Execution Copy
__________________________________________________________
AGREEMENT AND PLAN OF MERGER
Between
KCLC ACQUISITION CORP.
and
KINDERCARE LEARNING CENTERS, INC.
Dated as of October 3, 1996
__________________________________________________________
TABLE OF CONTENTS
Page
ARTICLE 1.
THE MERGER......................... 2
SECTION 1.1 The Merger..................................... 2
SECTION 1.2 Closing........................................ 2
SECTION 1.3 Effective Time................................. 2
SECTION 1.4 Effects of the Merger.......................... 2
SECTION 1.5 Certificate of Incorporation; By-Laws.......... 2
SECTION 1.6 Directors and Officers......................... 3
ARTICLE 2.
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS.................. 3
SECTION 2.1 Effect on Capital Stock........................ 3
SECTION 2.2 Dissenting Shares and Section 262 Shares....... 4
SECTION 2.3 Company Common Stock Elections................. 5
SECTION 2.4 Proration...................................... 6
SECTION 2.5 Treatment of Options and Other
Employee Equity Rights........................ 7
SECTION 2.6 Treatment of Warrants.......................... 8
SECTION 2.7 Surrender of Shares and Warrants;
Transfer Books................................ 8
SECTION 2.8 The Debt Offer................................. 12
ARTICLE 3.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY........ 13
SECTION 3.1 Organization and Qualification;
Subsidiaries.................................. 14
SECTION 3.2 Certificate of Incorporation and By-Laws....... 14
SECTION 3.3 Capitalization................................. 14
SECTION 3.4 Authority Relative to This Agreement........... 16
SECTION 3.5 No Conflict; Required Filings and Consents..... 17
SECTION 3.6 Compliance..................................... 18
SECTION 3.7 SEC Filings; Financial Statements.............. 18
SECTION 3.8 Absence of Certain Changes or Events........... 19
SECTION 3.9 Absence of Litigation.......................... 19
SECTION 3.10 Properties..................................... 20
SECTION 3.11 Employee Benefit Plans......................... 21
SECTION 3.12 Tax Matters.................................... 23
SECTION 3.13 Environmental Laws............................. 24
SECTION 3.14 Offer Documents; Proxy Statement............... 26
SECTION 3.15 Brokers........................................ 27
SECTION 3.16 Opinion of Financial Advisor................... 27
SECTION 3.17 Labor Matters.................................. 27
SECTION 3.18 Board Recommendation........................... 27
SECTION 3.19 Tradenames..................................... 27
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ARTICLE 4.
REPRESENTATIONS AND WARRANTIES
OF NEWCO........................... 28
SECTION 4.1 Corporate Organization......................... 28
SECTION 4.2 Authority Relative to This Agreement........... 29
SECTION 4.3 No Conflict; Required Filings and Consents..... 29
SECTION 4.4 Offer Documents; Proxy Statement............... 30
SECTION 4.5 Brokers........................................ 30
SECTION 4.6 Financing...................................... 30
ARTICLE 5.
CONDUCT OF BUSINESS PENDING THE MERGER............ 30
SECTION 5.1 Conduct of Business of the Company Pending
the Merger.................................... 30
ARTICLE 6.
ADDITIONAL AGREEMENTS.................... 33
SECTION 6.1 Stockholders Meeting........................... 33
SECTION 6.2 Proxy Statement................................ 33
SECTION 6.3 Access to Information; Confidentiality......... 34
SECTION 6.4 Third Parties.................................. 35
SECTION 6.5 Employee Benefits Matters...................... 35
SECTION 6.6 Directors' and Officers' Indemnification
and Insurance................................. 35
SECTION 6.7 Notification of Certain Matters................ 36
SECTION 6.8 Further Action; Best Efforts................... 37
SECTION 6.9 Public Announcements........................... 39
SECTION 6.10 Disposition of Litigation...................... 39
SECTION 6.11 Affiliates..................................... 39
SECTION 6.12 Resignation of Directors....................... 39
SECTION 6.13 Stop Transfer Order............................ 39
ARTICLE 7.
CONDITIONS OF MERGER..................... 40
SECTION 7.1 Conditions to Obligation of Each Party to
Effect the Merger............................. 40
SECTION 7.2 Conditions to Obligation of Newco.............. 40
SECTION 7.3 Conditions to Obligation of the Company........ 42
ARTICLE 8.
TERMINATION, AMENDMENT AND WAIVER.............. 42
SECTION 8.1 Termination.................................... 42
SECTION 8.2 Effect of Termination.......................... 43
SECTION 8.3 Fees and Expenses.............................. 44
SECTION 8.4 Amendment...................................... 44
SECTION 8.5 Waiver......................................... 44
ARTICLE 9.
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GENERAL PROVISIONS...................... 44
SECTION 9.1 Non-Survival of Representations, Warranties
and Agreements................................ 44
SECTION 9.2 Notices........................................ 45
SECTION 9.3 Certain Definitions............................ 46
SECTION 9.4 Severability................................... 47
SECTION 9.5 Entire Agreement; Assignment................... 47
SECTION 9.6 Parties in Interest............................ 48
SECTION 9.7 Governing Law.................................. 48
SECTION 9.8 Headings....................................... 48
SECTION 9.9 Counterparts................................... 48
Annex A - Affiliate Letter
Exhibit A - Certificate of Incorporation
of the Company after the Merger
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of October 3,
1996 (the "Agreement"), between KCLC Acquisition Corp., a Dela-
ware corporation ("Newco"), and KinderCare Learning Centers,
Inc., a Delaware corporation (the "Company").
WHEREAS, the respective Boards of Directors of the
Company and Newco have determined that the merger of Newco with
and into the Company (the "Merger"), upon the terms and subject
to the conditions set forth in this Agreement, would be fair to
and in the best interests of their respective stockholders, and
such Boards of Directors have approved such Merger, pursuant to
which each share of common stock, par value $.01 per share (the
"Company Common Stock"), issued and outstanding immediately
prior to the Effective Time (as defined in Section 1.3) will be
converted into either (A) the right to retain at the election
of the holder thereof and subject to the terms hereof, common
stock, par value $.01 per share, of the Company or (B) the
right to receive cash, other than (a) shares of Company Common
Stock owned, directly or indirectly, by the Company or any sub-
sidiary (as defined in Section 9.3) of the Company or by Newco
or any subsidiary of Newco and (b) Dissenting Shares (as de-
fined in Section 2.2);
WHEREAS, the Merger and this Agreement require the
vote of a majority of the shares of the Company Common Stock
for the approval thereof (the "Company Stockholder Approval");
WHEREAS, Newco is a newly formed corporation orga-
nized at the direction of Kohlberg Kravis Roberts & Co. L.P.;
WHEREAS, as a condition to Newco's willingness to
enter into this Agreement and consummate the transactions con-
templated hereby, Newco has required that the Stockholder and
the Funds (each as defined in the Voting Agreement (as defined
herein)) agree, among other things, to vote shares of Company
Common Stock beneficially owned by them in accordance with the
Voting Agreement (including without limitation shares of Com-
pany Common Stock issued upon conversion of warrants of the
Company beneficially owned by the Stockholder) and comply with
the other provisions of such Voting Agreement; and in order to
induce Newco to enter into this Agreement, the Stockholder and
the Funds have executed and delivered the Voting Agreement,
dated as of the date hereof, between Newco, on the one hand,
and the Stockholder and the Funds, on the other hand (the "Vot-
ing Agreement");
WHEREAS, Newco and the Company desire to make certain
representations, warranties, covenants and agreements in con-
nection with the Merger and also to prescribe various condi-
tions to the Merger; and
WHEREAS, it is intended that the Merger be recorded as a
recapitalization for financial reporting purposes.
2
NOW, THEREFORE, in consideration of the represen-
tations, warranties, covenants and agreements contained in this
Agreement, the parties agree as follows:
ARTICLE 1.
THE MERGER
SECTION 1.1 The Merger. Upon the terms and subject
to the conditions of this Agreement and in accordance with the
General Corporation Law of the State of Delaware ("DGCL"), at
the Effective Time (as defined in Section 1.3), Newco shall be
merged with and into the Company. As a result of the Merger,
the separate corporate existence of Newco shall cease and the
Company shall survive the Merger.
SECTION 1.2 Closing. Unless this Agreement shall
have been terminated and the transactions herein contemplated
shall have been abandoned pursuant to Section 8.1 and subject
to the satisfaction or waiver of the conditions set forth in
Article 7, the closing of the Merger (the "Closing") will take
place at 10:00 a.m. on the second business day after satisfac-
tion or waiver of the conditions set forth in Article 7 (the
"Closing Date"), at the offices of Simpson Thacher & Bartlett,
425 Lexington Avenue, New York, New York 10017, unless another
date, time or place is agreed to in writing by the parties
hereto.
SECTION 1.3 Effective Time. As soon as practicable
after the satisfaction or waiver of the conditions set forth in
Article 7, the parties hereto shall cause the Merger to be con-
summated by filing this Agreement or a certificate of merger
(the "Certificate of Merger") with the Secretary of State of
the State of Delaware, in such form as required by and executed
in accordance with the relevant provisions of the DGCL (the
date and time of the filing of the Certificate of Merger with
the Secretary of State of the State of Delaware (or such later
time as is specified in the Certificate of Merger) being the
"Effective Time").
SECTION 1.4 Effects of the Merger. The Merger shall
have the effects set forth in the applicable provisions of the
DGCL. Without limiting the generality of the foregoing and
subject thereto, at the Effective Time all the property,
rights, privileges, immunities, powers and franchises of the
Company and Newco shall vest in the Company following the
Merger, and all debts, liabilities and duties of the Company
and Newco shall become the debts, liabilities and duties of the
Company following the Merger.
SECTION 1.5 Certificate of Incorporation; By-Laws.
(a) At the Effective Time and without any further action on
the part of the Company and Newco, the certificate of incorporation
3
of the Company, as in effect immediately prior to the
Effective Time, shall be amended so as to read in its
entirety in the form set forth as Exhibit A hereto, and, as so
amended, until thereafter further amended as provided therein
and under the DGCL, it shall be the certificate of
incorporation of the Company following the Merger.
(b) At the Effective Time and without any further
action on the part of the Company and Newco, the by-laws of
Newco shall be the by-laws of the Company following the Merger
and thereafter may be amended or repealed in accordance with
their terms or the certificate of incorporation of the Company
following the Merger and as provided under the DGCL.
SECTION 1.6 Directors and Officers. Subject to Sec-
tion 6.12, the directors of Newco immediately prior to the Ef-
fective Time shall be the initial directors of the Company fol-
lowing the Merger, each to hold office in accordance with the
certificate of incorporation and by-laws of the Company follow-
ing the Merger, and the officers of the Company immediately
prior to the Effective Time shall be the initial officers of
the Company following the Merger, in each case until their re-
spective successors are duly elected or appointed (as the case
may be) and qualified.
ARTICLE 2.
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS
SECTION 2.1 Effect on Capital Stock. As of the Ef-
fective Time, by virtue of the Merger and without any action on
the part of the Company, Newco or any holder of any shares of
Company Common Stock or any shares of capital stock of Newco:
(a) Common Stock of Newco. Each share of common
stock of Newco issued and outstanding immediately prior to
the Effective Time shall be converted into a number of
shares of the common stock, par value $.01 per share, of
the Company following the Merger equal to the quotient of
(i) 7,345,679 divided by (ii) the number of shares of com-
mon stock of Newco outstanding immediately prior to the
Effective Time.
(b) Cancellation of Treasury Stock and Newco-Owned
Company Common Stock. Each share of Company Common Stock
that is owned by the Company or by any subsidiary of the
Company, and each share of Company Common Stock that is
owned by Newco or any subsidiary of Newco shall automati-
cally be cancelled and retired and shall cease to exist,
and no cash, Company Common Stock or other consideration
shall be delivered or deliverable in exchange therefor.
4
(c) Conversion (or Retention) of Company Common
Stock. Except as otherwise provided herein and subject to
Section 2.4, each issued and outstanding share of Company
Common Stock (other than any such shares to be cancelled
pursuant to Section 2.1(b) and any Dissenting Shares (as
defined in Section 2.2)) shall be converted into the fol-
lowing (the "Merger Consideration"):
(i) for each such share of Company Common Stock
with respect to which an election to retain Company
Common Stock has been effectively made and not
revoked or lost, pursuant to Sections 2.3(c), (d) and
(e) ("Electing Shares"), the right to retain one
fully paid and nonassessable share of Company Common
Stock (a "Non-Cash Election Share"); and
(ii) for each such share of Company Common Stock
(other than Electing Shares), the right to receive in
cash from the Company following the Merger an amount
equal to $20.25 (the "Cash Election Price").
(d) Cancellation and Retirement of Company Common
Stock. As of the Effective Time, all shares of Company
Common Stock (other than shares referred to in Section
2.1(b) and 2.1(c)(i)) issued and outstanding immediately
prior to the Effective Time shall no longer be outstanding
and shall automatically be cancelled and retired and shall
cease to exist, and each holder of a certificate
representing any such shares of Company Common Stock
shall, to the extent such certificate represents such
shares, cease to have any rights with respect thereto,
except the right to receive cash, including cash in lieu
of fractional shares of Company Common Stock to be issued
or paid in consideration therefor upon surrender of such
certificate in accordance with Section 2.7.
SECTION 2.2 Dissenting Shares and Section 262
Shares. (a) Notwithstanding anything in this Agreement to the
contrary, shares of Company Common Stock that are issued and
outstanding immediately prior to the Effective Time and which
are held by stockholders who have not voted in favor of or
consented to the Merger and shall have delivered a written
demand for appraisal of such shares in the time and manner
provided in Section 262 of the DGCL and shall not have failed
to perfect or shall not have effectively withdrawn or lost
their rights to appraisal and payment under the DGCL (the
"Dissenting Shares") shall not be converted into the right to
receive the Merger Consideration, but shall be entitled to
receive the consideration as shall be determined pursuant to
Section 262 of the DGCL; provided, however, that if any such
holder shall have failed to perfect or shall have effectively
withdrawn or lost his, her or its right to appraisal and
payment under the DGCL, such holder's shares of Company Common
Stock shall thereupon be deemed to have been converted, at the
Effective Time, into the right to receive the
5
Merger Consideration set forth in Section 2.1 of this
Agreement, without any interest thereon.
(b) The Company shall give Newco (i) prompt notice
of any demands for appraisal pursuant to Section 262 received
by the Company, withdrawals of such demands and any other
instruments served pursuant to the DGCL and received by the
Company and (ii) the opportunity to direct all negotiations and
proceedings with respect to demands for appraisal under the
DGCL. The Company shall not, except with the prior written
consent of Newco, make any payment with respect to any such
demands for appraisal or offer to settle or settle any such
demands.
SECTION 2.3 Company Common Stock Elections. (a)
Each person who, on or prior to the Election Date referred to
in (c) below, is a record holder of shares of Company Common
Stock will be entitled, with respect to all or any portion of
his shares, to make an unconditional election (a "Non-Cash
Election") on or prior to such Election Date to retain Non-Cash
Election Shares, on the basis hereinafter set forth.
(b) Prior to the mailing of the Proxy Statement (as
defined in Section 3.14), Newco shall appoint a bank or trust
company to act as exchange agent (the "Exchange Agent") for the
payment of the Merger Consideration.
