covenants and agrees as to itself and its Subsidiaries that,
after the date hereof and prior to the Effective Time (except as otherwise
expressly contemplated by this Agreement or as set forth in SECTION 6.1. of the
Company Disclosure Schedule), without the prior written consent of Parent, which
consent shall not be unreasonably withheld or delayed:
(a) its and its Subsidiaries' businesses shall be conducted in all
material respects in the ordinary and usual course;
(b) it and its Subsidiaries shall use their reasonable best efforts to
preserve intact in all material respects their present business organizations,
to keep available the services of its key officers and employees, to maintain
its assets and properties in good working order and condition, ordinary wear and
tear excepted, to maintain insurance on its tangible assets and businesses in
such amounts and against such risks and losses as are currently in effect, to
maintain existing relations and goodwill with contract parties, customers,
suppliers, distributors, creditors, lessors, employees and business associates,
and to comply in all material respects with all Laws;
(c) it shall not (i) issue, sell, pledge, dispose of or encumber any
capital stock owned by it in any of its Subsidiaries; (ii) amend its articles of
incorporation or by-laws; (iii) split, combine or reclassify its outstanding
shares of stock; (iv) authorize, declare, set aside or pay any dividend payable
in cash, stock or property in respect of any capital stock other than
intercompany transactions in the ordinary course of business consistent with
past practice; or (v) repurchase, redeem or otherwise acquire, except in
connection with any of the Company Stock Plans, or permit any of its
Subsidiaries to purchase or otherwise acquire, any shares of its stock or any
securities convertible into or exchangeable or exercisable for any shares of its
stock;
(d) neither it nor any of its Subsidiaries shall: (i) except as
permitted under SECTION 6.1.(e), issue, sell, pledge, dispose of or encumber any
(A) shares of, or securities convertible into or exchangeable or exercisable
for, or options, warrants, calls, commitments or rights of any kind to acquire
any shares of, its capital stock of any class or (B) securities convertible into
or exchangeable for any other property or assets (other than Shares issuable
pursuant to options outstanding on the date hereof under any of the Company
Stock Plans and Shares issuable upon exercise of warrants); (ii) other than in
the ordinary and usual course of business, transfer, lease, license, guarantee,
sell, mortgage, pledge, dispose of or encumber any other material property or
assets or take any action to incur or
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modify any material indebtedness; (iii) make or authorize or commit for any
capital expenditures other than in amounts less than $500,000 in the aggregate;
(iv) enter into or terminate any material contract, license or permit if such
action is not in the ordinary and usual course of business consistent with past
practices, (v) amend or modify in any materially adverse way any material
contract, license or permit, (vi) enter into any agreement with any Affiliate of
the Company if such action is not on an arm's length basis, or (vii) make any
acquisition of, or investment in, the assets or stock of any other Person or
entity (other than a Subsidiary) except for ordinary course investment
activities or as otherwise permitted by SECTION 6.1.(a);
(e) neither it nor any of its Subsidiaries shall terminate, establish,
adopt, enter into, make any new grants or awards under, amend or otherwise
modify, any Company Compensation and Benefit Plans or increase the salary, wage,
bonus or other compensation of any employees except increases for employees of
the Company occurring in the ordinary and usual course of business (which shall
be limited to, (i) regular grants of options and shares of capital stock under
the Company Stock Plans and the Directors' Compensation Plan pursuant to the
terms of such plans, the number of Company Options subject to and the recipient
of each such grant to be determined in consultation with Parent; provided that
the maximum number of Shares issuable pursuant to such options shall be
calculated in accordance with past practice and the terms of the Company Stock
Plans and shall not exceed 25,000 Shares, (ii) grants and payment of awards
under any management incentive plans in accordance with the terms of such plans,
and (iii) salary increases for those employees who have a rank of vice president
or higher in accordance with the Company's normal salary guidelines and salary
increases for other employees which do not exceed, in the aggregate, 4.0% of
their aggregate current salaries), except as necessary to comply with SECTION
6.13.(a)(i) and provided, however, that the Company reserves the right to make
payments in connection with the retention of key employees, which payments shall
not exceeed $200,000 in the aggregate (it being understood that the Company will
adjust such bonuses, to the extent reasonable, to take into account Parent's
desires to retain certain employees permanently and certain employees for a
period beyond closing);
(f) neither it nor any of its Subsidiaries shall pay, discharge,
settle or satisfy any claims, liabilities or obligations except (i) in the
ordinary course of business and consistent with past practice or (ii) ordinary
course repayment of indebtedness or payment of contractual obligations when due;
(g) neither it nor any of its Subsidiaries shall make or change any
Tax election, settle any material audit or file any material amended tax
returns;
(h) neither it nor any of its Subsidiaries shall enter into any
agreement containing any provision or covenant limiting in any material respect
the ability of the Company or any Subsidiary or affiliate to (i) sell any
products or services of or to any other person, (ii) engage in any line of
business or (iii) compete
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with or to obtain products or services from any person or limiting the ability
of any person to provide products or services to the Company or any of its
Subsidiaries or Affiliates;
(i) neither it nor any of its Subsidiaries shall take any action that
would cause any of its representations and warranties herein to become untrue in
any material respect; and
(j) neither it nor any of its Subsidiaries will authorize or enter
into an agreement to do any of the foregoing.
6.2. INTERIM OPERATIONS OF PARENT.
Parent covenants and agrees as to itself and its Subsidiaries that,
after the date hereof and prior to the Effective Time (except as otherwise
expressly contemplated by this Agreement or as set forth in SECTION 6.2. of the
Parent Disclosure Schedule), without the prior written consent of the Company,
which consent shall not be unreasonably withheld or delayed:
(a) its and its Subsidiaries' businesses shall be conducted in all
material respects in the ordinary and usual course;
(b) it and its Subsidiaries shall use their reasonable best efforts to
preserve intact in all material respects their present business organizations,
to maintain existing relations and goodwill with contract parties, customers,
suppliers, distributors, creditors, lessors, employees and business associates,
and to comply in all material respects with all Laws;
(c) it shall not (i) amend its certificate of incorporation or bylaws
in any respect that would require a shareholder vote or adversely affect the
rights of shareholders; (ii) authorize, declare, set aside or pay any dividend
payable in cash, stock or property in respect of any capital stock; or (iii)
repurchase, redeem or otherwise acquire, except in connection with any of the
Parent Stock Plans, or permit any of its Subsidiaries to purchase or otherwise
acquire, any shares of its stock or any securities convertible into or
exchangeable or exercisable for any shares of its stock;
(d) neither it nor any of its Subsidiaries shall: (i) issue, sell,
pledge, dispose of or encumber any (A) shares of, or securities convertible into
or exchangeable or exercisable for, or options, warrants, calls, commitments or
rights of any kind to acquire any shares of, its capital stock of any class or
(B) securities convertible into or exchangeable for any other property or assets
(other than shares of Parent Common Stock issuable pursuant to options
outstanding on the date hereof, or options granted in the ordinary course, under
any of the Parent Stock Plans or securities issued in any transaction or series
of transactions for consideration determined by the Board of Directors of Parent
in good faith to constitute fair market value); (ii) other than in the ordinary
and usual course of business or in any transaction or series of transactions for
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consideration determined by the Board of Directors of Parent in good faith to
constitute fair market value, transfer, lease, license, guarantee, sell,
mortgage, pledge, dispose of or encumber any other material property or assets
(including capital stock of any of its Subsidiaries) or take any action to incur
or modify any material indebtedness or other material liability; or (iii) make
any acquisition of, or investment in, the assets or stock of any other Person or
entity (other than a Subsidiary) except for ordinary course investment
activities or in any transaction or series of transactions for consideration
determined by the Board of Directors of Parent in good faith to constitute fair
market value, or as otherwise permitted by SECTION 6.2.(a);
(e) neither it nor any of its Subsidiaries shall take any action that
would cause any of its representations and warranties herein to become untrue in
any material respect; and
(f) neither it nor any of its Subsidiaries will authorize or enter
into an agreement to do any of the foregoing.
6.3. INTERIM OPERATIONS OF MERGER SUBSIDIARY.
During the period from the date of this Agreement to the Effective Time,
Merger Subsidiary shall not engage in any activities of any nature except as
provided in or contemplated by this Agreement.
6.4. ACQUISITION PROPOSALS.
From the date hereof until the termination hereof and except as
expressly permitted by the following provisions of this SECTION 6.4., the
Company shall not, and the Company shall not authorize or permit any officer,
director or employee of, or any financial advisor, attorney, accountant or other
advisor or representative retained by, the Company to, solicit, initiate,
encourage (including by way of furnishing information), endorse or enter into
any agreement with respect to, or take any other action to knowingly facilitate,
any inquiries or the making of any proposal that constitutes, or may reasonably
be expected to lead to, any Acquisition Proposal (as hereafter defined). The
Company shall as soon as reasonably practicable advise Parent of any Acquisition
Proposal or any inquiries or discussions with respect thereto, including the
name of the proposed acquiror and the material terms of the Acquisition
Proposal. Subject to the rights of the Company under ARTICLE VIII of this
Agreement, neither the Board of Directors of the Company nor any committee
thereof shall (a) withdraw or modify, or propose to withdraw or modify, in a
manner adverse to Parent the approval or recommendation by the Board of
Directors of the Company of the Merger or this Agreement or (b) approve or
recommend, or propose to approve or recommend, any
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Acquisition Proposal other than pursuant to the Merger or this Agreement.
Notwithstanding the foregoing, nothing contained in this Agreement shall prevent
the Board of Directors of the Company from (i) furnishing information to or
entering into discussions or negotiations with any person or entity if and only
to the extent that the Board of Directors of the Company shall have determined
in good faith that such action is required in the exercise of its fiduciary
duties, based upon the advice of outside counsel, (ii) complying with Rules
14d-9 and 14e-2 promulgated under the Exchange Act, (iii) making any disclosure
to the Company's stockholders if the Board of Directors shall have determined,
after consultation with outside counsel, that failure to make such disclosures
would be inconsistent with applicable law or regulation of any national
securities exchange or interdealer quotation system or (iv) withdrawing or
modifying its approval or recommendation of the Merger or this Agreement, if and
only to the extent that the Board of Directors of the Company shall have
determined in good faith that such action is required in the exercise of its
fiduciary duties, based upon the advice of outside counsel. The Company will as
soon as reasonably practicable notify Parent if any such inquiries or proposals
are received by, any such information is requested from, or any such
negotiations or discussions are sought to be initiated or continued with the
Company and inform Parent of the status of any such Acquisition Proposal from
time to time. As used in this Agreement, "Acquisition Proposal" shall mean any
tender or exchange offer, or proposal, other than a proposal by Parent or any of
its affiliates, for a merger, share exchange or other business combination
involving the Company or any proposal or offer to acquire in any manner a
substantial equity interest in the Company or a substantial portion of the
assets of the Company.
6.5. INFORMATION SUPPLIED.
Each of the Company and Parent agree, as to itself and its Subsidiaries,
that none of the information supplied or to be supplied by it or its
Subsidiaries for inclusion or incorporation by reference in (a) the Registration
Statement on Form S-4 to be filed with the SEC by Parent in connection with the
issuance of shares of Parent Common Stock in the Merger (including the joint
proxy statement and prospectus (the "Prospectus/Proxy Statement") constituting a
part thereof) (the "S-4 Registration Statement") will, at the time the S-4
Registration Statement becomes effective under the Securities Act, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, not
misleading, and (b) the Prospectus/Proxy Statement and any amendment or
supplement thereto will, at the date of mailing to stockholders and at the times
of the meetings of stockholders of the Company and Parent to be held in
connection with the Merger, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading.
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6.6. STOCKHOLDER MEETINGS.
The Company will take, in accordance with its articles of incorporation
and bylaws, all action necessary to convene a meeting of holders of Shares (the
"Stockholders Meeting"), to be held as promptly as practicable after the S-4
Registration Statement is declared effective, to consider and vote upon the
approval of the Merger, and the Company's board of directors, subject to
fiduciary obligations under applicable law as referred to in SECTION 6.4., will
recommend such approval by its stockholders, will not withdraw or modify such
recommendation and shall take all lawful action to solicit such approval. Parent
will take, in accordance with its certificate of incorporation and bylaws, all
action necessary to convene a meeting of holders of Parent Common Stock (the
"Parent Stockholders Meeting"), to be held as promptly as practicable after the
S-4 Registration Statement is declared effective, to consider and vote upon the
approval of the issuance of Parent Common Stock in the Merger, and Parent's
board of directors, subject to fiduciary obligations under applicable law, will
recommend such approval by its stockholders, will not withdraw or modify such
recommendation and will take all lawful action to solicit such approval.
6.7. FILINGS; OTHER ACTIONS; NOTIFICATION.
(a) Parent and the Company shall promptly prepare and file with the
SEC the Prospectus/Proxy Statement, and Parent shall prepare and file with the
SEC the S-4 Registration Statement as promptly as practicable. Parent and the
Company each shall use its reasonable best efforts to have the S-4 Registration
Statement declared effective under the Securities Act as promptly as practicable
after such filing, and promptly thereafter mail the Prospectus/Proxy Statement
to the respective stockholders of each of the Company and Parent. Parent shall
also use its reasonable best efforts to obtain prior to the effective date of
the S-4 Registration Statement all necessary state securities law or "blue sky"
permits and approvals required in connection with the Merger and to consummate
the other transactions contemplated by this Agreement and will pay all expenses
incident thereto.
(b) The Company and Parent each shall use all reasonable efforts to
cause to be delivered to the other party and its directors a letter of its
independent auditors, dated (i) the date on which the S-4 Registration Statement
shall become effective and (ii) the Closing Date, and addressed to the other
party and its directors, in form and substance customary for "comfort" letters
delivered by independent public accountants in connection with registration
statements similar to the S-4 Registration Statement.
(c) The Company and Parent each shall from the date hereof until the
Effective Time cooperate with the other and use (and shall cause their
respective Subsidiaries to use) its reasonable best efforts to cause to be done
all
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things necessary, proper or advisable on its part under this Agreement and
applicable Laws to consummate and make effective the Merger and the other
transactions contemplated by this Agreement as soon as practicable, including
preparing and filing as promptly as practicable all documentation to effect all
necessary notices, reports and other filings and to obtain as promptly as
practicable all consents, registrations, approvals, permits and authorizations
necessary or advisable to be obtained from any third party and/or any
governmental entity in order to consummate the Merger or any of the other
transactions contemplated by this Agreement.
(d) The Company and Parent each shall, upon request by the other,
furnish the other with all information concerning itself, its Subsidiaries,
directors, executive officers and stockholders and such other matters as may be
reasonably necessary or advisable in connection with the Prospectus/Proxy
Statement, the S-4 Registration Statement or any other statement, filing, notice
or application made by or on behalf of Parent, the Company or any of their
respective Subsidiaries to any third party and/or any governmental entity in
connection with the Merger and the transactions contemplated by this Agreement.
(e) The Company and Parent each shall keep the other apprised of the
status of matters relating to completion of the transactions contemplated
hereby, including promptly furnishing the other with copies of notice or other
communications received by Parent or the Company, as the case may be, or any of
its Subsidiaries, from any third party and/or any governmental entity with
respect to the Merger and the other transactions contemplated by this Agreement.
The Company and Parent each shall give prompt notice to the other of any change
that is reasonably likely to result in a Company Material Adverse Effect or
Parent Material Adverse Effect, respectively.
6.8. TAXATION AND ACCOUNTING.
(a) Neither Parent nor the Company shall, nor shall they permit either
of their respective Subsidiaries or Affiliates to, take or cause to be taken any
action, whether before or after the Effective Time, that would disqualify the
Merger as a "pooling of interests" for accounting purposes or as a
"reorganization" within the meaning of Section 368(a) of the Code. Each of
Parent and the Company agrees to use its reasonable best efforts to cure any
impediment to the qualification of the Merger as a "pooling of interests" for
accounting purposes or as a "reorganization" within the meaning of Section
368(a) of the Code.