(c) Newco shall prepare and mail a form of election,
which form shall be subject to the reasonable approval of the
Company (the "Form of Election"), with the Proxy Statement to
the record holders of Company Common Stock as of the record
date for the Stockholders Meeting (as defined in Section 6.1),
which Form of Election shall be used by each record holder of
shares of Company Common Stock who wishes to elect to retain
Non-Cash Election Shares for any or all shares of Company
Common Stock held, subject to the provisions of Section 2.4
hereof, by such holder. The Company will use its best efforts
to make the Form of Election and the Proxy Statement available
to all persons who become holders of Company Common Stock
during the period between such record date and the Election
Date referred to below. Any such holder's election to retain
Non-Cash Election Shares shall have been properly made only if
the Exchange Agent shall have received at its designated
office, by 5:00 p.m., New York City time on the business day
(the "Election Date") next preceding the date of the
Stockholders Meeting, a Form of Election properly completed and
signed and accompanied by certificates for the shares of
Company Common Stock to which such Form of Election relates,
duly endorsed in blank or otherwise in form acceptable for
transfer on the books of the Company (or by an appropriate
guarantee of delivery of such certificates as set forth in such
Form of Election from a firm which is a member of a registered
national securities exchange or of the National Association of
Securities Dealers, Inc. or a commercial bank or trust company
having an office or correspondent in the United States,
provided such certificates are in fact delivered to the
Exchange Agent
6
within five NASDAQ trading days after the date of execution of
such guarantee of delivery).
(d) Any Form of Election may be revoked by the
stockholder submitting it to the Exchange Agent only by written
notice received by the Exchange Agent prior to 5:00 p.m, New
York City time, on the Election Date. In addition, all Forms
of Election shall automatically be revoked if the Exchange
Agent is notified in writing by Newco and the Company that the
Merger has been abandoned. If a Form of Election is revoked,
the certificate or certificates (or guarantees of delivery, as
appropriate) for the shares of Company Common Stock to which
such Form of Election relates shall be promptly returned to the
stockholder submitting the same to the Exchange Agent.
(e) The determination of the Exchange Agent shall be
binding whether or not elections to retain Non-Cash Election
Shares have been properly made or revoked pursuant to this
Section 2.3 with respect to shares of Company Common Stock and
when elections and revocations were received by it. If the
Exchange Agent determines that any election to retain Non-Cash
Election Shares was not properly made with respect to shares of
Company Common Stock, such shares shall be treated by the
Exchange Agent as shares which were not Electing Shares at the
Effective Time, and such shares shall be exchanged in the
Merger for cash pursuant to Section 2.1(c)(ii). The Exchange
Agent shall also make all computations as to the allocation and
the proration contemplated by Section 2.4, and any such
computation shall be conclusive and binding on the holders of
shares of Company Common Stock. The Exchange Agent may, with
the mutual agreement of Newco and the Company, make such rules
as are consistent with this Section 2.3 for the implementation
of the elections provided for herein as shall be necessary or
desirable fully to effect such elections.
SECTION 2.4 Proration.
(a) Notwithstanding anything in this Agreement to
the contrary, the aggregate number of shares of Company Common
Stock to be converted into the right to retain Company Common
Stock at the Effective Time (the "Non-Cash Election Number")
shall be equal to 1,296,296 (excluding for this purpose any
shares of Company Common Stock to be cancelled pursuant to
Section 2.1(b)).
(b) If the number of Electing Shares exceeds the
NonCash Election Number, then each Electing Share shall be
converted into the right to retain Non-Cash Election Shares or
receive cash in accordance with the terms of Section 2.1(c) in
the following manner:
(i) A proration factor (the "Non-Cash Proration Fac-
tor") shall be determined by dividing the Non-Cash
Election Number by the total number of Electing Shares.
7
(ii) The number of Electing Shares covered by each
Non-Cash Election to be converted into the right to retain
Non-Cash Election Shares shall be determined by multiplying
the Non-Cash Proration Factor by the total number of
Electing Shares covered by such Non-Cash Election.
(iii) All Electing Shares, other than those shares
converted into the right to receive Non-Cash Election
Shares in accordance with Section 2.4(b)(ii), shall be
converted into cash (on a consistent basis among
stockholders who made the election referred to in Section
2.1(c)(i), pro rata to the number of shares as to which
they made such election) as if such shares were not
Electing Shares in accordance with the terms of Section
2.1(c)(ii).
(c) If the number of Electing Shares is less than
the Non-Cash Election Number, then:
(i) all Electing Shares shall be converted into the
right to retain Company Common Stock in accordance with
the terms of Section 2.1(c)(i);
(ii) additional shares of Company Common Stock other
than Electing Shares and Dissenting Shares shall be
converted into the right to retain Non-Cash Election
Shares in accordance with the terms of 2.1(c) in the
following manner:
(1) a proration factor (the "Cash Proration
Factor") shall be determined by dividing (x) the
difference between the Non-Cash Election Number and
the number of Electing Shares, by (y) the total
number of shares of Company Common Stock other than
Electing Shares and Dissenting Shares; and
(2) the number of shares of Company Common
Stock in addition to Electing Shares to be converted
into the right to retain Non-Cash Election Shares
shall be determined by multiplying the Cash Proration
Factor by the total number of shares other than
Electing Shares and Dissenting Shares; and
(iii) subject to Section 2.2, shares of Company Common
Stock subject to clause (ii) of this paragraph (c) shall
be converted into the right to retain Non-Cash Election
Shares in accordance with Section 2.1(c)(i) (on a
consistent basis among shareholders who held shares of
Company Common Stock as to which they did not make the
election referred to in Section 2.1(c)(i), pro rata to the
number of shares as to which they did not make such
election).
SECTION 2.5 Treatment of Options and Other Employee
Equity Rights. (a) Immediately prior to the Effective Time,
each outstanding stock option held by any current or former
8
employee or director (an "Option") granted under the 1993 Stock
Option and Incentive Plan, the 1993 Director Stock Option Plan
or otherwise (the "Stock Plans"), whether or not then
exercisable, shall be cancelled by the Company, and except as
otherwise agreed by the Company, Newco and the holder, the
holder thereof shall be entitled to receive at the Effective
Time or as soon as practicable thereafter from the Company
following the Merger in consideration for such cancellation an
amount in cash equal to the product of (a) the number of shares
of Company Common Stock previously subject to such Option and
(b) the excess, if any, of the cash Merger Consideration per
share over the exercise price per share previously subject to
such Option, reduced by the amount of any withholding or other
taxes required by law to be withheld.
(b) Effective as of the Effective Time, the Company
shall use its reasonable best efforts to take all such action
as is necessary prior to the Effective Time to terminate all
Stock Plans so that on and after the Effective Time no current
or former employee or director shall have any Option to
purchase shares of Company Common Stock or any other equity
interest in the Company under any Stock Plan. The Company
shall use its reasonable best efforts to obtain any consents
necessary to release the Company from any liability in respect
of any Option.
SECTION 2.6 Treatment of Warrants. At the Effective
Time, pursuant to the Warrant Agreement (as defined in Section
3.3) and without any action on the part of Newco, the Company
or the holders of any of the Warrants (as defined in Section
3.3), each Warrant issued and outstanding immediately prior to
the Effective Time shall be cancelled, extinguished and
converted into the right to receive the amount of cash
determined in accordance with Section 12(d) of the Warrant
Agreement (the "Warrant Consideration") payable to the holder
thereof, without interest, upon surrender of the certificate
formerly representing such Warrant in the manner provided in
Section 2.7, less any required withholding taxes.
SECTION 2.7 Surrender of Shares and Warrants;
Transfer Books. (a) Exchange Agent. As soon as reasonably
practicable as of or after the Effective Time, the Company
shall deposit with the Exchange Agent, (i) for the benefit of
the holders of shares of Company Common Stock, the cash portion
of Merger Consideration and (ii) for the benefit of the holders
of the Warrants, the Warrant Consideration, each for exchange
in accordance with this Article 2. Such funds shall be
invested by the Exchange Agent as directed by the Company,
provided that such investments shall be (i) securities issued
or directly and fully guaranteed or insured by the United
Stated government or any agency or instrumentality thereof
having maturities of not more than six months from the date of
acquisition, (ii) certificates of deposit, eurodollar time
deposits and bankers' acceptances with maturities not exceeding
six months and overnight bank deposits with any commercial
bank, depository institution or trust company
9
incorporated or doing business under the laws of the United
States of America, any state thereof or the District of
Columbia, provided that such commercial bank, depository
institution or trust company has, at the time of investment,
(A) capital and surplus exceeding $250 million and (B)
outstanding short-term debt securities which are rated at least
A-1 by Standard & Poor's Rating Group Division of The McGraw-
Hill Companies, Inc. or at least P-1 by Moody's Investors
Service, Inc. or carry an equivalent rating by a nationally
recognized rating agency if both of the two named rating
agencies cease to publish ratings of investments, (iii)
repurchase obligations with a term of not more than 30 days for
underlying securities of the types described in clauses (i) and
(ii) above entered into with any financial institution meeting
the qualifications specified in clause (ii) above, (iv)
commercial paper having a rating in the highest rating
categories from Standard & Poor's Rating Group Division of The
McGraw-Hill Companies, Inc. or Moody's Investors Service, Inc.
or carrying an equivalent rating by a nationally recognized
rating agency if both of the two named rating agencies cease to
publish ratings of investments and in each case maturing within
six months after the date of acquisition and (v) money market
mutual or similar funds having assets in excess of $1 billion.
Any net profit resulting from, or interest or income produced
by, such investments will be payable to the Company.
(b) Exchange Procedures for Shares of Company Common
Stock. As soon as practicable after the Effective Time, each
holder of an outstanding certificate or certificates which
prior thereto represented shares of Company Common Stock shall,
upon surrender to the Exchange Agent of such certificate or
certificates and acceptance thereof by the Exchange Agent, be
entitled to a certificate or certificates representing the
number of full shares of Company Common Stock, if any, to be
retained by the holder thereof pursuant to this Agreement and
the amount of cash, if any, into which the number of shares of
Company Common Stock previously represented by such certificate
or certificates surrendered shall have been converted pursuant
to this Agreement. The Exchange Agent shall accept such
certificates upon compliance with such reasonable terms and
conditions as the Exchange Agent may impose to effect an
orderly exchange thereof in accordance with normal exchange
practices. After the Effective Time, there shall be no further
transfer on the records of the Company or its transfer agent of
certificates representing shares of Company Common Stock which
have been converted, in whole or in part, pursuant to this
Agreement into the right to receive cash, and if such cer-
tificates are presented to the Company for transfer, they shall
be cancelled against delivery of cash and, if appropriate,
certificates for retained Company Common Stock. If any
certificate for such retained Company Common Stock is to be
issued in, or if cash is to be remitted to, a name other than
that in which the certificate for Company Common Stock
surrendered for exchange is registered, it shall be a condition
of such exchange that the certificate so surrendered shall be
properly endorsed, with signature guaranteed, or otherwise in
10
proper form for transfer and that the person requesting such
exchange shall pay to the Company or its transfer agent any
transfer or other taxes required by reason of the issuance of
certificates for such retained Company Common Stock in a name
other than that of the registered holder of the certificate
surrendered, or establish to the satisfaction of the Company or
its transfer agent that such tax has been paid or is not
applicable. Until surrendered as contemplated by this Section
2.7(b), each certificate for shares of Company Common Stock
shall be deemed at any time after the Effective Time to
represent only the right to receive upon such surrender the
Merger Consideration as contemplated by Section 2.1. No
interest will be paid or will accrue on any cash payable as
Merger Consideration or in lieu of any fractional shares of
retained Company Common Stock.
(c) Exchange Procedures for Warrants. As soon as
practicable after the Effective Time, the Company shall cause
to be mailed to each record holder, as of the Effective Time,
of an outstanding certificate or certificates, which
immediately prior to the Effective Time represented Warrants
(the "Certificates"), a form of letter of transmittal (which
shall specify that delivery shall be effected, and risk of loss
and title to the Certificates shall pass, only upon proper
delivery of the Certificates to the Exchange Agent) and
instructions for use in effecting the surrender of the
Certificates for payment of the Warrant Consideration therefor.
The Exchange Agent shall accept the Certificates upon
compliance with such reasonable terms and conditions as the
Exchange Agent may impose to effect an orderly exchange thereof
in accordance with normal exchange practices. After the
Effective Time, there shall be no further transfer on the
records of the Company or its transfer agent of Certificates
representing Warrants, and if such Certificates are presented
to the Company for transfer, they shall be cancelled against
delivery of Warrant Consideration therefor. Until surrendered
as contemplated by this Section 2.7(c), each Certificate for
Warrants shall be deemed at any time after the Effective Time
to represent only the right to receive upon such surrender the
Warrant Consideration as contemplated by Section 2.6. No
interest will be paid or will accrue on any cash payable as
Warrant Consideration.
(d) Distributions with Respect to Unexchanged
Shares. No dividends or other distributions with respect to
retained Company Common Stock with a record date after the
Effective Time shall be paid to the holder of any unsurrendered
certificate for shares of Company Common Stock with respect to
the shares of retained Company Common Stock represented thereby
and no cash payment in lieu of fractional shares shall be paid
to any such holder pursuant to Section 2.7(f) until the
surrender of such certificate in accordance with this Article
2. Subject to the effect of applicable laws, following
surrender of any such certificate, there shall be paid to the
holder of the certificate representing whole shares of retained
Company Common Stock issued in connection therewith, without
interest, (i) at the time of
11
such surrender or as promptly after the sale of the Excess
Shares (as defined in Section 2.7(f)) as practicable, the
amount of any cash payable in lieu of a fractional share of
retained Company Common Stock to which such holder is entitled
pursuant to Section 2.7(f) and the proportionate amount of
dividends or other distributions with a record date after the
Effective Time theretofore paid with respect to such whole
shares of retained Company Common Stock, and (ii) at the
appropriate payment date, the proportionate amount of dividends
or other distributions with a record date after the Effective
Time but prior to such surrender and a payment date subsequent
to such surrender payable with respect to such whole shares of
retained Company Common Stock.
(e) No Further Ownership Rights in Company Common
Stock Exchanged For Cash. All cash paid upon the surrender for
exchange of certificates representing shares of Company Common
Stock in accordance with the terms of this Article 2 (including
any cash paid pursuant to Section 2.7(f)) shall be deemed to
have been issued (and paid) in full satisfaction of all rights
pertaining to the shares of Company Common Stock exchanged for
cash theretofore represented by such certificates.
(f) No Fractional Shares. (i) No certificates or
scrip representing fractional shares of retained Company Common
Stock shall be issued in connection with the Merger, and such
fractional share interests will not entitle the owner thereof
to vote or to any rights of a stockholder of the Company after
the Merger; and
(ii) Notwithstanding any other provision of this
Agreement, each record holder of shares of Company Common Stock
exchanged pursuant to the Merger who would otherwise have been
entitled to receive a fraction of a share of retained Company
Common Stock (after taking into account all shares of Company
Common Stock delivered by such holder) shall receive, in lieu
thereof, a cash payment (without interest) representing such
holder's proportionate interest in the net proceeds from the
sale by the Exchange Agent (following the deduction of
applicable transaction costs), on behalf of all such holders,
of the shares (the "Excess Shares") of retained Company Common
Stock representing such fractions. Such sale shall be made as
soon as practicable after the Effective Time.
(g) Termination of Exchange Fund. Any portion of
the Merger Consideration or Warrant Consideration deposited
with the Exchange Agent pursuant to this Section 2.7 (the
"Exchange Fund") which remains undistributed to the holders of
the certificates representing shares of Company Common Stock or
Warrants for six months after the Effective Time shall be
delivered to the Company, upon demand, and any holders of
shares of Company Common Stock or Warrants prior to the Merger
who have not theretofore complied with this Article 2 shall
thereafter look only to the Company and only as general
creditors thereof for payment of
12
their claim for cash, if any, retained Company Common Stock, if
any, any cash in lieu of fractional shares of retained Company
Common Stock, any dividends or distributions with respect to
retained Company Common Stock or Warrant Consideration, as
applicable, to which such holders may be entitled.
(h) No Liability. None of Newco, the Company nor
the Exchange Agent shall be liable to any person in respect of
any shares of retained Company Common Stock (or dividends or
distributions with respect thereto) or cash from the Exchange
Fund delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law. If any
certificates representing shares of Company Common Stock or
Warrants shall not have been surrendered prior to one year
after the Effective Time (or immediately prior to such earlier
date on which any cash, if any, any cash in lieu of fractional
shares of retained Company Common Stock, any dividends or
distributions with respect to retained Company Common Stock in
respect of such certificate would otherwise escheat to or
become the property of any Governmental Entity (as defined in
Section 3.5(b)), any such cash, dividends or distributions in
respect of such certificate shall, to the extent permitted by
applicable law, become the property of the Company, free and
clear of all claims or interest of any person previously
entitled thereto.
SECTION 2.8 The Debt Offer. (a) Provided that this
Agreement shall not have been terminated in accordance with
Section 8.1, the Company shall, as soon as reasonably
practicable following execution of this Agreement (but in no
event later than fifteen calendar days after the public
announcement of the execution of this Agreement), commence an
offer to purchase all of the outstanding aggregate principal
amount of the Company's 10-3/8% Senior Notes due 2001
(hereinafter referred to as the "Notes") on the terms set forth
in Section 2.8 of the disclosure schedule between Newco and the
Company dated the date hereof (the "Disclosure Schedule") and
such other customary terms and conditions as are reasonably
acceptable to Newco (the "Debt Offer"). The Company shall
waive any of the conditions to the Debt Offer and make any
other changes in the terms and conditions of the Debt Offer as
reasonably requested by Newco, and the Company shall not,
without Newco's prior consent, waive any material condition to
the Debt Offer, make any changes to the terms and conditions of
the Debt Offer set forth on Section 2.8 of the Disclosure
Schedule or make any other material changes in the terms and
conditions of the Debt Offer. Notwithstanding the immediately
preceding sentence, Newco shall not request that the Company
make any change to the terms and conditions of the Debt Offer
which decreases the price per Note payable in the Debt Offer,
changes the form of consideration payable in the Debt Offer
(other than by adding consideration) or imposes conditions to
the Debt Offer in addition to those set forth in Section 2.8 of
the Disclosure Schedule which are materially adverse to holders
of the Notes (it being agreed that a request by Newco that the
Company waive any condition in whole or in part at any
13
time and from time to time in its sole discretion shall not be
deemed to be materially adverse to any holder of Notes), unless
such change was previously approved by the Company in writing.
The Company covenants and agrees that, subject to the terms and
conditions of this Agreement, including but not limited to the
conditions to the Debt Offer, it will accept for payment and
pay for Notes as soon as the condition set forth in Section
7.2(h) of this Agreement is satisfied and it is permitted to do
so under applicable law, provided that the Company shall
coordinate the timing of any such purchase with Newco in order
to obtain the greatest participation in the Debt Offer.
(b) Promptly following the date of this Agreement,
Newco and the Company shall prepare an offer to purchase the
Notes (or portions thereof) and forms of the related letter of
transmittal (the "Letter of Transmittal") (collectively, the
"Offer to Purchase") and summary advertisement, as well as all
other information and exhibits (collectively, the "Offer
Documents"). Newco and the Company will cooperate with each
other in the preparation of the Offer Documents. All mailings
to the holders of Notes in connection with the Debt Offer shall
be subject to the prior review, comment and reasonable approval
of Newco. The Company will use its best efforts to cause the
Offer Documents to be mailed to the holders of the Notes as
promptly as practicable following execution of this Agreement
(but in no event later than fifteen calendar days after the
public announcement of the execution of this Agreement). The
Company agrees promptly to correct any information in the Offer
Documents that shall be or have become false or misleading in
any material respect.
(c) In connection with the Debt Offer, if requested
by Newco, the Company shall promptly furnish Newco with
security position listings, any non-objecting beneficial owner
lists and any available listings or computer files containing
the names and addresses of the beneficial owners and/or record
holders of Notes, each as of a recent date, and shall promptly
furnish Newco with such additional information (including but
not limited to updated lists of Noteholders, mailing labels,
security position listings and non-objecting beneficial owner
lists) and such other assistance as Newco or its agents may
reasonably require in communicating the Debt Offer to the
record and beneficial holders of Notes.
ARTICLE 3.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Newco
that, except as set forth on the Disclosure Schedule, but, with
respect to any specific representation and warranty, only to
the extent that it would be reasonably apparent that a
reference on
14
the Disclosure Schedule relates to such representation and
warranty:
SECTION 3.1 Organization and Qualification;
Subsidiaries. Each of the Company and each of its Significant
Subsidiaries is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction of its
incorporation and has the requisite corporate power and
authority and any necessary governmental approvals to own,
lease and operate its properties and to carry on its business
as it is now being conducted, except where the failure to be so
organized, existing and in good standing or to have such power,
authority and governmental approval could not, individually or
in the aggregate, reasonably be expected to have a Material
Adverse Effect (as defined below). Each of the Company and
each of its Significant Subsidiaries is duly qualified or
licensed as a foreign corporation to do business, and is in
good standing, in each jurisdiction where the character of the
properties owned, leased or operated by it or the nature of its
activities makes such qualification or licensing necessary,
except for such failures to be so duly qualified or licensed
and in good standing which could not, individually or in the
aggregate, reasonably be expected to have a Material Adverse
Effect. When used in connection with the Company or any of its
subsidiaries, the term "Material Adverse Effect" means any
change or effect that, either individually or in the aggregate
with all other changes or effects, is materially adverse to the
business, financial condition or results of operations of the
Company and its subsidiaries taken as a whole.
SECTION 3.2 Certificate of Incorporation and By-
Laws. The Company has heretofore furnished to Newco a complete
and correct copy of the certificate of incorporation and the
by-laws of the Company as currently in effect. Such
certificate of incorporation and by-laws are in full force and
effect and no other organizational documents are applicable to
or binding upon the Company. The Company is not in violation
of any of the provisions of its certificate of incorporation or
by-laws.
SECTION 3.3 Capitalization. The authorized capital
stock of the Company consists of 40,000,000 shares of Company
Common Stock and 10,000,000 shares of Preferred Stock, $.01 par
value per share (the "Preferred Stock"). As of October 1,
1996, (i) 19,146,211 shares of Company Common Stock were issued
and outstanding, all of which were validly issued, fully paid
and nonassessable and were issued free of preemptive (or
similar) rights, (ii) 0 shares of Company Common Stock were
held in the treasury of the Company, (iii) an aggregate of
2,620,282 shares of Company Common Stock were reserved for
issuance and issuable upon or otherwise deliverable in
connection with the exercise of outstanding Options and (iv) an
aggregate of 3,695,317 shares of Company Common Stock were
reserved for issuance and issuable upon or otherwise
deliverable in connection with the exercise of outstanding
warrants (the "Warrants") issued pursuant to the
15
Warrant Agreement, dated March 31, 1993, between the Company
and The First National Bank of Boston (the "Warrant
Agreement"). As of the date hereof, no shares of Preferred
Stock are issued and outstanding. Since October 1, 1996, the
Company has not issued or reserved for issuance (a) any shares
of capital stock or other voting securities of the Company or
any of its subsidiaries, except as a result of the exercise of
Options or Warrants outstanding at October 1, 1996 or (b) any
Options or Warrants, except as described in this Section 3.3.
Other than Options or Warrants outstanding as of the date
hereof, the Company has issued or reserved for issuance (a) no
options or other rights to acquire from the Company or any of
its subsidiaries, and no obligation of the Company or any of
its subsidiaries to issue, any capital stock, voting securities
or securities convertible into or exchangeable for capital
stock or voting securities of the Company or any of its
subsidiaries and (b) no equity equivalents, interests in the
ownership or earnings of the Company or any of its subsidiaries
or other similar rights (collectively, with the Options and the
Warrants, "Company Securities"). All shares of Company Common
Stock subject to issuance as aforesaid, upon issuance on the
terms and conditions specified in the instruments pursuant to
which they are issuable, will be duly authorized, validly
issued, fully paid and nonassessable and free of preemptive (or
similar) rights. There are no outstanding obligations of the
Company or any of its subsidiaries to repurchase, redeem or
otherwise acquire any Company Securities or to provide funds to
or make any investment (in the form of a loan, capital
contribution or otherwise) in any such subsidiary or any other
entity. Except for the Equity Registration Rights Agreement
dated March 31, 1993, among the Company, Dickstein & Co., L.P.,
Dickstein International Limited, TCW Special Credit Funds,
Cargill Financial Services Corporation, Lodestar Management
Incorporated and Lodestar Associates, L.P (together with
Lodestar Management Incorporated, "Lodestar") and the Warrant
Registration Rights Agreement dated March 31, 1993, between the
Company and Lodestar, there are no other options, calls,
warrants or other rights, agreements, arrangements or
commitments of any character relating to the issued or unissued
capital stock of the Company or any of its subsidiaries to
which the Company or any of its subsidiaries is a party. The
Company has delivered to Newco prior to the date hereof a true
and complete list of the subsidiaries and associated entities
of the Company which evidences, among other things, the amount
of capital stock or other equity interests owned by the
Company, directly or indirectly, in such subsidiaries or
associated entities. Each of the outstanding shares of capital
stock of each of the Company's Significant Subsidiaries is duly
authorized, validly issued, fully paid and nonassessable and
all such shares are owned by the Company or another wholly
owned subsidiary of the Company and are owned free and clear of
all security interests, liens, claims, pledges, agreements,
limitations in voting rights, charges or other encumbrances of
any nature whatsoever, except as set forth on Section 3.3 of
the Disclosure Schedule. No entity in which the Company owns,
16
directly or indirectly, less than a 50% equity interest is,
individually or when taken together with all such other
entities, material to the business of the Company and its
subsidiaries taken as a whole. As of the date hereof, the only
outstanding indebtedness for borrowed money of the Company and
its subsidiaries is (i) $70 million in aggregate principal
amount of Notes issued pursuant to the Indenture between the
Company and AmSouth Bank, N.A., as Trustee, dated as of June
2, 1994 (the "Indenture"), (ii) $48,500,000 in aggregate
principal amount issued under, the Credit Agreement, dated June
2, 1994 (the "Credit Agreement"), by and among the Company, the
lenders listed therein, The Toronto-Dominion Bank, as facing
bank, and Toronto Dominion (Texas), Inc., as agent, (iii)
$7,437,000 aggregate principal amount issued under a loan
agreement, dated June 2, 1994 (the "Loan Agreement") between
the Company and SouthTrust Bank of Alabama, N.A., (iv)
$33,025,000 aggregate principal amount outstanding under
industrial revenue bonds which are secured by a like amount of
letters of credit issued under to the Credit Agreement, (v)
$5,350,000 in aggregate principal amount of industrial revenue
bonds secured by real property and (vi) $64,000 aggregate
principal amount issued under a bank overdraft line, dated
August 29, 1995, between the Company and NationsBank of Georgia
N.A. The loans and other extensions of credit under the Credit
Agreement and the Loan Agreement are each prepayable in full in
accordance with their respective terms.
SECTION 3.4 Authority Relative to This Agreement.
The Company has all necessary corporate power and authority to
execute and deliver this Agreement, to perform its obligations
hereunder and to consummate the transactions contemplated
hereby. The execution, delivery and performance of this
Agreement by the Company and the consummation by the Company of
the transactions contemplated hereby have been duly and validly
authorized by all necessary corporate action and no other
corporate proceedings on the part of the Company are necessary
to authorize this Agreement or to consummate the transactions
so contemplated (other than, with respect to the Merger, the
approval of this Agreement by the holders of a majority of the
outstanding shares if and to the extent required by the DGCL,
and the filing of appropriate merger documents as required by
the DGCL). This Agreement has been duly and validly executed
and delivered by the Company and, assuming the due
authorization, execution and delivery hereof by Newco, consti-
tutes a legal, valid and binding obligation of the Company en-
forceable against the Company in accordance with its terms.
The Board of Directors of the Company has approved this
Agreement and the transactions contemplated hereby (including
but not limited to the Debt Offer and the Merger) so as to
render inapplicable hereto and thereto the limitation on
business combinations contained in Section 203 of the DGCL (or
any similar provision). The Board of Directors of the Company
has approved the Voting Agreement and the transactions
contemplated thereby so as to render inapplicable thereto the
limitation on business combinations contained in Section 203 of
the DGCL (or any similar provision). As a result of the
foregoing actions, the only vote
17
required to authorize the Merger is the affirmative vote of a
majority of the outstanding shares of Company Common Stock.
SECTION 3.5 No Conflict; Required Filings and
Consents. (a) The execution, delivery and performance of this
Agreement by the Company do not and will not: (i) conflict
with or violate the certificate of incorporation or by-laws of
the Company or the equivalent organizational documents of any
of its Significant Subsidiaries; (ii) assuming that all
consents, approvals and authorizations contemplated by clauses
(i), (ii) and (iii) of subsection (b) below have been obtained
and all filings described in such clauses have been made,
conflict with or violate any law, rule, regulation, order,
judgment or decree applicable to the Company or any of its
subsidiaries or by which its or any of their respective
properties are bound or affected; or (iii) result in any breach
or violation of or constitute a default (or an event which with
notice or lapse of time or both could become a default) or
result in the loss of a material benefit under, or give rise to
any right of termination, amendment, acceleration or
cancellation of, or result in the creation of a lien or
encumbrance on any of the properties or assets of the Company
or any of its subsidiaries pursuant to, any note, bond,
mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other instrument or obligation to which
the Company or any of its subsidiaries is a party or by which
the Company or any of its subsidiaries or its or any of their
respective properties are bound or affected, except (A) in the
case of clauses (ii) and (iii), for any such conflicts, viola-
tions, breaches, defaults or other occurrences which could not,
individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect and (B) in the case of clause
(iii), other than as set forth on Section 3.5(a) of the
Disclosure Schedule and except that the consummation of the
Merger may result in conflicts, violations, breaches or
defaults under the Indenture, the Credit Agreement and the Loan
Agreement.
(b) The execution, delivery and performance of this
Agreement by the Company and the consummation of the Merger by
the Company do not and will not require any consent, approval,
authorization or permit of, action by, filing with or
notification to, any Federal, state or local government or any
court, administrative agency or commission or other
governmental authority, official or agency, domestic or foreign
(a "Governmental Entity"), except for (i) the applicable
requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and the rules and regulations promulgated
thereunder, the Securities Act of 1933, as amended (the
"Securities Act"), and the rules and regulations promulgated
thereunder, the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act"), state securities, takeover
and Blue Sky laws, (ii) the filing and recordation of
appropriate merger or other documents as required by the DGCL
and (iii) such consents, approvals, authorizations, permits,
actions, filings or notifications the failure of which to make
or obtain could not
18
reasonably be expected to (x) prevent or materially delay
consummation of the Debt Offer or the Merger or (y) have a
Material Adverse Effect.
SECTION 3.6 Compliance. Neither the Company nor any
of its subsidiaries is in conflict with, or in default or
violation of, (i) any law, rule, regulation, order, judgment or
decree applicable to the Company or any of its subsidiaries or
by which its or any of their respective properties are bound or
affected or (ii) any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other
instrument or obligation to which the Company or any of its
subsidiaries is a party or by which the Company or any of its
subsidiaries or its or any of their respective properties are
bound or affected, except for any such conflicts, defaults or
violations which could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect.