(b) The Company shall instruct its accountants, Arthur Andersen LLP,
to deliver and shall use its reasonable best efforts to cause such accountants
to deliver to Parent letters dated as of the Closing Date, addressed to Parent,
containing both (i) its concurrence with the conclusion of the Company's
management that no conditions exist with respect to the Company that would
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preclude accounting for the Merger as a "pooling of interests," which letter
shall be in customary form; and (ii) such matters as are customarily contained
in auditors' letters regarding information about the Company included in the
Proxy/Registration Statement, which auditors' letters shall be in form and
substance reasonably satisfactory to Parent. Parent shall use its reasonable
best efforts to cause its accountants, Grant Thornton LLP, to deliver to the
Company letters at such times to the effect that Parent satisfies the tests
applicable to it such that the Merger can be accounted for as a "pooling of
interests", which letter shall be in customary form.
(c) Parent shall use its reasonable best efforts to publish combined
financial statements of Parent and the Company for the 30 day period immediately
following Closing as soon as practicable after the completion of such 30 day
period.
(d) The Company shall prepare and file the consolidated Federal income
tax return for the tax year ended June 30, 1998, for the affiliated group of
which the Company is the common parent corporation, prior to the Closing Date
and in a manner consistent (including elections and accounting methods and
conventions) with such return for the prior tax year, except as otherwise
required by applicable law or agreed to by the Parent, and shall provide Parent
with a copy of such return prior to the filing of such return.
6.9. ACCESS.
Upon reasonable notice, and except as may otherwise be required by
applicable law, the Company and Parent each shall (and shall cause its
Subsidiaries to) afford the other's executive officers, employees, counsel,
accountants and other authorized representatives ("Representatives") access,
during normal business hours throughout the period prior to the Effective Time,
to its properties, books, contracts and records and, during such period, each
shall (and shall cause its Subsidiaries to) furnish promptly to the other all
information concerning its business, properties and personnel as may reasonably
be requested, provided that no investigation pursuant to this Section shall
affect or be deemed to modify any representation or warranty made by the
Company, Parent or Merger Subsidiary, and provided, further, that the foregoing
shall not require the Company or Parent to permit any inspection, or to disclose
any information, that (i) in the reasonable judgment of the Company or Parent,
as the case may be, would result in the disclosure of any trade secrets of third
parties or violate any of its obligations with respect to confidentiality if the
Company or Parent, as the case may be, shall have used all reasonable efforts to
obtain the consent of such third party to such inspection or disclosure or (ii)
would violate any attorney-client privilege of the Company or Parent, as the
case may be. All requests for information made pursuant to this SECTION 6.9.
shall be directed to such Person as may be designated by the Company and Parent,
as the case may be, pursuant to SECTION 9.6. hereof.
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All such information shall be governed by the terms of the Confidentiality
Agreement (as hereinafter defined).
6.10. AFFILIATES.
(a) Attached hereto as EXHIBIT A-1 is a list of names and addresses of
those Persons who are, in the opinion of the Company (after consultation with
outside legal counsel), "Affiliates" of the Company within the meaning of Rule
145 under the Securities Act and for the purposes of applicable interpretations
regarding the pooling-of-interests method of accounting. The Company shall
exercise its best efforts to deliver or cause to be delivered to Parent, at
least 35 days prior to the Effective Time, from each affiliate of the Company
identified in the foregoing list, a letter in the form attached as EXHIBIT A-2
(the "Company Affiliates Letter"). The certificates representing Parent Common
Stock received by such Affiliates shall bear a customary legend regarding
applicable Securities Act restrictions and "pooling restrictions."
(b) At least 35 days prior to the Effective Time, Parent shall deliver
to the Company a list of names and addresses of those Persons who are, in the
opinion of Parent (after consultation with outside legal counsel), "Affiliates"
of Parent for the purposes of applicable interpretations regarding the
pooling-of-interests method of accounting. Parent shall exercise its best
efforts to deliver or cause to be delivered to the Company, at least 35 days
prior to the Effective Time, from each Affiliate of Parent identified in the
foregoing list, a letter in the form attached as EXHIBIT A-3 (the "Parent
Affiliates Letter").
6.11 STOCK EXCHANGE LISTING.
Parent shall use its best efforts to cause the shares of Parent Common
Stock to be issued in the Merger to be approved for listing on the NASDAQ
subject to official notice of issuance, prior to the Closing Date.
6.12. PUBLICITY.
The Company and Parent shall consult with each other prior to issuing,
and will provide each other with a meaningful opportunity to review, comment
upon and concur with, any press releases or otherwise making public
announcements with respect to the Merger and the other transactions contemplated
by this Agreement, and prior to making any filings with any third party and/or
any governmental entity with respect thereto, except as may be required by law,
court process or by obligations pursuant to any listing agreement with or rules
of any national securities exchange or interdealer quotation service.
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6.13. BENEFITS.
(a) Stock Options.
(i) At the Effective Time, each Company Option whether vested or
unvested, without any action on the part of the holder, shall be deemed to
constitute an option to acquire, on the same terms and conditions as were
applicable under such Company Option, a number of shares of Parent Common Stock
equivalent to (A) the number of Shares that could have been purchased
immediately prior to the Effective Time under such Company Option multiplied by
(B) the Exchange Ratio (rounded down to the nearest whole number), at a price
per share of Parent Common Stock (rounded up to the nearest whole cent) equal to
the exercise price per share pursuant to such Company Option immediately prior
to the Effective Time divided by the Exchange Ratio; provided, however, that the
foregoing provisions shall be subject to such adjustments as are necessary in
order to satisfy the requirements of Section 424(a) of the Code in the case of
any Company Option to which Section 422 of the Code applies. At or prior to the
Effective Time, the Company shall make all necessary arrangements with respect
to the Company Stock Plans to permit the assumption of the unexercised Company
Options by Parent pursuant to this SECTION 6.13.
(ii) Effective at the Effective Time, Parent shall assume each
Company Option in accordance with the terms of the relevant Company Stock Plan
under which it was issued and the stock option agreement by which it is
evidenced. At or prior to the Effective Time, Parent shall take all corporate
action necessary to reserve for issuance a sufficient number of shares of Parent
Common Stock for delivery upon exercise of Company Options assumed by it in
accordance with this Section. As soon as practicable, and in no event later than
10 days after the Effective Time, Parent shall file a registration statement on
Form S-8, (or any successor or other appropriate forms) (or shall cause such
Company Option to be deemed to be issued pursuant to a Parent Stock Plan for
which shares of Parent Common Stock have previously been registered pursuant to
an appropriate registration form) with respect to Parent Common Stock subject to
such Company Options.
(b) Employee Benefits. Subject to this Section 6.13.(b), Parent agrees
that all employees of the Company and its Subsidiaries who are provided with
benefits under employee benefit plans of the Company (other than plans involving
the issuance of Shares) (the "Company Benefit Plans") shall continue to be
covered under the Company Benefit Plans after the Effective Time.