SECTION 3.7 SEC Filings; Financial Statements. (a)
The Company and, to the extent applicable, each of its then or
current subsidiaries, has filed all forms, reports, statements
and documents required to be filed with the SEC since March 31,
1993 (collectively, the "SEC Reports"), each of which has
complied in all material respects with the applicable
requirements of the Securities Act, and the rules and
regulations promulgated thereunder, or the Exchange Act and the
rules and regulations promulgated thereunder, each as in effect
on the date so filed. The Company has heretofore delivered or
promptly will deliver to Newco, in the form filed with the SEC
(including any amendments thereto), (i) its (and, to the extent
applicable, its subsidiaries') Annual Reports on Form 10-K for
each of the three fiscal years ended June 3, 1994, June 2, 1995
and May 31, 1996 (as amended by the Form 10-K/A filed with the
SEC on September 30, 1996), (ii) all definitive proxy
statements relating to the Company's (and such subsidiaries')
meetings of stockholders (whether annual or special) held since
March 31, 1993 and (iii) all other SEC Reports. No SEC Report
contained, when filed, any untrue statement of a material fact
or omitted to state a material fact required to be stated or
incorporated by reference therein or necessary in order to make
the statements therein, in the light of the circumstances under
which they were made, not misleading. Except to the extent re-
vised or superseded by a subsequent filing with the SEC (a copy
of which has been provided to Newco prior to the date hereof),
none of the SEC Reports filed prior to the date hereof contains
any untrue statement of a material fact or omits to state a
material fact required to be stated or incorporated by
reference therein or necessary in order to make the statements
therein, in the light of the circumstances under which they
were made, not misleading.
(b) Each of the audited and unaudited consolidated
financial statements of the Company (including any related
notes thereto) included in its Annual Reports on Form 10-K for
each of the three fiscal years ended June 3, 1994, June 2, 1995
and May
19
31, 1996, which have previously been furnished to Newco,
complies as to form in all material respects with all
applicable accounting requirements and with the published rules
and regulations of the SEC with respect thereto, has been
prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods
involved (except as may be indicated in the notes thereto) and
fairly presents the consolidated financial position of the
Company and its subsidiaries at the respective date thereof and
the consolidated results of its operations and changes in cash
flows for the periods indicated.
(c) Except as and to the extent set forth on the
consolidated balance sheet of the Company and its subsidiaries
at May 31, 1996, including the notes thereto, neither the
Company nor any of its subsidiaries has any liabilities or
obligations of any nature (whether accrued, absolute,
contingent or otherwise) which would be required to be
reflected on a balance sheet or in the notes thereto prepared
in accordance with generally accepted accounting principles
consistently applied, except for liabilities or obligations
incurred in the ordinary course of business since May 31, 1996.
SECTION 3.8 Absence of Certain Changes or Events.
Since May 31, 1996, except as contemplated by this Agreement,
disclosed in the SEC Reports filed and publicly available prior
to the date of this Agreement or disclosed in Section 3.8 of
the Disclosure Schedule, the Company and its subsidiaries have
conducted their businesses only in the ordinary course and,
since such date, there has not been (i) any condition, event or
occurrence which, individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect, (ii)
any action which, if it had been taken after the date hereof,
would have required the consent of Newco under Section 5.1
hereof or (iii) any condition, event or occurrence which could
reasonably be expected to prevent, hinder or materially delay
the ability of the Company to consummate the transactions
contemplated by this Agreement.
SECTION 3.9 Absence of Litigation. Except as
disclosed with reasonable specificity in the SEC Reports filed
and publicly available prior to the date of this Agreement,
there are no suits, claims, actions, proceedings or
investigations pending or, to the best knowledge of the
Company, threatened against the Company or any of its
subsidiaries, or any properties or rights of the Company or any
of its subsidiaries, before any Governmental Entity, that (i)
individually or in the aggregate, could reasonably be expected
to have a Material Adverse Effect or (ii) seek to delay or
prevent the consummation of the transactions contemplated
hereby. As of the date hereof, neither the Company nor any of
its subsidiaries nor any of their respective properties is or
are subject to any order, writ, judgment, injunction, decree,
determination or award having, or which, insofar as can be
reasonably foreseen, in the future could
20
reasonably be expected to have a Material Adverse Effect or
could prevent or materially delay the consummation of the
transactions contemplated hereby. As of the date hereof, no
officer or director of the Company is a defendant in any
litigation commenced by stockholders of the Company with re-
spect to the performance of his or her duties as an officer
and/or director of the Company under any federal or state law
(including litigation under federal and state securities laws).
Except as set forth in Section 3.9 of the Disclosure Schedule,
to the knowledge of the Company, there exist no indemnification
agreements with any of the directors and officers of the
Company.
SECTION 3.10 Properties. (a) The Company or one of
its subsidiaries has (i) good and marketable fee title to the
real property owned in fee by the Company or any of its
subsidiaries (collectively, the "Owned Properties") and (ii)
good and valid leasehold title or other occupancy right to the
real property leased, subleased or licensed by the Company or
any of its subsidiaries (collectively, the "Leased Properties")
(Owned Properties and Leased Properties being sometimes
referred to herein collectively as the "Company Properties"),
in each case free and clear of all options to purchase or lease
(in the case of the Owned Properties), leases, conditions of
limitation, mortgages, liens, security interests, easements,
encumbrances, covenants, rights-of-way and other similar
restrictions, except for such options, leases, conditions of
limitation, mortgages, liens, security interests, easements,
encumbrances, covenants, rights-of-way and other similar
restrictions set forth in Section 3.10 of the Disclosure
Schedule or which, individually or in the aggregate with all
other options, leases, conditions of limitation, mortgages,
liens, security interests, easements, encumbrances, covenants,
rights-of-way and other similar restrictions, could not
reasonably be expected to have a Material Adverse Effect or
prevent or materially delay the transactions contemplated
hereby.
(b) Each agreement under which real property is
leased, subleased or licensed to the Company as of the date
hereof (collectively, the "Company Leases") is in full force
and effect in accordance with its respective terms and the
Company or one of its subsidiaries is the holder of the
lessee's or tenant's interest thereunder and there exists no
default under any of the Company Leases by the Company or any
of its subsidiaries and no circumstance exists which, with the
giving of notice, the passage of time or both could result in
such a default, except for such defaults or other circumstances
set forth in Section 3.10 of the Disclosure Schedule or which,
individually or in the aggregate with all other defaults or
other circumstances, could not reasonably be expected to have a
Material Adverse Effect or prevent or materially delay the
transactions contemplated hereby; except as set forth in
Section 3.10 of the Disclosure Schedule, the transfer of the
shares of Company Common Stock or the consummation of any other
part of the transactions contemplated by this Agreement does
not violate the terms of any of the
21
Company Leases. Except as set forth in Section 3.10 of the
Disclosure Schedule and except for any violations, individually
or in the aggregate with all other violations, could not
reasonably be expected to have a Material Adverse Effect or
prevent or materially delay the transactions contemplated
hereby, neither the Company nor any of its subsidiaries (or any
of the affiliates of any of the foregoing) has an ownership,
financial or other interest in the landlord under any of the
Company Leases, which exceeds a 50% ownership, financial or
other interest in such landlord.
(c) Except as set forth in Section 3.10 of the
Disclosure Schedule, each of the reciprocal easement or
operating agreements to which the Company or any of its
subsidiaries is a party as of the date hereof and which
encumbers any of the Company Properties (collectively, the
"REAs") is in full force and effect and there exists no default
on the part of the Company or any subsidiary of the Company
under any REA and no circumstance exists which, with the giving
of notice, the passage of time or both could result in such a
default, except for such defaults or other circumstances set
forth in Section 3.10 of the Disclosure Schedule or which,
individually or in the aggregate with all other defaults or
circumstances, could not reasonably be expected to have a Mate-
rial Adverse Effect or prevent or materially delay the transac-
tions contemplated hereby; except as set forth in Section 3.10
of the Disclosure Schedule and except for any violation or
failure to obtain consent, individually or in the aggregate
with all other violations or failures, could not reasonably be
expected to have a Material Adverse Effect or prevent or
materially delay the transactions contemplated hereby, the
transfer of the shares of Company Common Stock or the
consummation of any other part of transactions contemplated by
this Agreement does not violate the terms of any REAs nor is
the consent of any party to any of the REAs required to be
obtained in connection with the transactions contemplated under
this Agreement.
(d) The current operation and use of the Company
Properties does not violate any statutes, laws, regulations,
rules, ordinances, permits, requirements, orders or decrees now
in effect except for such violations which could not,
individually or in the aggregate with all other violations,
reasonably be expected to have a Material Adverse Effect or
prevent or materially delay the transactions contemplated
hereby.
SECTION 3.11 Employee Benefit Plans. (a) Section
3.11(a) of the Disclosure Schedule contains a true and complete
list of each "employee benefit plan" (within the meaning of
Section 3(3) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA") (including without limitation
multiemployer plans within the meaning of ERISA Section 3(37)),
stock purchase, stock option, severance, employment, change-in-
control, fringe benefit, collective bargaining, bonus,
incentive, deferred compensation and all other employee benefit
plans,
22
agreements, programs, policies or other arrangements, whether
or not subject to ERISA (including any funding mechanism
therefor now in effect or required in the future as a result of
the transaction contemplated by this Agreement or otherwise),
under which any employee or former employee of the Company or
any of its subsidiaries has, or could reasonably be expected to
have, any present or future right to benefits or under which
the Company or any subsidiary of the Company has, or could
reasonably be expected to have, any present or future
liability. All such plans, agreements, programs, policies and
arrangements shall be collectively referred to as the "Company
Plans". Section 3.11 of the Disclosure Schedule also contains
a true and complete description of all severance plans of the
Company or any of its subsidiaries. No Company Plan is a mul-
tiemployer plan within the meaning of Section 4001(a)(3) of
ERISA or is an "employee pension plan" within the meaning of
Section 3(2) of ERISA subject to Title IV of ERISA.
(b) With respect to each Company Plan, the Company
has delivered or made available to Newco a current, accurate
and complete copy (or, to the extent no such copy exists, an
accurate description) thereof and, to the extent applicable,
(i) any related trust agreement, annuity contract or other
funding instrument; (ii) the most recent determination letter;
(iii) any summary plan description and other written
communications (or description of any oral communication) by
the Company or any of its subsidiaries which modify in any
significant respect the benefits provided under the terms of
any Company Plan in a manner not reflected in any of the
documents described in this subsection (b); and (iv) for the
three most recent years (A) the Form 5500 and attached
schedules; (B) audited financial statements; and (C) actuarial
valuation reports.
(c) With respect to all the Company Plans, except as
set forth in the SEC Reports and except as could not
individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect: (i) all Company Plans are in
substantial compliance with all applicable law, including the
Internal Revenue Code of 1986, as amended (the "Code") and
ERISA, including in compliance with all filing and reporting
requirements; (ii) the aggregate accumulated benefit
obligations of each pension plan that is subject to Title IV of
ERISA (as of the date of the most recent actuarial valuation
prepared for such Plan) do not exceed the fair market value of
the assets of such pension plan (as of the date of such
valuation), and no material adverse change has occurred with
respect to the financial condition of such plan since such last
valuation; (iii) each pension plan that is intended to be
qualified under Section 401(a) of the Code has received a
favorable determination letter from the Internal Revenue
Service, and the Company is not aware of any circumstances
likely to result in revocation of any such favorable
determination letter; (iv) there is no pending or, to the
knowledge of the officers of the Company, threatened litigation
or administrative agency proceeding relating to any
23
Company Plan (other than benefit claims in the ordinary
course); (v) the Company has no obligations under any unfunded
deferred compensation plans other than with respect to the Non-
qualified Deferred Compensation Plan effective August 1, 1996,
and the Company's liability with respect to such plan does not
exceed the assets held by the applicable rabbi trust or
otherwise set aside in satisfaction of benefits payable to
participants thereunder by more than $200,000; and (vi) neither
the Company, its subsidiaries nor any entity that is treated as
a single employer with the Company or its subsidiaries under
Section 414(b), (c), (m) or (o) of the Code (an "ERISA
Affiliate") has incurred or reasonably expects to incur any
lien or liability to the Pension Benefit Guaranty Corporation,
any Pension Plan or otherwise under Title IV of ERISA (other
than the payment of contributions or premiums, none of which
are overdue) or under Section 412 of the Code.
(d) Except as specifically contemplated by this
Agreement or as disclosed in Section 3.11(d) of the Disclosure
Schedule, the consummation of the Merger and other transactions
contemplated by this Agreement will not (x) entitle any Company
employee or director to severance pay, or (y) 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 Plans.
SECTION 3.12 Tax Matters. For purposes of this
Section 3.12, any reference to the Company or its subsidiaries
shall include any corporation that merged or was liquidated
with and into the Company or any of its subsidiaries. Except
as disclosed in Section 3.12 of the Disclosure Schedule:
(a) All Tax Returns required to be filed by or with
respect to the Company and its subsidiaries have been
timely filed. The Company and its subsidiaries have (i)
timely paid all Taxes that are due, or that have been
asserted in writing by any taxing authority to be due,
from or with respect to it for the periods ending prior to
the date hereof or (ii) provided adequate reserves in its
financial statements for any Taxes that have not been
paid, whether or not shown as being due on any Tax
Returns.
(b) No material claim for unpaid Taxes has become a
lien against the property of the Company or any of its
subsidiaries or is being asserted against the Company or
any of its subsidiaries.
(c) The statute of limitations with respect to the
Tax Returns of the Company and its subsidiaries and of
each affiliated group (within the meaning of the Code) of
which the Company and any of its subsidiaries are or have
been a member for all periods through the respective years
specified in Section 3.12 of the Disclosure Schedule has
expired. There are no outstanding agreements, waivers or
24
arrangements extending the statutory period of limitation
applicable to any claim for, or the period for the
collection or assessment of, Taxes due from or with
respect to the Company or any subsidiary of the Company
for any taxable period, and no power of attorney granted
by or with respect to the Company or any subsidiary of the
Company relating to Taxes is currently in force.
(d) No audit or other proceeding by any Governmental
Entity has formally commenced and no specific notification
has been given to the Company or any subsidiary of the
Company that such an audit or other proceeding is pending
or threatened with respect to any Taxes due from or with
respect to the Company or any subsidiary of the Company or
any Tax Return filed by or with respect to the Company or
any subsidiary of the Company. No assessment of Tax has
been proposed in writing against the Company or any
subsidiary of the Company or any of their assets or
properties.
(e) As of the Effective Time, neither the Company
nor any of the subsidiaries shall be a party to, be bound
by or have any obligation under, any Tax sharing agreement
or similar contract or arrangement.
(f) There is no contract or agreement, plan or
arrangement by the Company or any subsidiary of the
Company covering any person that, individually or
collectively, could give rise to the payment of any amount
that would not be deductible by the Company or its
subsidiaries by reason of section 280G of the Code, as now
in effect.
(g) As used herein, "Taxes" shall mean all taxes of
any kind, including, without limitation, those on or
measured by or referred to as income, gross receipts,
sales, use, ad valorem, franchise, profits, license,
withholding, payroll, employment, excise, severance,
stamp, occupation, premium, value added, property or
windfall profits taxes, customs, duties or similar fees,
assessments or charges of any kind whatsoever, together
with any interest and any penalties, additions to tax or
additional amounts imposed by any Governmental Entity. As
used herein, "Tax Return" shall mean any return,
declaration, report, claim for refund or information
return or statement relating to Taxes, including any
schedule or attachment thereto, and including any
amendment thereof.