Notwithstanding the foregoing, Parent may terminate all of the Company Benefit
Plans, provided that: (i) each Company employee and each employee of the
Company's Subsidiaries is provided coverage under Parent employee benefit plans
(other than plans involving the issuance of shares) (the "Parent Benefit Plans")
on the same terms and conditions as similarly situated Parent employees; (ii)
Parent
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causes each Parent Benefit Plan covering employees of the Company or its
Subsidiaries to recognize prior service and accrued vacation of such employees
with the Company or its Subsidiaries as service and accrued vacation with Parent
and its Subsidiaries (A) for purposes of any waiting period, eligibility
requirements and benefit accruals under any Parent Benefit Plan that is not a
"pension plan" (as defined in Section 3(2) of ERISA), and (B) for purposes of
eligibility (including eligibility for early retirement benefits) and vesting
(but not benefit accrual) under any Parent Benefit Plan that is a "pension plan"
(as defined in Section 3(2) of ERISA); (iii) Parent causes coverage to be
immediately available for employees of the Company and its Subsidiaries under
the comparable Parent Benefit Plan, if any, at the time coverage ceases under
any Company Benefit Plan sought to be terminated; and (iv) to the extent Parent
elects to terminate any Company Benefit Plan, it will terminate the other
Company Benefit Plans in accordance herewith as soon as practicable after the
termination of such Company Benefit Plan. Notwithstanding the foregoing, nothing
herein shall require Parent to offer benefits under the Parent Benefit Plans
comparable to those offered under the Company Benefit Plans. Following the
Effective Time, Parent shall honor, or shall cause the Surviving Company to
honor, all individual employment or severance agreements in effect for employees
(or former employees) of the Company as of the date hereof to the extent that
such individual agreements are listed in SECTION 4.14.(b) of the Company
Disclosure Schedule; provided, however, that nothing contained herein shall
prevent Parent from amending or terminating any such agreement in accordance
with its terms.
6.14. EXPENSES.
Except as otherwise provided in SECTION 8.2.(b), whether or not the
Merger is consummated, all costs and expenses incurred in connection with this
Agreement, and the Merger and the other transactions contemplated hereby and
thereby shall be paid by the party incurring such expense, except that expenses
incurred in connection with the filing fee for the S-4 Registration Statement
and printing and mailing the Prospectus/Proxy Statement shall be divided equally
between Parent and the Company.
6.15. INDEMNIFICATION; DIRECTORS' AND OFFICERS' INSURANCE.
(a) From and after the Effective Time for a period of six years,
Parent agrees that it will indemnify and hold harmless each present and former
director and officer of the Company, (when acting in such capacity) determined
as of the Effective Time (each, an Indemnified Party and, collectively, the
"Indemnified Parties"), against any costs or expenses (including reasonable
attorneys' fees and expenses), judgments, fines, losses, amounts paid in
settlement claims, damages or liabilities (collectively, "Costs") incurred in
connection with any claim, action, suit, proceeding or investigation, actual or
threatened, whether civil, criminal,
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administrative or investigative, in whole or in part based on or arising in
whole or in part out of matters existing or occurring at or prior to the
Effective Time, whether asserted or claimed prior to, at or after the Effective
Time, to the fullest extent that the Company would have been permitted under
Maryland law and its articles of incorporation or bylaws in effect on the date
hereof to indemnify such Person (and Parent shall also advance expenses as
incurred to the fullest extent permitted under applicable law provided the
Person to whom expenses are advanced provides (i) a written affirmation of his
or her good faith belief that the standard of conduct necessary for
indemnification has been met, and (ii) an undertaking to repay such advances if
it is ultimately determined that such Person is not entitled to
indemnification).
(b) Parent shall cause to be maintained, for a period of not less than
six years from the Effective Time, the Company's current directors' and
officers' liability insurance policy to the extent that it provides coverage for
events occurring prior to the Effective Time (the "D&O Insurance") for all
present and former directors and officers of the Company or any subsidiary
thereof, so long as the annual premium therefor would not be in excess of 150%
of the last annual premium paid for the D&O Insurance prior to the date of this
Agreement (150% of such premium, the "Maximum Premium"); provided that Parent
may, in lieu of maintaining such existing D&O Insurance as provided above, cause
no less favorable coverage to be provided under any policy maintained for the
benefit of the directors and officers of Parent or a separate policy provided by
the same insurer. If the existing D&O Insurance expires, is terminated or
canceled by the insurer or if the annual premium would exceed the Maximum
Premium during such period, Parent shall obtain, in lieu of such D&O Insurance,
such comparable directors' and officers' liability insurance as can be obtained
for the remainder of such period for an annualized premium not in excess of the
Maximum Premium and on terms and conditions no less advantageous than the
existing D&O Insurance.
(c) The provisions of this Section are in addition to the rights that
an Indemnified Party may have under the articles of incorporation, bylaws or
agreements of or with the Company or any of its Subsidiaries or under applicable
law. Parent agrees to pay all costs and expenses (including fees and expenses of
counsel) that may be incurred by any Indemnified Party in successfully enforcing
the indemnity or other obligations under this Section. The provisions of this
Section shall survive the Merger and are intended to be for the benefit of, and
shall be enforceable by, each of the Indemnified Parties, their heirs and their
representatives.
6.16. ELECTION TO PARENT'S BOARD OF DIRECTORS.
Promptly after the Effective Time of the Merger, Parent shall cause one
person designated prior to the Effective Time by the Company with Parent's
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consent (not to be unreasonably withheld) to be appointed to the Parent Board of
Directors.
6.17. TAKEOVER STATUTE.
If any Takeover Statute is or may become applicable to the Merger or the
other transactions contemplated by this Agreement, each of Parent and the
Company and its board of directors shall grant such approvals and take such
actions as are necessary so that such transactions may be consummated as
promptly as practicable on the terms contemplated by this Agreement or by the
Merger and otherwise act to eliminate or minimize the effects of such statute or
regulation on such transactions.
6.18. DEBENTURES.
At the Effective Time, Parent shall execute and deliver (a) an Amendment
to the Company's Indenture dated as of October 15, 1996 to the Chase Manhattan
Bank, as Trustee, acknowledging the Parent's obligation to issue Parent Common
Stock to the holders of the Debentures not electing redemption of their
Debentures on the Holder Redemption Date (as defined therein) and (b) an
Amendment to the Company's Fiscal and Paying Agency Agreement dated as of
January 29, 1996 to the Chase Manhattan Bank, as Fiscal Agent, acknowledging the
Parent's obligation to issue Parent Common Stock to the holders of the
Debentures not electing redemption of their Debentures on the Holder Redemption
Date (as defined therein).
6.19. INSURANCE.
The Company shall cooperate with the Parent and the Company's insurers
to arrange for the purchase, prior to the Effective Time, of tail period
insurance coverage for the benefit of the Surviving Corporation.
ARTICLE VII
CONDITIONS
7.1. CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER.
The respective obligation of each party to effect the Merger is subject
to the satisfaction or waiver at or prior to the Effective Time of each of the
following conditions:
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(a) Stockholder Approval. The Merger shall have been duly approved by
holders of Shares constituting the Company Requisite Vote and shall have been
duly approved by the sole member of Merger Subsidiary in accordance with
applicable law, and the issuance of Parent Common Stock pursuant to the Merger
shall have been duly approved by the holders of Parent Common Stock constituting
the Parent Requisite Vote.
(b) NASDAQ Listing. The shares of Parent Common Stock issuable to the
Company stockholders pursuant to this Agreement shall have been authorized for
listing on the NASDAQ upon official notice of issuance.
(c) Regulatory Consents. The waiting period applicable to the
consummation of the Merger under the HSR Act shall have expired or been
terminated. Other than the filing provided for in SECTION 1.3., all other
notices, reports and other filings required to be made prior to the Effective
Time by the Company or Parent or any of their respective Subsidiaries with, and
all consents, registrations, approvals, permits and authorizations required to
be obtained prior to the Effective Time by the Company or Parent or any of their
respective Subsidiaries from, any governmental entity (collectively,
"Governmental Consents"), in connection with the execution and delivery of this
Agreement and the consummation of the Merger and the other transactions
contemplated by this Agreement shall have been made or obtained, except where
the failure to make any such filings or obtain any such Governmental Consents
would not have a material adverse effect on either Parent, the Company and their
respective Subsidiaries in all jurisdictions requiring such filings or
Governmental Consents in the event such filings are not made or such Consents
are not obtained.
(d) Litigation. No court or governmental entity of competent
jurisdiction shall have enacted, issued, promulgated, enforced or entered any
law, statute, ordinance, rule, regulation, judgment, decree, injunction or other
order (whether temporary, preliminary or permanent) that is in effect and
restrains, enjoins or otherwise prohibits consummation of the Merger
(collectively, an "Order") and no governmental entity shall have instituted any
proceeding which continues to be pending seeking any such Order.
(e) S-4. The S-4 Registration Statement shall have become effective
under the Securities Act. No stop order suspending the effectiveness of the S-4
Registration Statement shall have been issued, and no proceeding for that
purpose shall have been initiated or be threatened, by the SEC.
(f) Company Fairness Opinion. The Company shall have received an
opinion from SunTrust Equitable Securities, its financial advisor, dated as of
the date of the mailing to stockholders of the Company of the Prospectus/Proxy
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Statement included within the S-4 Registration Statement confirming the opinion
referred to in SECTION 4.4(b) hereof.
(g) Parent Fairness Opinion. Parent shall have received an opinion
from J.C. Bradford, its financial advisor, dated as of the date of the mailing
to stockholders of Parent of the Prospectus/Proxy Statement included in the S-4
Registration Statement, to the effect that, as of the date of such opinion, the
Exchange Ratio is fair from a financial point of view to the Parent's
stockholders.
7.2. CONDITIONS TO OBLIGATIONS OF PARENT AND MERGER SUBSIDIARY.
The obligations of Parent and Merger Subsidiary to effect the Merger are
also subject to the satisfaction or waiver by Parent at or prior to the
Effective Time of the following conditions:
(a) Representations and Warranties. (i) Except as provided in (ii)
below, the representations and warranties of the Company set forth in this
Agreement that are qualified as to materiality shall be true and correct as of
the Closing Date and those not so qualified by materiality shall be true and
correct in all material respects as of the Closing Date; and (ii) the
representations and warranties of the Company set forth in this Agreement made
as of a specified date earlier than the Closing Date shall be true and correct
as of such date, except as affected by the transactions contemplated by this
Agreement; and Parent shall have received a certificate signed on behalf of the
Company by an executive officer of the Company to the effect stated in the
foregoing clauses (i) and (ii).
(b) Performance of Obligations of the Company. The Company shall have
performed in all material respects all obligations required to be performed by
it under this Agreement at or prior to the Closing Date, and Parent shall have
received a certificate signed on behalf of the Company by an executive officer
of the Company to such effect.
(c) There shall have been no changes that have had or are reasonably
likely to have a Company Material Adverse Effect since the date of this
Agreement, except for changes contemplated by this Agreement.
(d) Consents. The Company shall have obtained all Private Consents
referred to in Section 4.5.(b).
(e) Tax Opinion. Parent shall have received the opinion of Epstein
Becker & Green, P.C., counsel to Parent, in the form of EXHIBIT B dated the
Closing Date, to the effect that the Merger will not result in taxation to the
Parent or the Merger Subsidiary under the Code. In rendering such opinion,
Epstein Becker &
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Green, P.C. shall require delivery of and rely upon the representations letters
delivered by Parent, Merger Subsidiary and the Company substantially in the
forms of EXHIBIT C and EXHIBIT D hereto.
(f) Pooling Letters; Accountant Letters. Parent shall have received
(i) at least 35 days prior to the Effective Time, the Company Affiliates Letters
from all persons identified on EXHIBIT A-1 and any other person who Parent
reasonably believes to be an affiliate of the Company and (ii) Parent shall have
received, in form and substance reasonably satisfactory to Parent, from Arthur
Andersen LLP, the Company's accountants (or its successor) and Grant Thornton
LLP, the Parent's accountants (or its successor) favorable letters dated the
Closing Date, regarding the appropriateness of "pooling-of-interests" accounting
treatment for the Merger.
(g) Comfort Letters. Parent shall have received letters from Arthur
Andersen LLP dated as of the effective date of the S-4 Registration Statement
and as of the Closing Date, in each case addressed to Parent containing such
matters as are customarily contained in auditors' letters regarding the Company
financial information provided expressly for inclusion in such S-4 Registration
Statement, in form and substance reasonably satisfactory to Parent.
(h) Audited Nine Month Financial Statements. Parent shall have
received a copy of an audited consolidated balance sheet of the Company dated as
of September 30, 1998 and the audited consolidated statement of income and cash
flows of the Company for the nine-month period then ended, accompanied by the
related report of Arthur Andersen LLP to the Company.
7.3. CONDITIONS TO OBLIGATION OF THE COMPANY.
The obligation of the Company to effect the Merger is also subject to
the satisfaction or waiver by the Company at or prior to the Effective Time of
the following conditions:
(a) Representations and Warranties. (i) Except as provided in (ii)
below, the representations and warranties of Parent set forth in this Agreement
that are qualified as to materiality shall be true and correct as of the Closing
Date and those not so qualified by materiality shall be true and correct in all
material respects as of the Closing Date; and (ii) the representations and
warranties of Parent set forth in this Agreement made as of a specified date
earlier than the Closing Date shall be true and correct as of such date, except
as affected by the transactions contemplated by this Agreement; and the Company
shall have received a certificate signed on behalf of Parent by an executive
officer of Parent and on behalf of Merger Subsidiary by an executive officer of
Merger Subsidiary to the effect stated in the foregoing clauses (i) and (ii).
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(b) Performance of Obligations of Parent and Merger Subsidiary. Each
of Parent and Merger Subsidiary shall have performed in all material respects
all obligations required to be performed by it under this Agreement at or prior
to the Closing Date, and the Company shall have received a certificate signed on
behalf of Parent by an executive officer of Parent and on behalf of Merger
Subsidiary by an executive officer of Merger Subsidiary to such effect.
(c) There shall have been no changes that have had or are reasonably
likely to have a Parent Material Adverse Effect since the date of this
Agreement, except for changes contemplated by this Agreement.
(d) Consents Under Agreements. Parent shall have obtained the consent
or approval of each Person whose consent or approval shall be required in order
to consummate the transactions contemplated by this Agreement under any Contract
to which Parent or any of its Subsidiaries is a party, except those for which
failure to obtain such consents and approvals, individually or in the aggregate,
is not reasonably likely to have a Parent Material Adverse Effect or is not
reasonably likely to prevent or to materially burden or materially impair the
ability of Parent to consummate the transactions contemplated by this Agreement.
(d) Tax Opinion. The Company shall have received the opinion of Hogan
& Hartson L.L.P., counsel to the Company, in the form of EXHIBIT E, dated the
Closing Date, to the effect that neither the Company nor the holders of Shares
will recognize income for federal income tax purposes as a result of the Merger.
In rendering such opinion, Hogan & Hartson L.L.P. shall require delivery of and
rely upon the representations letters delivered by Parent, Merger Subsidiary and
the Company substantially in the forms of EXHIBIT C and EXHIBIT D hereto.
(e) Accountant Letters. The Company shall have received, in form and
substance reasonably satisfactory to the Company, from Arthur Andersen LLP, the
Company's accountants (or its successor) and Grant Thornton LLP, the Parent's
accountants (or its successor) favorable letters dated the Closing Date,
regarding the appropriateness of "pooling-of-interests" accounting treatment for
the Merger.