SECTION 3.13 Environmental Laws. To the extent that
any inaccuracy, individually or in the aggregate with any other
inaccuracy, could not reasonably be expected to have a Material
Adverse Effect, (a) each of the Company and each of its
subsidiaries complies and has complied with all Environmental
Laws applicable to the properties, assets or businesses of the
Company and its subsidiaries, and possesses and complies with
and
25
has possessed and complied with all Environmental Permits
required under such laws except where any noncompliance or
failure to possess any Environmental Permit has not had or
could not reasonably be expected to result in individually or
in the aggregate material liability under Environmental Laws;
(b) no modification, revocation, reissuance, alteration,
transfer, or amendment of any of the Environmental Permits, or
any review by, or approval of, any third party of any of the
Environmental Permits is required in connection with the
execution or delivery of this Agreement or the consummation of
the transactions contemplated hereby or the continuation of the
business of Company and its subsidiaries following such
consummation; (c) none of the Company and its subsidiaries has
received any Environmental Claim, and none of the Company and
its subsidiaries is aware after reasonable inquiry of any
threatened Environmental Claim; (d) none of the Company and its
subsidiaries has assumed, contractually or by operation of law,
any liabilities or obligations under any Environmental Laws;
(e) there are no past or present events, conditions,
circumstances, practices, plans or legal requirements that
could reasonably be expected to result in material liability to
the Company or any of its subsidiaries under Environmental
Laws, prevent, or reasonably be expected to materially increase
the burden on the Company or any subsidiary of, complying with
Environmental Laws or of obtaining, renewing, or complying with
all Environmental Permits required under such laws; (f) there
are and have been no Hazardous Materials or other conditions at
or from any property owned, operated or otherwise used by the
Company or any subsidiary now or in the past that could
reasonably be expected to give rise to material liability of
the Company or any subsidiary under any Environmental Law. For
purposes of this Agreement, the following terms shall have the
following meanings:
"Environmental Claim" means any written or oral
notice, claim, demand, action, suit, complaint, proceeding
or other communication by any person alleging liability or
potential liability arising out of, relating to, based on
or resulting from (i) the presence, discharge, emission,
release or threatened release of any Hazardous Materials
at any location, whether or not owned, leased or operated
by the Company or any of its subsidiaries or (ii)
circumstances forming the basis of any violation or
alleged violation of any Environmental Law or
Environmental Permit or (iii) otherwise relating to
obligations or liabilities under any Environmental Laws.
"Environmental Permits" means all permits, licenses,
registrations and other governmental authorizations
required for the Company and the operations of the
Company's and its subsidiaries' facilities and otherwise
to conduct its business under Environmental Laws.
"Environmental Laws" means all applicable federal,
state and local statutes, rules, regulations, ordinances,
26
orders, decrees and common law, as they exist at the date
hereof, relating in any manner to contamination, pollution
or protection of human health or the environment,
including without limitation the Comprehensive
Environmental Response, Compensation and Liability Act,
the Solid Waste Disposal Act, the Resource Conservation
and Recovery Act, the Clean Air Act, the Clean Water Act,
the Toxic Substances Control Act, the Occupational Safety
and Health Act, the Emergency Planning and Community-
Right-to-Know Act, the Safe Drinking Water Act, all as
amended, and similar state laws.
"Hazardous Materials" means all hazardous or toxic
substances, wastes, materials or chemicals, petroleum
(including crude oil or any fraction thereof) and
petroleum products, asbestos and asbestos-containing
materials, pollutants, contaminants and all other
materials, substances and forces, including but not
limited to electromagnetic fields, regulated pursuant to,
or that could form the basis of liability under, any
Environmental Law.
SECTION 3.14 Offer Documents; Proxy Statement. None
of the information supplied by the Company for inclusion in (i)
the Offer Documents, shall, at the time the Offer Documents or
any amendments or supplements thereto are first published, sent
or given to noteholders, as the case may be, 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 the light of the circumstances under
which they were made, not misleading, (ii) the registration
statement on Form S-4 to be filed with the SEC by the Company
in connection with the issuance of the Common Stock of the
Company following the Merger (such Form S-4, as amended or
supplemented, is herein referred to as the "Form S-4") will, at
the time the Form S-4 is filed with the SEC, and at any time it
is amended or supplemented or at the time it 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 (iii) the proxy statement to be sent to the
stockholders of the Company in connection with the Stockholders
Meeting (as defined in Section 6.1) (such proxy statement, as
amended or supplemented, is herein referred to as the "Proxy
Statement") will, at the date it is first mailed to the
Company's stockholders or at the time of the Stockholders
Meeting, 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 the
light of the circumstances under which they are made, not
misleading. The Form S-4 will, as of its effective date, and
the prospectus contained therein will, as of its date, comply
as to form in all material respects with the requirements of
the Securities Act and the rules and regulations promulgated
thereunder. The Proxy Statement will comply as to form in all
material respects with the requirements of the Exchange Act and
the rules and regulations promulgated thereunder, except that
no
27
representation is made by the Company with respect to
statements made or incorporated by reference therein based on
information supplied in writing by Newco specifically for
inclusion in the Proxy Statement. For purposes of this
Agreement, the parties agree that statements made and
information in the Offer Documents, the Form S-4 and the Proxy
Statement relating to the Federal income tax consequences of
the transactions herein contemplated to holders of Company
Common Stock shall be deemed to be supplied by the Company and
not by Newco.
SECTION 3.15 Brokers. No broker, finder or
investment banker (other than CS First Boston) is entitled to
any brokerage, finder's or other fee or commission in
connection with the transactions contemplated by this Agreement
based upon arrangements made by and on behalf of the Company.
The Company has heretofore furnished to Newco a complete and
correct copy of all agreements between the Company and the
Financial Adviser pursuant to which such firm would be entitled
to any payment relating to the transactions contemplated
hereby.
SECTION 3.16 Opinion of Financial Advisor. The
Company has received the opinion of CS First Boston (the
"Financial Adviser") dated the date of this Agreement, to the
effect that the consideration to be received in the Merger by
the Company's stockholders is fair to the holders of the
Company Common Stock from a financial point of view. The
aggregate fees payable under such agreements will not exceed
$2.75 million.
SECTION 3.17 Labor Matters. As of the date hereof,
the Company is not a party to any agreement pursuant to which a
labor organization is certified under applicable labor law as a
bargaining agent for any of the Company's or any of its
subsidiaries' employees, nor is any such agreement presently
being negotiated.
SECTION 3.18 Board Recommendation. The Board of
Directors of the Company, at a meeting duly called and held,
has by unanimous vote of those directors present (who
constituted 100% of the directors then in office) (i)
determined that this Agreement and the transactions
contemplated hereby, including the Merger, and the Voting
Agreement and the transactions contemplated thereby, taken
together, are fair to and in the best interests of the
stockholders of the Company, and (ii) resolved to recommend
that the holders of the shares of Company Common Stock approve
this Agreement and the transactions contemplated herein,
including the Merger.
SECTION 3.19 Tradenames. The Company or its
subsidiaries owns (in each case, except as set forth in Section
3.19 of the Disclosure Schedule, free and clear of any liens,
encumbrances or security interests) all rights to all domestic
or foreign trademarks, trade names, brandmarks, brand names,
copyrights, applications pending for trademarks or trade name
registrations, and brandmarks or brand name registrations or
28
copyright registrations and other proprietary rights for child
care, preschool and after-school educational services and goods
and services related to the rendition of such services
("Intellectual Property") used by the Company and each of its
subsidiaries, including, without limitation, the exclusive
right to use the names and marks KINDERCARE, KINDERCARE
(DESIGN) and marks presenting KINDERCARE as a formative portion
thereof (i.e. KINDERCARE WOODEN TOYS, KINDERCARE WEAR,
KINDERCARE PROMISE) and KLUBMATES and any confusingly similar
variations thereof used by the Company or its subsidiaries for
child care, preschool and after-school educational services and
goods and services related to the rendition of such services,
in each case in each state in which the centers to which such
Intellectual Property relates are located, except to the extent
that any failure to own such rights could not, individually or
in the aggregate with all other failures, reasonably be
expected to have a Material Adverse Effect. The Company is the
owner of the mark KID'S CHOICE for educational services
exclusively throughout the United States, with the exception of
the geographic area of use of the mark KID'S CHOICE in the
States of Pennsylvania and New York by the entities identified
in the Company's presently pending concurrent use service mark
application for KID'S CHOICE and KID'S CHOICE (DESIGN), which
such application is set forth in Section 3.19 of the Disclosure
Schedule, except to the extent that the failure to be such
owner could not reasonably be expected to have a Material
Adverse Effect. Except as set forth in Section 3.19 of the
Disclosure Schedule, to the best knowledge of the Company, the
use of the Intellectual Property by the Company and its
subsidiaries does not infringe on the rights of any person,
except for such infringement which individually or in the
aggregate with other infringements, could not reasonably be
expected to have a Material Adverse Effect.
ARTICLE 4.
REPRESENTATIONS AND WARRANTIES
OF NEWCO
Newco hereby represents and warrants to the Company
that:
SECTION 4.1 Corporate Organization. Newco is a
corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction in which it is
incorporated and has the requisite corporate power and
authority and any necessary Governmental Entity to own, operate
or lease its properties and to carry on its business as it is
now being conducted, except where the failure to be so
organized, existing and in good standing or to have such power,
authority and governmental approvals could not, individually or
in the aggregate, reasonably be expected to prevent the
consummation of the Debt Offer or the Merger.
29
SECTION 4.2 Authority Relative to This Agreement.
Newco has all necessary corporate power and authority to enter
into this Agreement, to perform its obligations hereunder and
to consummate the transactions contemplated hereby. The
execution, delivery and performance of this Agreement by Newco
and the consummation by Newco of the transactions contemplated
hereby have been duly authorized by all necessary corporate
action on the part of Newco other than filing and recordation
of appropriate merger documents as required by the DGCL. This
Agreement has been duly executed and delivered by Newco and,
assuming due authorization, execution and delivery by the
Company, constitutes a legal, valid and binding obligation of
Newco enforceable against it in accordance with its terms.
SECTION 4.3 No Conflict; Required Filings and
Consents. (a) The execution, delivery and performance of this
Agreement by Newco does not and will not: (i) conflict with or
violate the certificate of incorporation or by-laws of Newco;
(ii) assuming that all consents, approvals and authorizations
contemplated by clauses (i), (ii) and (iii) of subsection (b)
below have been obtained and all filings described in such
clauses have been made, conflict with or violate any law, rule,
regulation, order, judgment or decree applicable to Newco or by
which it or its properties are bound or affected; or (iii)
result in any breach or violation of or constitute a default
(or an event which with notice or lapse of time or both could
become a default) or result in the loss of a material benefit
under, or give rise to any right of termination, amendment,
acceleration or cancellation of, or result in the creation of a
lien or encumbrance on any of the property or assets of Newco
pursuant to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other
instrument or obligation to which Newco is a party or by which
Newco or any of its properties are bound or affected, except,
in the case of clauses (ii) and (iii), for any such conflicts,
violations, breaches, defaults or other occurrences which could
not, individually or in the aggregate, reasonably be expected
to prevent the consummation of the Debt Offer or the Merger.
(b) The execution, delivery and performance of this
Agreement by Newco does not and will not require any consent,
approval, authorization or permit of, action by, filing with or
notification to, any Governmental Entity, except (i) for
applicable requirements, if any, of the Exchange Act and the
rules and regulations promulgated thereunder, the HSR Act,
state securities, takeover and Blue Sky laws, (ii) the filing
and recordation of appropriate merger or other documents as
required by the DGCL, and (iii) such consents, approvals,
authorizations, permits, actions, filings or notifications the
failure of which to make or obtain would not, individually or
in the aggregate, reasonably be expected to prevent the
consummation of the Debt Offer or the Merger.
30
SECTION 4.4 Offer Documents; Proxy Statement. None
of the information supplied in writing by Newco specifically
for inclusion in (i) the Offer Documents, shall, at the time
the Offer Documents or any amendments or supplements thereto
are first published, sent or given to noteholders, as the case
may be, 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 the light
of the circumstances under which they were made, not
misleading, (ii) the Form S-4 will, at the time the Form S-4 is
filed with the SEC, and at any time it is amended or
supplemented or at the time it 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 (iii) the Proxy Statement will, at the date it
is first mailed to the Company's stockholders or at the time of
the Stockholders Meeting, 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 the light of the circumstances under which they are
made, not misleading. Notwithstanding the foregoing, Newco
makes no representation or warranty with respect to any
information supplied by the Company or any of its
representatives which is contained in or incorporated by
reference in any of the foregoing documents.
SECTION 4.5 Brokers. No broker, finder or
investment banker (other than Salomon Brothers Inc) is entitled
to any brokerage, finder's or other fee or commission in
connection with the transactions contemplated by this Agreement
based upon arrangements made by and on behalf of Newco. Unless
the Merger is consummated, the Company shall not be responsible
for the payment of any such fees to Salomon Brothers Inc.
SECTION 4.6 Financing. Attached as Annex A-1 to A-3
of the Disclosure Schedule are true and complete copies of the
letters addressed to the Company, dated the date hereof, issued
in connection with the financing of the transactions
contemplated by this Agreement. The terms and conditions of
the letters attached as Annex A-1 to A-3 of the Disclosure
Schedule are satisfactory to Newco.
ARTICLE 5.