ARTICLE VIII
TERMINATION
8.1. METHOD OF TERMINATION.
This Agreement may be terminated or abandoned only as follows:
(a) By the mutual consent of Company and Parent, notwithstanding prior
approval by the stockholders of any or all of such corporations;
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(b) By Company or Parent if the other party shall have failed to
comply in any material respect with any of its covenants or agreements contained
in this Agreement required to be complied with prior to the date of such
termination (in the case of Parent, including any failure to comply by Merger
Subsidiary), which failure to comply has not been cured within thirty (30)
business days following receipt by such party of written notice from the
non-breaching party of such failure to comply;
(c) By Company or Parent if there has been (i) a breach by the other
party (in the case of Parent, including any material breach by Merger
Subsidiary) or any representation or warranty that is not qualified by
materiality which has the effect of making such representation or warranty not
true and correct in all material respects or (ii) a breach by the other party
(in the case of Parent, including any material breach by Merger Subsidiary) of
any representation or warranty that is qualified as to materiality, in each case
which breach has not been cured within thirty (30) business days following
receipt by the breaching party from the non-breaching party of written notice of
the breach;
(d) By Company after January 31, 1999, if any of the conditions set
forth in ARTICLE VII hereof, to which the Company's obligations are subject,
have not been fulfilled or waived, unless such fulfillment has been frustrated
or made impossible by any act or failure to act of the Company;
(e) By Parent after January 31, 1999, if any of the conditions set
forth in ARTICLE VII hereof, to which the Parent and the Merger Subsidiary are
subject, have not been fulfilled or waived, unless such fulfillment has been
frustrated or made impossible by any act or failure to act of Parent or the
Merger Subsidiary;
(f) By Parent or the Company if holders of Shares constituting the
Company Requisite Vote do not approve the Merger at the Stockholders Meeting,
(provided that the Company may not terminate this Agreement under this SECTION
8.1.(f) if the Company is in breach of SECTION 6.6.);
(g) By Parent or the Company if holders of shares of Parent Common
Stock constituting the Parent Requisite Vote do not approve the issuance of
shares of Parent Common Stock at the Parent stockholders meeting called for that
purpose (provided that Parent may not terminate this Agreement under this
SECTION 8.1.(g) if Parent is in breach of SECTION 6.6.);
(h) By the Company or Parent if a court or governmental entity of
competent jurisdiction institutes an Order prohibiting the consummation of the
transactions contemplated by this Agreement, provided that the order is not the
result of an action or proceeding instituted by the terminating party;
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(i) By the Company if in the exercise of its good faith determination,
as set forth in SECTION 6.4., as to its fiduciary duties to the Company's
stockholders imposed by law, the Board of Directors of the Company decides that
such termination is required;
(j) By Parent if the Board of Directors of the Company shall have
withdrawn or modified in any manner adverse to Parent its approval or
recommendation of the Merger or this Agreement; and
(k) By the Company if the Board of Directors of Parent shall have
withdrawn or modified in any manner adverse to Company its approval or
recommendation of the issuance of Parent Common Stock in the Merger.
8.2. EFFECT OF TERMINATION.
(a) Except as provided in SECTIONS 6.14. and 8.2.(b), and except as
provided in the immediately succeeding sentence, in the event of a termination
of this Agreement pursuant to SECTION 8.1. hereof, each party shall pay the
costs and expenses incurred by it in connection with this Agreement, and no
party (or any of its officers, directors, employees, agents, representatives or
stockholders) shall be liable to any other party for any costs, expenses, damage
or loss of anticipated profits hereunder. Subject to SECTION 8.2.(b) hereof, in
the event of any termination of this Agreement, all provisions of this Agreement
except for SECTION 6.14. and this SECTION 8.2. shall forthwith become void and
have no effect, without any liability hereunder on the part of any party or its
directors, officers or stockholders, provided, however, that nothing in this
SECTION 8.2. shall relieve any party to this Agreement of liability for any
willful or intentional breach of this Agreement.
(b) In the event this Agreement is terminated by the Company in
accordance with SECTION 8.1.(i) or by Parent in accordance with SECTION 8.1.(j)
(but in any case only if (i) an Acquisition Proposal is made by a third party
prior to the date of termination and the Board of Directors of the Company
determines to recommend such Acquisition Proposal, or (ii) this Agreement is
terminated following a withdrawl or modification of approval or recommendation
of the Merger or this Agreement by the Board of Directors of the Company if such
withdrawl or modification is due primarily to a decline in the market price of
the Parent Common Stock prior to the Effective Time and the Company within 12
months thereafter enters into an agreement with a third party regarding an
Acquisition Proposal), the Company shall promptly pay (i) all reasonable costs
and expenses of Parent and Merger Subsidiary incurred in connection with the
negotiation and performance of this Agreement including without limitation fees
and expenses of counsel, fees and expenses of independent public accountants,
printing expenses and registration fees, in an amount not to exceed $500,000 and
(ii) to Parent a fee in the amount of
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$1,500,000. In the case of any termination of this Agreement triggering payment
of the amounts specified in the preceding sentence and provided the Company has
not breached any of the covenants provided for in SECTION 6.4. OR 6.6. hereof,
payment of the amount specified in the preceding sentence shall constitute
liquidated damages and shall be the sole and exclusive remedy of Parent and the
Merger Subsidiary for any and all damages arising under or in connection with
this Agreement, and, upon payment of the amount specified in the preceding
sentence, neither the Company nor any officers, directors, employees, agents,
representatives or stockholders of the Company shall have any liability or
further obligation to the Parent or the Merger Subsidiary under or in connection
with this Agreement or any such termination hereof.
ARTICLE IX
MISCELLANEOUS AND GENERAL
9.1. SURVIVAL.
This ARTICLE IX and the agreements of the Company, Parent and Merger
Subsidiary contained in SECTIONS 6.8. (Taxation and Accounting), SECTIONS 6.13.
(Benefits), 6.15. (Indemnification; Directors' and Officers' Insurance) 6.16.
(Election to Parent's Board of Directors) and 6.18. (Debentures) shall survive
the consummation of the Merger. This ARTICLE IX and the agreements of the
Company, Parent and Merger Subsidiary contained in SECTIONS 6.14. (Expenses),
and SECTION 8.2. (Effect of Termination) shall survive the termination of this
Agreement. All other representations, warranties, covenants and agreements in
this Agreement shall not survive the consummation of the Merger or the
termination of this Agreement.
9.2. MODIFICATION OR AMENDMENT.
Subject to the provisions of the applicable law, at any time prior to
the Effective Time, the parties hereto may modify or amend this Agreement, by
written agreement executed and delivered by duly authorized officers of the
respective parties.
9.3. WAIVER OF CONDITIONS.
The conditions to each of the parties' obligations to consummate the
Merger are for the sole benefit of such party and may be waived by such party in
whole or in part to the extent permitted by applicable law.
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9.4. COUNTERPARTS.
This Agreement may be executed in any number of counterparts, each such
counterpart being deemed to be an original instrument, and all such counterparts
shall together constitute the same agreement.
9.5. GOVERNING LAW; WAIVER OF JURY TRIAL.
(a) THIS AGREEMENT SHALL BE DEEMED TO BE MADE IN AND IN ALL RESPECTS
SHALL BE INTERPRETED, CONSTRUED AND GOVERNED BY AND IN ACCORDANCE WITH THE LAW
OF THE STATE OF MARYLAND WITHOUT REGARD TO THE CONFLICT OF LAW PRINCIPLES
THEREOF.
(b) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY
ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT
ISSUES, AND THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY
WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT,
OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH PARTY CERTIFIES AND
ACKNOWLEDGES THAT (i) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY
HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE
EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (ii) EACH PARTY
UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (iii) EACH PARTY
MAKES THIS WAIVER VOLUNTARILY, AND (iv) EACH PARTY HAS BEEN INDUCED TO ENTER
INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS IN THIS SECTION 9.5.
9.6. NOTICES.
Any notice, request, instruction or other document to be given hereunder
by any party to the others shall be in writing and delivered personally or sent
by registered or certified mail, postage prepaid, or by facsimile:
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if to Parent or Merger Subsidiary:
James Slattery
Correctional Services Corporation
1819 Main Street
Suite 1000
Sarasota, Florida 34236
fax: 941-953-9198
and
General Counsel
Correctional Services Corporation
1819 Main Street
Suite 1000
Sarasota, Florida 34236
fax: 941-953-9198
Copy to:
Sidney Todres, Esq.
Epstein Becker & Green, P.C.
250 Park Avenue
New York, New York 10177-0077
fax: (212) 651-0989
if to the Company:
Mark S. Demilio
General Counsel
Youth Services International, Inc.
2 Park Center Court
Suite 200 Owings Mills, MD 21117
fax: (410)654-3934
Copy to:
Michael J. Silver, Esq.,
Hogan & Hartson L.L.P.
111 South Calvert Street
Baltimore, Maryland 21202
fax: (410) 539-6981
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or to such other persons or addresses as may be designated in writing by the
party to receive such notice as provided above.