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 5.1 Conduct of Business of the Company
Pending the Merger. The Company covenants and agrees that,
during the period from the date hereof to the Effective Time,
unless Newco gives its prior written consent (which shall not
be unreasonably withheld), the businesses of the Company and
its subsidiaries shall be conducted only in, and the Company
and its subsidiaries shall not take any action except in, the
ordinary course of
31
business and in compliance with applicable laws; and the
Company and its subsidiaries shall each use its reasonable best
efforts to preserve substantially intact the business
organization of the Company and its subsidiaries, to keep
available the services of the present officers, employees and
consultants of the Company and its subsidiaries and to preserve
the present relationships of the Company and its subsidiaries
with customers, suppliers and other persons with which the
Company or any of its subsidiaries has significant business
relations. Except as expressly contemplated by this Agreement,
by way of amplification and not limitation, neither the Company
nor any of its subsidiaries shall, between the date of this
Agreement and the Effective Time, directly or indirectly do, or
propose or commit to do, any of the following without the prior
written consent of Newco (which shall not be unreasonably
withheld):
(a) Amend or otherwise change the certificate of
incorporation or by-laws or equivalent organizational
documents of the Company or any Significant Subsidiary;
(b) Other than as set forth on Section 5.1(b) of the
Disclosure Schedule, issue, deliver, sell, lease, sell and
leaseback, pledge, dispose of or encumber, or authorize or
commit to the issuance, delivery, sale, lease, sale/
leaseback, pledge, disposition or encumbrance of, (A) any
shares of capital stock of any class, or any options, war-
rants, convertible securities or other rights of any kind
to acquire any shares of capital stock, or any other
ownership interest (including but not limited to stock
appreciation rights or phantom stock), of the Company or
any of its subsidiaries (except for the issuance and
delivery of (i) shares of Company Common Stock issuable in
accordance with the terms of Options outstanding as of
October 1, 1996 and (ii) shares of Company Common Stock
issuable in accordance with the terms of Warrants
outstanding as of October 1, 1996) or (B) any assets of
the Company or any of its subsidiaries, other than assets
sold, leased, pledged, disposed of or encumbered in the
ordinary course of business;
(c) Declare, set aside, make or pay any dividend or
other distribution, payable in cash, stock, property or
otherwise, with respect to any of its capital stock;
(d) Reclassify, combine, split, subdivide or redeem,
purchase or otherwise acquire, directly or indirectly, any
of the capital stock of the Company or any of its
Significant Subsidiaries;
(e) (i) other than with respect to borrowings,
repayments and repurchases necessary to effect the Debt
Offer and borrowings, repayments and repurchases in the
ordinary course of business under the Credit Agreement
(which in the case of borrowings in the ordinary course of
32
business under the Credit Agreement shall not in aggregate
amount exceed $80 million at any one time outstanding,
plus any amounts necessary to effect the Debt Offer),
repurchase, repay or incur any indebtedness for borrowed
money or issue any debt securities or assume, guarantee or
endorse, or otherwise as an accommodation become
responsible for, the obligations of any person, or make
any loans, advances or capital contributions to, or
investments in, any other person; (ii) enter into any con-
tract or agreement other than in the ordinary course of
business; (iii) authorize any single expenditure for any
capital or acquisition (including without limitation any
acquisition of any corporation, partnership or other
business enterprise or division thereof) which are not
specifically provided for in the Company's capital budget
(a true and correct copy of which has been delivered to
Newco and is set forth as Section 5.1(e) of the Disclosure
Schedule), implemented taking into account normal seasonal
patterns (provided that the Company may exceed such budget
to with respect to any center by up to 10%) for the
Company and its subsidiaries taken as a whole; or (v)
enter into or amend any contract, agreement, commitment or
arrangement with respect to any of the matters set forth
in this Section 5.1(e);
(f) Except as set forth on Section 5.1(f) of the
Disclosure Schedule and to the extent required under
existing employee and director benefit plans, agreements
or arrangements as in effect on the date of this
Agreement, (i) increase the compensation or fringe
benefits of any of its directors, officers or employees,
except for increases in salary or wages of employees of
the Company or its subsidiaries, who are not directors or
officers of the Company, in the ordinary course of
business and consistent with the Company's budget, (ii)
grant any severance or termination pay not currently
required to be paid under existing severance plans to, or
enter into any employment, consulting or severance agree-
ment or arrangement with, any present or former director,
officer or other employee of the Company or any of its
subsidiaries, except for the granting of severance or
termination pay, in the ordinary course of business, to
employees who are terminated by the Company after the date
hereof or (iii) establish, adopt, enter into or amend or
terminate any collective bargaining, bonus, profit
sharing, thrift, compensation, stock option, restricted
stock, pension, retirement, deferred compensation,
employment, termination, severance or other plan,
agreement, trust, fund, policy or arrangement for the
benefit of any directors, officers or employees;
(g) Except as may be required as a result of a
change in law or in generally accepted accounting
principles, change any of the accounting practices or
principles used by it;
33
(h) Make any material tax election or settle or
compromise any material federal, state, local or foreign
tax liability;
(i) Settle or compromise any pending or threatened
suit, action or claim for in excess of $100,000 per suit,
action or claim or which relates to the transactions
contemplated hereby;
(j) Adopt a plan of complete or partial liquidation,
dissolution, merger, consolidation, restructuring,
recapitalization or other reorganization of the Company or
any of its Significant Subsidiaries (other than the
Merger); or
(k) Take, or offer or propose to take, or agree to
take in writing or otherwise, any of the actions described
in Sections 5.1(a) through 5.1(j).
ARTICLE 6.
ADDITIONAL AGREEMENTS
SECTION 6.1 Stockholders Meeting. The Company,
acting through its Board of Directors, will, as promptly as
practicable following the date of this Agreement and in
consultation with Newco, (i) duly call, give notice of, convene
and hold a meeting of its stockholders for the purpose of
considering and approving this Agreement and the transactions
contemplated hereby (the "Stockholders Meeting") and (ii) (A)
include in the Proxy Statement the unanimous recommendation of
the Board of Directors that the stockholders of the Company
vote in favor of the approval of this Agreement and the
transactions contemplated hereby and the written opinion of the
Financial Adviser that the consideration to be received by the
stockholders of the Company pursuant to the Merger is fair to
such stockholders and (B) use its best efforts to obtain the
necessary approval of this Agreement and the transactions
contemplated hereby by its stockholders.
SECTION 6.2 Proxy Statement. Promptly following the
date of this Agreement, the Company shall prepare the Proxy
Statement, and the Company shall prepare and file with the SEC
the Form S-4, in which the Proxy Statement will be included.
The Company shall use its best efforts as promptly as
practicable to have the Form S-4 declared effective under the
Securities Act as promptly as practicable after such filing.
The Company will use its best efforts to cause the Proxy
Statement to be mailed to the Company's stockholders as
promptly as practicable after the Form S-4 is declared
effective under the Securities Act. The Company shall also
take any action required to be taken under any applicable state
securities laws in connection with the registration and
qualification in connection with the Merger of
34
common stock of the Company following the Merger. The
information provided by the Company for use in the Form S-4,
and to be supplied by Newco in writing specifically for use in
the Form S-4, shall, at the time the Form S-4 becomes effective
and on the date of the Stockholders Meeting referred to above,
be true and correct in all material respects and shall not omit
to state any material fact required to be stated therein or
necessary in order to make such information not misleading, and
the Company and Newco each agree to correct any information
provided by it for use in the Form S-4 which shall have become
false or misleading. Newco and the Company will cooperate with
each other in the preparation of the Proxy Statement; without
limiting the generality of the foregoing, the Company will im-
mediately notify Newco of the receipt of any comments from the
SEC and any request by the SEC for any amendment to the Proxy
Statement or for additional information. All filings with the
SEC, including the Proxy Statement and any amendment thereto,
and all mailings to the Company's stockholders in connection
with the Merger, including the Proxy Statement, shall be
subject to the prior review, comment and approval of Newco
(which approval by Newco shall not be unreasonably withheld).
Newco will furnish to the Company the information relating to
it required by the Exchange Act and the rules and regulations
promulgated thereunder to be set forth in the Proxy Statement.
The Company agrees to use its best efforts, after consultation
with the other parties hereto, to respond promptly to any
comments made by the SEC with respect to the Proxy Statement
and any preliminary version thereof filed by it and cause such
Proxy Statement to be mailed to the Company's stockholders at
the earliest practicable time.
SECTION 6.3 Access to Information; Confidentiality.
(a) From the date hereof to the Effective Time, the Company
shall, and shall cause its subsidiaries, officers, directors,
employees, auditors, counsel, financial advisors and other
agents to, afford Newco and its representatives and the
potential financing sources for the transactions contemplated
by this Agreement complete access at all reasonable times to
its officers, employees, agents, properties, offices, centers
and other facilities and to all books, contracts and records,
and shall furnish Newco and such financing sources with all
financial, operating and other data and information as Newco,
through its representatives or such financing sources may from
time to time request. Except as required by law, each of the
Company and Newco will hold any nonpublic information in
confidence to the extent required by, and in accordance with,
the provisions of the letter dated July 3, 1996 among Kohlberg
Kravis Roberts & Co. ("KKR & Co."), Oaktree Capital Management,
LLC and the Company (the "Confidentiality Agreement").
(b) No investigation pursuant to this Section 6.3
shall affect any representations or warranties of the parties
herein or the conditions to the obligations of the parties
hereto.
35
SECTION 6.4 Third Parties. The Company shall not
take any action with respect to any transaction or proposed
transaction with a third party which could reasonably be
expected to impede, interfere with, prevent or materially delay
the Debt Offer or the Merger. The Company agrees not to
release any third party from, or waive any provisions of, any
confidentiality or standstill agreement to which the Company is
a party. The Company will immediately cease and cause to be
terminated any existing activities, discussions or negotiations
with any parties conducted heretofore with respect to any of
the foregoing.
SECTION 6.5 Employee Benefits Matters. Except as
contemplated herein, the Company, for the period ending on
December 31, 1997, shall provide employee benefits under plans,
programs and arrangements which, in the aggregate, will provide
benefits to the employees of the Company which are no less
favorable, in the aggregate, than those provided pursuant to
the plans, programs and arrangements of the Company (other than
those related to Company Securities) in effect and disclosed to
Newco on the date hereof; provided, however, that nothing
herein shall prevent the amendment or termination of any such
plan, program or arrangement, require that the Company provide
or permit investment in the securities of the Company or
interfere with the Company's right or obligation to make such
changes as are necessary to conform with applicable law.
SECTION 6.6 Directors' and Officers' Indemnification
and Insurance. (a) The Certificate of Incorporation and By-
laws of the Company following the Merger shall contain
provisions identical with respect to elimination of personal
liability and indemnification to those set forth in Articles 8
and 9 of the Certificate of Incorporation of the Company set
forth in Exhibit A hereto and Article VII, Section 5 of the By-
laws of the Company, respectively, which provisions shall not
be amended, repealed or otherwise modified for a period of six
years from the Effective Time in any manner that would
adversely affect the rights thereunder of individuals who at
the Effective Time were directors, officers, agents or
employees of the Company.
(b) The Company shall maintain in effect for six
years from the Effective Time policies of directors' and
officers' liability insurance containing terms and conditions
which are not less advantageous than those policies maintained
by the Company at the date hereof, with respect to matters
occurring prior to the Effective Time, to the extent available,
and having the maximum available coverage under the current
policies of directors' and officers' liability insurance;
provided that (i) the Company following the Merger shall not be
required to spend in excess of a $450,000 annual premium
therefor; provided further that if the Company following the
Merger would be required to spend in excess of a $450,000
premium per annum to obtain insurance having the maximum
available coverage under the current policies, the Company will
be required to spend $450,000 to maintain or procure insurance
coverage pursuant hereto, subject
36
to availability of such (or similar) coverage and (ii) such
policies may in the sole discretion of the Company be one or
more "tail" policies for all or any portion of the full six
year period.
(c) In furtherance of and not in limitation of the
preceding paragraph, Newco agrees that the officers and
directors of the Company that are defendants in all litigation
commenced by stockholders of the Company with respect to (x)
the performance of their duties as such officers and/or
directors under federal or state law (including litigation
under federal and state securities laws) and (y) Newco's offer
or proposal to acquire the Company including, without
limitation, any and all such litigation commenced on or after
the date of this Agreement (the "Subject Litigation") shall be
entitled to be represented, at the reasonable expense of the
Company, in the Subject Litigation by one counsel (and Delaware
counsel if appropriate and one local counsel in each
jurisdiction in which a case is pending and one counsel for
directors of the Company which are affiliated with Oaktree
Capital Management, LLC (the "Oaktree Directors"), if Newco and
the Company shall have reasonably concluded (based on the
advice of counsel) that there may be defenses available to such
Oaktree Directors which are different from or additional to
those available to the other directors of the Company) each of
which such counsel shall be selected by a plurality of such
director defendants; provided that neither Newco nor the
Company shall be liable for any settlement effected without its
prior written consent (which consent shall not be unreasonably
withheld) and that a condition to the indemnification payments
provided in Section 6.6(a) shall be that such officer/director
defendant not have settled any Subject Litigation without the
consent of Newco; and provided further that the neither Newco
nor the Company shall have any obligation hereunder to any
officer/director defendant when and if a court of competent
jurisdiction shall ultimately determine, and such determination
shall have become final and non-appealable, that
indemnification of such officer/director defendant in the
manner contemplated hereby is prohibited by applicable law.
(d) Upon the Effective Time, the Company shall
remain liable for all of its obligations under the existing
indemnification agreements with each of the directors and
officers of the Company.
SECTION 6.7 Notification of Certain Matters. The
Company shall give prompt notice to Newco, and Newco shall give
prompt notice to the Company, of (i) the occurrence or non-
occurrence of any event the occurrence or non-occurrence of
which would be likely to cause any representation or warranty
contained in this Agreement to be untrue or inaccurate and (ii)
any failure of the Company or Newco, as the case may be, to
comply with or satisfy any covenant, condition or agreement to
be complied with or satisfied by it hereunder; provided,
however, that the delivery of any notice pursuant to this
Section 6.7 shall not
37
limit or otherwise affect the remedies available hereunder
to the party receiving such notice.
SECTION 6.8 Further Action; Best Efforts. (a) Upon
the terms and subject to the conditions hereof, each of the
parties hereto shall use its reasonable best efforts to take,
or cause to be taken, all action, and to do or cause to be
done, and to assist and cooperate with the parties in doing,
all things necessary, proper or advisable to consummate and
make effective, in the most expeditious manner practicable, the
transactions contemplated by this Agreement and the Voting
Agreement, including but not limited to (i) cooperation in the
preparation and filing of the Offer Documents, the Form S-4,
the Proxy Statement, any required filings under the HSR Act and
any amendments to any thereof, (ii) determining whether any
filings are required to be made or consents, approvals,
waivers, licenses, permits or authorizations are required to be
obtained (or, which if not obtained, would result in an event
of default, termination or acceleration of any agreement or any
put right under any agreement) under any applicable law or
regulation or from any Governmental Entities or third parties,
including parties to loan agreements or other debt instruments,
in connection with the transactions contemplated by this
Agreement, including the Debt Offer and the Merger, and the
Voting Agreement, including the transactions contemplated by
Sections 4 and 5 thereof, and (iii) promptly making any such
filings, furnishing information required in connection
therewith and timely seeking to obtain any such consents,
approvals, permits or authorizations.
(b) Each of the parties agrees to cooperate with
each other in taking, or causing to be taken, all actions
necessary to delist the shares of Company Common Stock from
NASDAQ/NMS, provided that such delisting shall not be effective
until after the Effective Time. The parties also acknowledge
that it is Newco's intent that the shares of Company Common
Stock following the Merger will not be quoted on NASDAQ/NMS or
listed on any national securities exchange.
(c) The Company agrees to provide, and will cause
its subsidiaries and its and their respective officers,
employees and advisers to provide, all necessary cooperation in
connection with (i) the arrangement of any financing to be
consummated contemporaneous with or at or after the Closing in
respect of the transactions contemplated by this Agreement,
including without limitation, participation in meetings, due
diligence sessions, road shows, the preparation of offering
memoranda, private placement memoranda, prospectuses and
similar documents, the execution and delivery of any commitment
letters, underwriting or placement agreements, pledge and
security documents, other definitive financing documents, or
other requested certificates or documents, including a
certificate of the chief financial officer of the Company with
respect to solvency matters, comfort letters of accountants and
legal opinions as may be requested by
38
Newco and (ii) the amendment to the Indenture contemplated by
Section 2.8 of the Disclosure Schedule. The parties
acknowledge that the payment of any fees by the Company in
connection with any commitment letters shall be subject to the
occurrence of the Closing. In addition, in conjunction with
the obtaining of any such financing, the Company agrees, at the
request of Newco, to call for prepayment or redemption, or to
prepay, redeem and/or renegotiate, as the case may be, any then
existing indebtedness of the Company; provided that no such
prepayment or redemption shall themselves actually be made
until contemporaneously with or after the Effective Time.
(d) The Company shall cooperate with any reasonable
requests of Newco or the SEC related to the recording of the
Merger as a recapitalization for financial reporting purposes,
including, without limitation, to assist Newco and its
affiliates with any presentation to the SEC with regard to such
recording and to include appropriate disclosure with regard to
such recording in all filings with the SEC and all mailings to
stockholders made in connection with the Newco. In furtherance
of the foregoing, the Company shall provide to Newco for the
prior review of Newco's advisors any description of the
transactions contemplated by this Agreement which is meant to
be disseminated.
(e) (i) Newco hereby agrees to use its reasonable
best efforts, subject to normal conditions, to arrange the
financing described in Annexes A-1 and A-2 of the Disclosure
Schedule in respect of the transactions contemplated by this
Agreement (as described in Section 7.2(f) hereof), including
using its reasonable best efforts (A) to assist the Company in
the negotiation of definitive agreements with respect thereto
and (B) to satisfy all conditions applicable to Newco in such
definitive agreements. Newco will keep the Company informed of
the status of its efforts to arrange such financing, including
making reports with respect to significant developments. In
the event Newco is unable to arrange any portion of such
financing in the manner or from the sources originally
contemplated, Newco will use its reasonable best efforts,
subject to normal conditions, to arrange any such portion from
alternative sources.
(ii) Subject to the Company having received the pro-
ceeds of the financing described in Section 7.2(f) on terms
satisfactory to Newco, Newco at Closing will be capitalized
with an equity contribution of $148.75 million. Newco will be
under no obligation pursuant to the preceding sentence unless
and until the Company receives the proceeds of the financing
described in Section 7.2(f) on terms satisfactory to Newco. In
addition, Newco will be under no obligation under any
circumstances to be capitalized with equity of more than
$148.75 million.
(f) In case at any time after the Effective Time any
further action is necessary or desirable to carry out the
purposes of this Agreement, the proper officers and directors
of
39
each party to this Agreement shall use their reasonable best
efforts to take all such necessary action.
SECTION 6.9 Public Announcements. Neither Newco nor
the Company will issue any press release or public statement
with respect to the transactions contemplated by this Agreement
and the Voting Agreement, including the Debt Offer and the
Merger, without the other party's prior consent, except as may
be required by applicable law, court process or by obligations
pursuant to any listing agreement with NASDAQ. In addition to
the foregoing, Newco and the Company will consult with each
other before issuing, and provide each other the opportunity to
review and comment upon, any such press release or other public
statements with respect to such transactions. The parties
agree that the initial press release or releases to be issued
with respect to the transactions contemplated by this Agreement
shall be mutually agreed upon prior to the issuance thereof.
SECTION 6.10 Disposition of Litigation. The Company
will not voluntarily cooperate with any third party which has
sought or may hereafter seek to restrain or prohibit or
otherwise oppose the Debt Offer or the Merger and will
cooperate with Newco to resist any such effort to restrain or
prohibit or otherwise oppose the Debt Offer or the Merger.
SECTION 6.11 Affiliates. Prior to the Closing Date,
the Company shall deliver to Newco a letter identifying all
persons who are, at the time this Agreement is submitted for
approval to the stockholders of the Company, "affiliates" of
the Company for purposes of Rule 145 under the Securities Act.
The Company shall use its reasonable best efforts to cause each
such person to deliver to Newco on or prior to the Closing Date
a written agreement substantially in the form attached as
Exhibit A hereto.
SECTION 6.12 Resignation of Directors. Prior to the
Effective Time, the Company shall deliver to Newco evidence
satisfactory to Newco of the resignation of all directors of
the Company (other than Dr. Sandra Scarr and, subject to the
satisfaction of the conditions set forth in Section 6 of the
Voting Agreement, Mr. Stephen A. Kaplan), effective at the
Effective Time.
SECTION 6.13 Stop Transfer Order. The Company shall
notify the Company's transfer agent that there is a stop
transfer order with respect to all of the Subject Shares (as
defined in the Voting Agreement) and that the Voting Agreement
places limits on the voting of the Subject Shares.
40
ARTICLE 7.
CONDITIONS OF MERGER
SECTION 7.1 Conditions to Obligation of Each Party
to Effect the Merger. The respective obligations of each party
to effect the Merger shall be subject to the satisfaction at or
prior to the Effective Time of the following conditions:
(a) Company Stockholder Approval. The Company
Stockholder Approval shall have been obtained.
(b) HSR Act. The waiting period (and any extension
thereof) applicable to the Merger under the HSR Act shall
have been terminated or shall have expired.
(c) No Injunctions or Restraints. No temporary re-
straining order, preliminary or permanent injunction or
other order issued by any court of competent jurisdiction
or other legal restraint or prohibition preventing the
consummation of the Merger shall be in effect; provided,
however, that the parties hereto shall use their best
efforts to have any such injunction, order, restraint or
prohibition vacated.
(d) Form S-4. The Form S-4 shall have become
effective under the Securities Act and shall not be the
subject of any stop order or proceedings seeking a stop
order, and any material "blue sky" and other state
securities laws applicable to the registration and
qualification of the Common Stock of the Company following
the Merger shall have been complied with.
SECTION 7.2 Conditions to Obligation of Newco. The
obligations of Newco to effect the Merger are further subject
to the satisfaction at or prior to the Effective Time of the
following conditions:
(a) Representations and Warranties. The representa-
tions and warranties of the Company set forth in this
Agreement that are qualified as to materiality shall be
true and correct and any such representations and
warranties that are not so qualified shall not be true and
correct in any material respect, in each case as of the
date of this Agreement and as of the Closing Date as
though made on and as of the Closing Date. Newco shall
have received a certificate signed on behalf of the
Company by the chief executive officer and the chief
financial officer of the Company to the effect set forth
in this paragraph.
(b) Performance of Obligations of the Company. The
Company shall have performed the obligations required to
be performed by it under this Agreement at or prior to the
Closing Date (except for such failures to perform as have
41
not had or could not reasonably be expected, either
individually or in the aggregate, to have a Material
Adverse Effect with respect to the Company or materially
adversely affect the ability of the Company to consummate
the transactions herein contemplated or perform its
obligations hereunder).
(c) Consents, etc. Newco shall have received
evidence, in form and substance reasonably satisfactory to
it, that such licenses, permits, consents, approvals,
authorizations, qualifications and orders of Governmental
Entities and other third parties as are necessary in
connection with the transactions contemplated hereby have
been obtained, except where the failure to obtain such
licenses, permits, consents, approvals, authorizations,
qualifications and orders could not, individually or in
the aggregate with all other failures, reasonably be
expected to have a Material Adverse Effect.
(d) No Material Litigation. There shall not be
pending by any Governmental Entity any suit, action or
proceeding (or by any other person any suit, action or
proceeding which has a reasonable likelihood, in the
opinion of counsel to Newco, of success) (i) challenging
or seeking to restrain or prohibit the consummation of the
Merger or any of the other transactions contemplated by
this Agreement or the Voting Agreement or seeking to
obtain from Newco or any of its affiliates any damages
that are material to any such party, (ii) seeking to
prohibit or limit the ownership or operation by the
Company or any of its subsidiaries of any material portion
of the business or assets of the Company or any of its
subsidiaries or (iii) seeking to impose limitations on the
ability of Newco (or any designee of Newco pursuant to the
Voting Agreement) or any stockholder of Newco or the Com-
pany to acquire or hold, or exercise full rights of
ownership of, any shares of Company Common Stock,
including, without limitation, the right to vote the
Company Common Stock on all matters properly presented to
the stockholders of the Company.
(e) Affiliate Letters. Newco shall have received
the agreements referred to in Section 6.11.
(f) Financing. The Company shall have received the
proceeds of financing on the terms and conditions set
forth in Annexes A-1 through A-3 of the Disclosure
Schedule or upon terms and conditions which are, in the
reasonable judgement of Newco, substantially equivalent
thereto, and to the extent that any terms and conditions
are not set forth in Annexes A-1 through A-3 of the
Disclosure Schedule, on terms and conditions reasonably
satisfactory to Newco.
42
(g) Recapitalization Accounting. Newco shall be
reasonably satisfied that the Merger shall be recorded as
a recapitalization for financial reporting purposes.
(h) Notes. Newco shall have received evidence that
the terms of the Notes shall have been amended to the
reasonable satisfaction of Newco including, without
limitation, the elimination of the negative covenants
contained therein and the elimination of any restrictions
applicable to the transactions contemplated by this
Agreement. The Company shall have purchased at least that
principal amount of Notes as equals the minimum condition
of the Debt Offer.
SECTION 7.3 Conditions to Obligation of the Company.
The obligations of the Company to effect the Merger are further
subject to the satisfaction at or prior to the Effective Time
of the following conditions:
(a) Representations and Warranties. The representa-
tions and warranties of Newco set forth in this Agreement
that are qualified as to materiality shall be true and
correct and any such representations and warranties that
are not so qualified shall not be true and correct in any
material respect, in each case as of the date of this
Agreement and as of the Closing Date as though made on and
as of the Closing Date. The Company shall have received a
certificate signed on behalf of Newco by an authorized
officer of Newco to the effect set forth in this
paragraph.
(b) Performance of Obligations of Newco. Newco
shall have performed the obligations required to be
performed by it under this Agreement at or prior to the
Closing Date (except for such failures to perform as have
not had or could not reasonably be expected, either
individually or in the aggregate, to materially adversely
affect the ability of Newco to consummate the transactions
herein contemplated or perform its obligations hereunder).
ARTICLE 8.
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.1 Termination. This Agreement may be
terminated and the Merger contemplated hereby may be abandoned
at any time prior to the Effective Time, notwithstanding
approval thereof by the stockholders of the Company:
(a) By mutual written consent of Newco and the
Company;
(b) By Newco or the Company if any court of
competent jurisdiction, arbitrator or other Governmental
Entity
43
located or having jurisdiction within the United States or
any country or economic region in which either the Company
or Newco, directly or indirectly, has material assets or
operations, shall have issued a final order, decree or
ruling or taken any other final action restraining,
enjoining or otherwise prohibiting the consummation of the
Merger, the Debt Offer or any of the transactions
contemplated by the Merger Agreement or the Voting
Agreement, or otherwise altering the terms of any of the
foregoing in any significant respect, and such order,
decree, ruling or other action is or shall have become
final and nonappealable;
(c) By Newco or the Company if the Merger shall not
have been consummated on or before March 31, 1997,
provided that so long as an Extending Action (as defined
below) is no longer in effect at 11:59 p.m. (New York City
time) on March 31, 1997, such date shall be automatically
extended by one day past March 31, 1997 for each day that
an Extending Action was in effect on or prior to March 31,
1997; provided further that the right to terminate this
Agreement under this Section 8.1(c) shall not be available
to the party whose action or failure to act has been the
cause of or resulted in the failure of the Merger to occur
on or before such date and such action or failure to act
constitutes a breach of this Agreement; or
(d) By Newco if any required approval of the
stockholders of the Company shall not have been obtained
by reason of the failure to obtain the required vote upon
a vote held at a duly held meeting of stockholders or at
any adjournment thereof.
As used in this Section 8.1, an "Extending Action"
shall mean any order, decree or ruling or other action
restraining, enjoining or otherwise prohibiting the
consummation of the Merger, the Debt Offer or any of the
transactions contemplated by the Merger Agreement or the
Voting Agreement, or otherwise altering the terms of any
of the foregoing in any significant respect, by a court of
competent jurisdiction, arbitrator or other Governmental
Entity located or having jurisdiction within the United
States or any country or economic region in which either
the Company or Newco, directly or indirectly, has material
assets or operations, which order, decree, ruling or other
action has not become final and nonappealable.
SECTION 8.2 Effect of Termination. In the event of
the termination of this Agreement pursuant to Section 8.1, this
Agreement shall forthwith become void and there shall be no
liability on the part of any party hereto except as set forth
in Section 8.3 and Section 9.1; provided, however, that nothing
herein shall relieve any party from liability for any breach
hereof.
44
SECTION 8.3 Fees and Expenses. (a) In addition to
any other amounts which may be payable or become payable
pursuant to any other paragraph of this Section 8.3, the
Company shall (provided that Newco is not then in material
breach of its obligations under this Agreement), promptly, but
in no event later than two business days following written
notice thereof, together with related bills or receipts,
reimburse KKR & Co., in an aggregate amount of up to $2.5
million, for all out-of-pocket expenses and fees (including,
without limitation, fees payable to all banks, investment
banking firms and other financial institutions, and their
respective agents and counsel, and all fees of counsel, ac-
countants, financial printers, experts and consultants to Newco
and its affiliates), whether incurred prior to, on or after the
date hereof, in connection with the Merger and the consummation
of all transactions contemplated by this Agreement, the Voting
Agreement and the financing thereof.
(b) Except as otherwise specifically provided
herein, each party shall bear its own expenses in connection
with this Agreement and the transactions contemplated hereby.
SECTION 8.4 Amendment. This Agreement may be
amended by the parties hereto by action taken by or on behalf
of their respective Boards of Directors at any time prior to
the Effective Time; provided, however, that, after approval of
the Merger by the stockholders of the Company, no amendment may
be made which would reduce the amount or change the type of
consideration into which each share of Company Common Stock
shall be converted upon consummation of the Merger. This
Agreement may not be amended except by an instrument in writing
signed by the parties hereto.
SECTION 8.5 Waiver. At any time prior to the
Effective Time, any party hereto may (a) extend the time for
the performance of any of the obligations or other acts of the
other parties hereto, (b) waive any inaccuracies in the
representations and warranties contained herein or in any
document delivered pursuant hereto and (c) waive compliance
with any of the agreements or conditions contained herein. Any
such extension or waiver shall be valid if set forth in an
instrument in writing signed by the party or parties to be
bound thereby.
ARTICLE 9.
GENERAL PROVISIONS
SECTION 9.1 Non-Survival of Representations,
Warranties and Agreements. The representations, warranties and
agreements in this Agreement shall terminate at the Effective
Time or upon the termination of this Agreement pursuant to
Section 8.1, as the case may be, except that the agreements set
forth in Article 1, Section 6.6 and Articles 8 and 9 shall
survive the Effective Time and those set forth in Section 6.3,
45
Section 6.8(a), Section 8.3 and Articles 8 and 9 shall survive
termination of this Agreement.
SECTION 9.2 Notices. All notices, requests, claims,
demands and other communications hereunder shall be in writing
and shall be given (and shall be deemed to have been duly given
upon receipt) by delivery in person, by telecopy or by
registered or certified mail (postage prepaid, return receipt
requested) to the respective parties at the following addresses
(or at such other address for a party as shall be specified by
like notice):
if to Newco:
c/o Kohlberg Kravis Roberts & Co,
9 West 57th Street
New York, New York 10019
Attention: Clifton S. Robbins
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017
Attention: David J. Sorkin, Esq.
if to the Company:
Dr. Sandra Scarr,
Chairman and Chief Executive Officer
2400 Presidents Drive
Montgomery, Alabama 36166
and
Rebecca Bryan,
Vice President/General Counsel
2400 Presidents Drive
Montgomery, Alabama 36166
46
with a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, NY 10019
Attention: Andrew R. Brownstein, Esq.
and
Gibson, Dunn & Crutcher LLP
200 Park Avenue
New York, NY 10166
Attention: Conor D. Reilly, Esq.
and
Oaktree Capital Management LLC
550 South Hope Street
Los Angeles, CA 90071
Attention: Stephen A. Kaplan
Attention:
SECTION 9.3 Certain Definitions. For purposes of
this Agreement, the term:
(a) "affiliate" of a person means a person that di-
rectly or indirectly, through one or more intermediaries,
controls, is controlled by, or is under common control
with, the first mentioned person;
(b) "beneficial owner" with respect to any shares of
Company Common Stock means a person who shall be deemed to
be the beneficial owner of such shares (i) which such
person or any of its affiliates or associates (as such
term is defined in Rule 12b-2 of the Exchange Act)
beneficially owns, directly or indirectly, (ii) which such
person or any of its affiliates or associates has,
directly or indirectly, (A) the right to acquire (whether
such right is exercisable immediately or subject only to
the passage of time), pursuant to any agreement,
arrangement or understanding or upon the exercise of
consideration rights, exchange rights, warrants or
options, or otherwise, or (B) the right to vote pursuant
to any agreement, arrangement or understanding or (iii)
which are beneficially owned, directly or indirectly, by
any other persons with whom such person or any of its
affiliates or person with whom such person or any of its
affiliates or associates has any agreement, arrangement or
understanding for the purpose of acquiring, holding,
voting or disposing of any shares of Company Common Stock;
(c) "control" (including the terms "controlled by"
and "under common control with") means the possession,
directly or indirectly or as trustee or executor, of the
power to
47
direct or cause the direction of the management policies
of a person, whether through the ownership of stock, as
trustee or executor, by contract or credit arrangement or
otherwise;
(d) "generally accepted accounting principles" shall
mean the generally accepted accounting principles set
forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified
Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other
statements by such other entity as may be approved by a
significant segment of the accounting profession in the
United States, in each case applied on a basis consistent
with the manner in which the audited financial statements
for the fiscal year of the Company ended May 31, 1996 were
prepared;
(e) "person" means an individual, corporation,
partnership, association, trust, unincorporated
organization, other entity or group (as defined in Section
13(d)(3) of the Exchange Act);
(f) "subsidiary" or "subsidiaries" of the Company,
or any other person means any corporation, partnership,
joint venture or other legal entity of which the Company,
or such other person, as the case may be (either alone or
through or together with any other subsidiary), owns,
directly or indirectly, 50% or more of the stock or other
equity interests the holder of which is generally entitled
to vote for the election of the board of directors or
other governing body of such corporation or other legal
entity; and
(g) "Significant Subsidiary" has the meaning set
forth in Regulation S-X promulgated by the SEC.