9.7. ENTIRE AGREEMENT; NO OTHER REPRESENTATIONS.
This Agreement (including any exhibits hereto), the Company Disclosure
Schedule, the Parent Disclosure Schedule, the Confidentiality Agreement dated
June 26, 1998, between Parent and the Company (the "Confidentiality Agreement")
and the Nondisclosure Agreement between Parent and the Company dated August 7,
1998 (the "Nondisclosure Agreement) constitute the entire agreement, and
supersede all other prior agreements, understandings, representations and
warranties both written and oral, among the parties, with respect to the subject
matter hereof. The parties hereto agree that the Confidentiality Agreement and
the Nondisclosure Agreement shall each be hereby amended to provide that any
provision therein which in any manner would be inconsistent with this Agreement
or the transactions contemplated hereby or thereby shall terminate as of the
date hereof; provided, however, that such provisions of the Confidentiality
Agreement and the Nondisclosure Agreement shall be reinstated in the event of
any termination of this Agreement.
9.8. NO THIRD PARTY BENEFICIARIES.
Except as provided in SECTION 6.13. (Benefits), SECTION 6.15.
(Indemnification; Directors' and Officers' Insurance), SECTION 6.16. (Election
to Parent's Board of Directors) and SECTION 6.18. (Debentures) this Agreement is
not intended to confer upon any Person other than the parties hereto any rights
or remedies hereunder.
9.9. SEVERABILITY.
The provisions of this Agreement shall be deemed severable and the
invalidity or unenforceability of any provision shall not affect the validity or
enforceability or the other provisions hereof. If any provision of this
Agreement, or the application thereof to any Person or any circumstance, is
invalid or unenforceable, (a) a suitable and equitable provision shall be
substituted therefor in order to carry out, so far as may be valid and
enforceable, the intent and purpose of such invalid or unenforceable provision
and (b) the remainder of this Agreement and the application of such provision to
other Persons or circumstances shall not be affected by such invalidity or
unenforceability, nor shall such invalidity or unenforceability affect the
validity or enforceability of such provision, or the application thereof, in any
other jurisdiction.
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<PAGE> 62
9.10. INTERPRETATION.
The table of contents and headings herein are for convenience of
reference only, do not constitute part of this Agreement and shall not be deemed
to limit or otherwise affect any of the provisions hereof. Where a reference in
this Agreement is made to a Section or Exhibit, such reference shall be to a
Section of or Exhibit to this Agreement unless otherwise indicated. Whenever the
words "include," "includes" or "including" are used in this Agreement, they
shall be deemed to be followed by the words "without limitation."
9.11. ASSIGNMENT.
This Agreement shall not be assignable by operation of law or otherwise;
provided, however, that Parent may designate, by written notice to the Company,
another wholly-owned direct or indirect Subsidiary to be a party to the Merger
in lieu of Merger Subsidiary, in which event all references herein to Merger
Subsidiary shall be deemed references to such other Subsidiary, except that all
representations and warranties made herein with respect to Merger Subsidiary as
of the date of this Agreement shall be deemed representations and warranties
made with respect to such other Subsidiary as of the date of such designation.
9.12. DEFINITIONS
(a) Location of Certain Definitions.
<TABLE>
<CAPTION>
Section
<S> <C>
Acquisition Proposal............................................ 6.4
Affiliate....................................................... 6.10
Agreement....................................................... Preamble
Articles of Incorporation....................................... 2.1
Articles of Merger.............................................. 1.3
Bylaws.......................................................... 2.2
Certificate..................................................... 3.1(a)
Closing......................................................... 1.2
Closing Date.................................................... 1.2
Code............................................................ 4.9(b)
Company......................................................... Preamble
Company Affiliates Letter....................................... 6.10(a)
Company Audit Date.............................................. 4.6
Company Benefit Plans 6.13(b)
Company Common Stock............................................ 3.1(a)
Company Compensation and Benefit Plans.......................... 4.9(a)
Company Disclosure Schedule..................................... Preamble to
</TABLE>
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<PAGE> 63
<TABLE>
<CAPTION>
Section
<S> <C>
Article IV
Company Intellectual Property Rights............................ 4.15(b)(ii)
Company Material Adverse Effect................................. 9.12(b)
Company Reports................................................. 4.6
Company Requisite Vote.......................................... 4.4(a)
Company Stock Plans............................................. 4.2
Company Third-Party Intellectual Property Rights................ 4.15(b)(i)
Confidentiality Agreement....................................... 9.7
Contracts....................................................... 4.5(b)
Costs........................................................... 6.15(a)
Debentures 4.2
D&O Insurance................................................... 6.15(b)
Effective Time.................................................. 1.3
Environmental Law............................................... 9.12(b)
ERISA........................................................... 4.9(b)
ERISA Affiliate................................................. 4.9(c)
Exchange Act.................................................... 4.5(a)
Exchange Agent.................................................. 3.2(a)
Exchange Fund................................................... 3.2(a)
Exchange Ratio.................................................. 3.1(a)
GAAP............................................................ 4.6
Governmental Consents........................................... 7.1(c)
Hazardous Substance............................................. 9.12(b)
HSR Act......................................................... 4.5(a)
Indemnified Parties............................................. 6.15(a)
IRS............................................................. 4.9(b)
Laws............................................................ 4.10
MGCL............................................................ 1.1
Maximum Premium................................................. 6.15(b)
Merger.......................................................... Recitals
Merger Consideration............................................ 3.1(a)
Merger Subsidiary............................................... Preamble
NASDAQ.......................................................... 3.2(e)
Order........................................................... 7.1(d)
Parent.......................................................... Preamble
Parent Affiliates Letter........................................ 6.10(b)
Parent Audit Date............................................... 5.7(a)
Parent Benefit Plans 6.13(b)
Parent Common Stock............................................. 3.1(a)
Parent Compensation and Benefit Plan............................ 5.9(a)
Parent Disclosure Schedule...................................... Preamble to
Article V
Parent Intellectual Property Rights............................. 5.14(b)(ii)
</TABLE>
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<PAGE> 64
<TABLE>
<CAPTION>
Section
<S> <C>
Parent Material Adverse Effect.................................. 9.12(b)
Parent Preferred Shares......................................... 5.3
Parent Reports.................................................. 5.6
Parent Requisite Vote........................................... 5.4(a)
Parent Rights Agreement......................................... 5.3
Parent Shares................................................... 5.3
Parent Stockholders Meeting..................................... 6.6
Parent Stock Plans.............................................. 5.3
Parent Third-Party Intellectual Property Rights................. 5.14(b)(i)
Pension Plan.................................................... 4.9(b)
Person.......................................................... 3.2(b)
Private Consents................................................ 4.5(b)
Prospectus/Proxy Statement...................................... 6.5
Representatives................................................. 6.9
Responsible Executive Officers of Parent........................ 9.12(b)
Responsible Executive Officers of the Company................... 9.12(b)
S-4 Registration Statement...................................... 6.5
SEC............................................................. 4.6
SDAT............................................................ 1.3
Securities Act.................................................. 4.5(a)
Share, Shares................................................... 3.1(a)
State Regulators................................................ 4.10
Stockholders Meeting............................................ 6.6
Subsidiary...................................................... 9.12(b)
Surviving Corporation........................................... 1.1
Takeover Statute................................................ 4.11
Tax, Taxes, Taxable............................................. 9.12(b)
Taxing Authority................................................ 9.12(b)
Tax Return...................................................... 9.12(b)
</TABLE>
(b) Certain Other Definitions
"Company Material Adverse Effect" means any event, change, or effect
that individually or when taken together with all other such events, changes or
effects is or could reasonably be expected (as far as can be foreseen at the
time) to be materially adverse to the business, assets, liabilities, condition
(financial or otherwise) or results of operations of the Company and its
Subsidiaries taken as a whole, other than effects caused by changes in general
economic conditions or conditions generally affecting the types of businesses in
which the Company and its Subsidiaries are engaged.
"Environmental Law" means any federal, state, local or foreign law,
statute, ordinance, regulation, judgment, order, decree, arbitration award,
agency
- 60 -
<PAGE> 65
requirement, license, permit, authorization or opinion, relating to: (i) the
protection, investigation or restoration of the environment, health and safety,
or natural resources, (ii) the handling, use, presence, disposal, release or
threatened release of any Hazardous Substance or (iii) noise, odor, wetlands,
pollution, contamination or any injury or threat of injury to persons or
property, including but not limited to the Comprehensive Environmental Response,
Compensation, and Liability Act, 42 USC Sections 9601 et. sec.
"Hazardous Substance" means any substance or waste that is: (i) listed,
classified or regulated pursuant to any Environmental Law; (ii) any petroleum
product or by-product, asbestos-containing material, lead-containing paint or
plumbing, polychlorinated biphenyls, radioactive materials or radon; or (iii)
any other substance or waste which may be the subject of regulatory action by
any Government Authority pursuant to any Environmental Law.
"Knowledge" of any individual means actual knowledge of such individual.
"Parent Material Adverse Effect" means any event, change, or effect that
individually or when taken together with all other such events, changes or
effects is or could reasonably be expected (as far as can be foreseen at the
time) to be materially adverse to the business, assets, liabilities, condition
(financial or otherwise) or results of operations of Parent and its Subsidiaries
taken as a whole, other than effects caused by changes in general economic
conditions or conditions generally affecting the types of businesses in which
the Parent and its Subsidiaries are engaged.
"Responsible Executive Officers of the Company" shall mean the persons
designated as such in the preamble to the Company Disclosure Schedule.
"Responsible Executive Officers of Parent" shall mean the persons
designated as such in the preamble to the Parent Disclosure Schedule.
"Subsidiary" means, with respect to the Company, Parent or Merger
Subsidiary, as the case may be, any entity, whether incorporated or
unincorporated, of which at least a majority of the securities or ownership
interests having by their terms ordinary voting power to elect a majority of the
board of directors or other persons performing similar functions is directly or
indirectly owned or controlled by such party or by one or more of its respective
Subsidiaries or by such party and any one or more of its respective
Subsidiaries.
"Tax" (including, with correlative meaning, the terms "Taxes" and
"Taxable") shall mean, with respect to any Person, (i) all taxes, domestic or
foreign, including without limitation any income (net, gross or other, including
recapture of any tax items such as investment tax credits), alternative or
add-on minimum tax, gross income, gross receipts, gains, sales, use, leasing,
lease, user, ad valorem,
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<PAGE> 66
transfer, recording, franchise, profits, property (real or personal, tangible or
intangible), fuel, license, withholding on amounts paid to or by such Person,
payroll, employment, unemployment, social security, excise, severance, stamp,
occupation, premium, environmental or windfall profit tax, custom, duty or other
tax, or other like assessment or charge of any kind whatsoever, together with
any interest, levies, assessments, charges, penalties, additions to tax or
additional amounts imposed by any Taxing Authority, (ii) any joint or several
liability of such Person with any other Person for the payment of any amounts of
the type described in (a) of this definition and (iii) any liability of such
Person for the payment of any amounts of the type described in (i) as a result
of any express or implied obligation to indemnify any other Person.
"Tax Return(s)" shall mean all returns, consolidated or otherwise
(including without limitation informational returns), required to be filed with
any Taxing Authority.
"Taxing Authority" shall mean any authority responsible for the
imposition of any Tax.
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<PAGE> 67
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered
by the duly authorized officers or managers of the parties hereto as of the date
first written above.
YOUTH SERVICES INTERNATIONAL, INC.
By: /s/ Timothy P. Cole
-------------------
Name: Timothy P. Cole
Title: Chairman and Chief Executive Officer
CORRECTIONAL SERVICES CORPORATION
By: /s/ James F. Slattery
---------------------
Name: James F. Slattery
Title: President
PALM MERGER CORP.
By: /s/ James F. Slattery
---------------------
Name: James F. Slattery
Title: President
- 63 -
<PAGE> 68
<TABLE>
<CAPTION>
EXHIBITS
- --------
<S> <C>
Exhibit A-1 Company Affiliates
Exhibit A-2 Company Affiliates Letter
Exhibit A-3 Parent Affiliates Letter
Exhibit B Tax Opinion of Parent Counsel
Exhibit C Parent Tax Letter
Exhibit D Company Tax Letter
Exhibit E Tax Opinion of Company Counsel
</TABLE>
<PAGE> 1
EXHIBIT 99.1
NEWS
For Immediate Release
COMPANY CONTACTS:
IRA COTLER (CORRECTIONAL SERVICES CORPORATION)
EXECUTIVE VICE PRESIDENT-FINANCE
(941) 953-9199
MARK DEMILIO (YOUTH SERVICES INTERNATIONAL)
CHIEF FINANCIAL OFFICER
(410) 356-8600
SEPTEMBER 24, 1998
CORRECTIONAL SERVICES CORPORATION AND YOUTH SERVICES INTERNATIONAL
AGREE TO MERGE
Sarasota, Florida and Owings Mills, Maryland-- Correctional Services
Corporation ("CSC") (NASDAQ NMS:CSCQ) and Youth Services International, Inc.
("YSI") (NASDAQ NMS: YSII) today announced that they have entered into a
definitive merger agreement under which each outstanding share of YSI common
stock will be converted into .375 shares of CSC common stock. Under the merger
agreement, YSI will become a wholly owned subsidiary of CSC.
The merger will enhance CSC's position as a leading developer and manager
of privatized juvenile and adult correctional and detention facilities in the
United States. On a combined basis, CSC and YSI currently operate 63 programs
with nearly 11,000 beds in 20 states and Puerto Rico.
"The combination of CSC and YSI creates a company with unmatched
capabilities in the delivery of state of the art juvenile services. The addition
of YSI's transitional and academy oriented programs to CSC's secure programs
will allow us to offer governmental agencies the broadest spectrum of quality
solutions for adjudicated youth, from first time offenders to the most serious
habitual offenders," stated James F. Slattery, CSC's Chairman & CEO. Mr.
Slattery further stated, "Since many of the facilities of each company are in
states not yet serviced by the other, we believe significant new marketing
opportunities will become available. Under the direction of Jim Irving, CSC's
Vice President/Juvenile Justice Division, we are confident our expanded scope of
services will result in enhanced opportunities and accelerated growth. We expect
the transaction to be accretive to our 1999 earnings".
Commenting on the merger, Timothy P. Cole, YSI's Chairman and CEO stated,
"This merger provides great strategic benefits. Access to resources, quality of
programs and commitment to youth are all greatly enhanced through this
combination."
This transaction is expected to be accounted for as a pooling-of-interests
and to qualify as a tax-free reorganization. This transaction is subject to
various conditions, including approval by appropriate governmental agencies and
the stockholders of CSC and YSI. The Board of Directors of each company
<PAGE> 2
unanimously approved the transaction and recommended its approval by its
stockholders.
J.C. Bradford & Co., acted as financial advisor to CSC for this
transaction, while SunTrust Equitable Securities represented YSI.
Correctional Services Corporation is a leading developer and manager of
privatized correctional and detention facilities in the United States. Through
its three divisions; Adult, Juvenile, and Community Corrections the Company
provides a diverse range of programs and services to local, state, and federal
governmental agencies. The Company has 35 contracts to manage facilities in
Florida, New York, Arizona, Texas, Mississippi, New Mexico, Washington State,
Oklahoma, Puerto Rico and Georgia with an aggregate of 7,914 beds.
Youth Services International Incorporated is headquartered in Owings Mills,
Maryland and provides services to over 3,000 juveniles in 13 states.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995
This press release contains forward-looking statements involving various
risks and uncertainties. There can be no assurance that the merger will be
consummated. Even if consummated, actual results, including the level of
earnings of both CSC and YSI, and the success of the proposed merger, could
differ materially from those projected due to factors which may include
difficulties in the assimilation of operations, diversification of management's
attention from other business concerns, other acquisition risks, population
fluctuations, market and industry conditions, government funding and
availability of financing. These and other risk factors are outlined in the
reports filed by the Company with the Securities and Exchange Commission.
* * *