SECTION 9.4 Severability. If any term or other
provision of this Agreement is invalid, illegal or incapable of
being enforced by any rule of law or public policy, all other
conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or
legal substance of the transactions contemplated hereby is not
affected in any manner adverse to any party. Upon such
determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to
effect the original intent of the parties as closely as
possible in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the fullest
extent possible.
SECTION 9.5 Entire Agreement; Assignment. This
Agreement constitutes the entire agreement among the parties
with respect to the subject matter hereof and supersedes all
prior agreements and undertakings, both written and oral, among
the
48
parties, or any of them, with respect to the subject matter
hereof. This Agreement shall not be assigned by operation of
law or otherwise, except that Newco may assign all or any of
its rights and obligations hereunder to any direct or indirect
wholly owned subsidiary or subsidiaries of Newco, provided that
no such assignment shall relieve the assigning party of its
obligations hereunder if such assignee does not perform such
obligations.
SECTION 9.6 Parties in Interest. This Agreement
shall be binding upon and inure solely to the benefit of each
party hereto, and, with respect to the provisions of Section
6.6 and 8.3, shall inure to the benefit of the persons or
entities benefitting from the provisions thereof who are
intended to be third-party beneficiaries thereof. Except as
provided in the preceding sentence, nothing in this Agreement,
express or implied, is intended to or shall confer upon any
other person any rights, benefits or remedies of any nature
whatsoever under or by reason of this Agreement.
SECTION 9.7 Governing Law. This Agreement shall be
governed by, and construed in accordance with, the laws of the
State of Delaware, regardless of the laws that might otherwise
govern under applicable principles of conflicts of laws
thereof.
SECTION 9.8 Headings. The descriptive headings con-
tained in this Agreement are included for convenience of
reference only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 9.9 Counterparts. This Agreement may be ex-
ecuted in one or more counterparts, and by the different
parties hereto in separate counterparts, each of which when
executed shall be deemed to be an original but all of which
taken together shall constitute one and the same agreement.
IN WITNESS WHEREOF, Newco and the Company have caused
this Agreement to be executed as of the date first written
above by their respective officers thereunto duly authorized.
KINDERCARE LEARNING CENTERS, INC.
By: /s/ DR. SANDRA SCARR
Title: Chief Executive Officer
KCLC ACQUISITION CORP.
By: /s/ CLIFTON S. ROBBINS
Title: President
49
ANNEX A
Form of Affiliate Letter
Gentlemen:
The undersigned, a holder of shares of common stock,
par value $.01 per share ("Company Stock"), of KinderCare
Learning Centers, Inc., a Delaware corporation (the "Company"),
is entitled to retain in connection with the merger (the
"Merger") of the Company with KCLC Acquisition Corp., a
Delaware corporation, securities (the "Securities") of the
Company. The undersigned acknowledges that the undersigned may
be deemed an "affiliate" of the Company within the meaning of
Rule 145 ("Rule 145") promulgated under the Securities Act of
1933 (the "Act"), although nothing contained herein should be
construed as an admission of such fact.
If in fact the undersigned were an affiliate under
the Act, the undersigned's ability to sell, assign or transfer
the Securities retained by the undersigned pursuant to the
Merger may be restricted unless such transaction is registered
under the Act or an exemption from such registration is
available. The undersigned understands that such exemptions
are limited and the undersigned has obtained advice of counsel
as to the nature and conditions of such exemptions, including
information with respect to the applicability to the sale of
such securities of Rules 144 and 145(d) promulgated under the
Act.
The undersigned hereby represents to and covenants
with the Company that the undersigned will not sell, assign or
transfer any of the Securities retained by the undersigned
pursuant to the Merger except (i) pursuant to an effective
registration statement under the Act, (ii) in conformity with
the volume and other limitations of Rule 145 or (iii) in a
transaction which, in the opinion of independent counsel
reasonably satisfactory to the Company or as described in a
"no-action" or interpretive letter from the Staff of the
Securities and Exchange Commission (the "SEC"), is not required
to be registered under the Act.
In the event of a sale or other disposition by the
undersigned of Securities pursuant to Rule 145, the undersigned
will supply the Company with evidence of compliance with such
Rule, in the form of a letter in the form of Annex I hereto.
The undersigned understands that the Company may instruct its
transfer agent to withhold the transfer of any Securities
disposed of by the undersigned, but that upon receipt of such
evidence of compliance the transfer agent shall effectuate the
transfer of the Securities sold as indicated in the letter.
50
The undersigned acknowledges and agrees that
appropriate legends will be placed on certificates representing
Securities retained by the undersigned in the Merger or held by
a transferee thereof, which legends will be removed by delivery
of substitute certificates upon receipt of an opinion in form
and substance reasonably satisfactory to the Company from
independent counsel reasonably satisfactory to the Company to
the effect that such legends are no longer required for
purposes of the Act.
The undersigned acknowledges that (i) the undersigned
has carefully read this letter and understands the requirements
hereof and the limitations imposed upon the distribution, sale,
transfer or other disposition of Securities and (ii) the
receipt by Newco of this letter is an inducement and a
condition to Newco's obligations to consummate the Merger.
Very truly yours,
Dated:
ANNEX I
TO ANNEX A
[Name] [Date]
On __________________ the undersigned sold the secu-
rities ("Securities") of KinderCare Learning Centers, Inc. (the
"Company") described below in the space provided for that pur-
pose (the "Securities"). The Securities were retained by the
undersigned in connection with the merger of KCLC Acquisition
Corp. with and into the Company.
Based upon the most recent report or statement filed
by the Company with the Securities and Exchange Commission, the
Securities sold by the undersigned were within the prescribed
limitations set forth in paragraph (e) of Rule 144 promulgated
under the Securities Act of 1933, as amended (the "Act").
The undersigned hereby represents that the Securities
were sold in "brokers' transactions" within the meaning of Sec-
tion 4(4) of the Act or in transactions directly with a "market
maker" as that term is defined in Section 3(a)(38) of the Secu-
rities Exchange Act of 1934, as amended. The undersigned fur-
ther represents that the undersigned has not solicited or ar-
ranged for the solicitation of orders to buy the Securities,
and that the undersigned has not made any payment in connection
with the offer or sale of the Securities to any person other
than to the broker who executed the order in respect of such
sale.
Very truly yours,
[Space to be provided for description of securities]
A-1
Exhibit A
CERTIFICATE OF INCORPORATION
OF
KINDERCARE LEARNING CENTERS, INC.
___________________
The undersigned, in order to form a corporation for
the purpose hereinafter stated, under and pursuant to the
provisions of the Delaware General Corporation Law, hereby
certifies that:
FIRST: The name of the Corporation is KinderCare
Learning Centers, Inc.
SECOND: The registered office and registered agent
of the Corporation is The Corporation Trust Company, 1209
Orange Street, Wilmington, New Castle County, Delaware 19801.
THIRD: The purpose of the Corporation is to engage
in any lawful act or activity for which corporations may be
organized under the Delaware General Corporation Law.
FOURTH: The total number of shares of stock that the
Corporation is authorized to issue is __________ shares of
Common Stock, par value $.01 each and __________ shares of
preferred stock, par value $.01 each (hereinafter referred to
as "Preferred Stock"). The Preferred Stock may be issued from
time to time in one or more series with such distinctive
designations as may be stated in the resolution or resolutions
providing for the issue of a duly authorized committee thereof.
The resolution or resolutions providing for the issue of shares
of a particular series shall fix, subject to applicable laws
and the provisions of this ARTICLE FOURTH, for each such series
the number of shares constituting such series and the
designations and powers, preferences and relative
participating, optional or other special rights and
qualifications, limitations or restrictions thereof, including,
without limiting the generality of the foregoing, such
provisions as may be desired concerning voting, redemption,
dividends, dissolution or the distribution of assets,
conversion or exchange, and such other subjects or matters as
may be fixed by resolution or resolutions of the Board of
Directors or a duly authorized committee thereof under the
Delaware General Corporation Law. The number of authorized
shares of any class or classes of stock may be increased or
decreased (but not below the number of shares thereof then
outstanding) by the affirmative vote of the holders of a
majority of the Common Stock of the Corporation irrespective of
the provisions of Section 242(b)(2) of the Delaware General
Corporation Law or any corresponding provision hereinafter
enacted.
FIFTH: The Board of Directors of the Corporation,
acting by majority vote, may alter, amend or repeal the By-Laws
of the Corporation.
2
SIXTH: Except as otherwise provided by the Delaware
General Corporation Law as the same exists or may hereafter be
amended, no director of the Corporation shall be personally
liable to the Corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director. Any repeal
or modification of this Article SEVENTH by the stockholders of
the Corporation shall not adversely affect any right or
protection of a director of the Corporation existing at the
time of such repeal or modification.
SEVENTH: A director of the Corporation shall not be
personally liable to the Corporation or its stockholders for
monetary damages for breach of fiduciary duty by such director
as a director, except for liability as a director (A) for any
breach of the director's duty of loyalty to the Corporation or
its stockholders; (B) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation
of law; (C) under Section 174 of the Delaware General
Corporation Law; or (D) for any transaction from which the
director derived an improper personal benefit. If the Delaware
General Corporation Law is amended after this Certificate of
Incorporation becomes effective to authorize corporate action
further eliminating or limiting the personal liability of
directors, then the liability of a director of the Corporation
shall be eliminated or limited to the fullest extent permitted
by the Delaware General Corporation law, as so amended.
EIGHTH: Indemnification.
8.1 Certain Definitions. As used in this Article,
the term:
(a) "Corporation" includes any domestic or
foreign predecessor entity of this
Corporation in a merger or other
transaction in which the predecessor's
existence ceased upon consummation of the
transaction.
(b) "Change in Control" shall have occurred if,
during any period of two consecutive years,
individuals who at the beginning of such
period constitute the Board of Directors of
the Corporation cease for any reason to
constitute at least a majority thereof,
unless the election of each new director
was approved in advance by a vote of at
least a majority of the directors then
still in office who were directors at the
beginning of the period.
(c) "Director" means an individual who is or
was a director of the Corporation or an
individual who, while a director of the
Corporation, is or was serving at the
Corporation's request as a director,
officer, partner, trustee, employee, or
agent of
3
another foreign or domestic corporation,
partnership, joint venture, trust, employee
benefit plan, or other enterprise. A
director is considered to be serving an
employee benefit plan at the Corporation's
request if his duties to the Corporation
also impose duties on, or otherwise involve
services by, him to the plan or to
participants in or beneficiaries of the
plan. "Director" includes, unless the
context requires otherwise, the estate or
personal representative of a director.
(d) "Expenses" includes attorneys' fees.
(e) "Liability" means the obligation to pay a
judgment, settlement, penalty, fine
(including an excise tax assessed with
respect to an employee benefit plan), or
reasonable expenses incurred with respect
to a proceeding.
(f) "Officer" means an individual who is or was
an officer of the Corporation or an
individual who, while an officer of the
Corporation, is or was serving at the
Corporation's request as a director,
officer, partner, trustee, employee, or
agent of another foreign or domestic
corporation, partnership, joint venture,
trust, employee benefit plan, or other
enterprise. An officer is considered to be
serving an employee benefit plan at the
Corporation's request if his duties to the
Corporation also impose duties on, or
otherwise involve services by, him to the
plan or to participants in or beneficiaries
of the plan. "Officer" includes, unless
the context requires otherwise, the estate
or personal representative of an officer.
(g) "Party" includes an individual who was, is,
or is threatened to be made a named
defendant or respondent in a proceeding.
(h) "Proceeding" means any threatened, pending,
or completed action, suit, or proceeding,
whether civil, criminal, administrative, or
investigative and whether formal or
informal.
(i) "Reviewing Party" shall mean the person or
persons making the entitlement
determination pursuant to Section 8.4 of
this Article, and shall not include a court
making any
4
determination under this Article or
otherwise.
Section 8.2 Basic Indemnification Arrangement.
(a) Except as provided in subsections 8.2(d),
8.2(e) and 8.2(f) below, the Corporation
shall indemnify an individual who is made a
party to a proceeding because he is or was
a director or officer against liability
incurred by him in the proceeding if he
acted in good faith and in a manner he
reasonably believed to be in or not opposed
to the best interests of the Corporation
and, in the case of any criminal
proceeding, he had no reasonable cause to
believe his conduct was unlawful.
(b) A person's conduct with respect to an
employee benefit plan for a purpose he
believed in good faith to be in the
interests of the participants in and
beneficiaries of the plan is conduct that
satisfies the requirement of subsection
8.2(a).
(c) The termination of a proceeding by
judgment, order, settlement, or conviction,
or upon a plea of nolo contendere or its
equivalent shall not, of itself, be
determinative that the proposed indemnitee
did not meet the standard of conduct set
forth in subsection 8.2(a).
(d) The Corporation shall not indemnify a
person under this Article in connection
with a proceeding by or in the right of the
Corporation in which such person was
adjudged liable to the Corporation, unless,
and then only to the extent that, the
Reviewing Party, or a court of competent
jurisdiction acting pursuant to Section 8.5
of this Article, determines that, in view
of the circumstances of the case, the
indemnitee is fairly and reasonably
entitled to indemnification.
(e) Indemnification permitted under this
Article in connection with a proceeding by
or in the right of the Corporation shall
include reasonable expenses, penalties,
fines (including an excise tax assessed
with respect to an employee benefit plan)
and amounts paid in settlement (provided
that such settlement and the amounts paid
in connection therewith are not
unreasonable, as determined by the
Reviewing Party responsible
5
for making the determination that
indemnification is permissible as described
in Section 8.4(b) below) in connection with
the proceeding, but, unless ordered by a
court, shall not include judgments.
(f) Notwithstanding any other provision of this
Article, no person shall be entitled to
indemnification or advancement of expenses
hereunder with respect to any proceeding or
claim brought or made by him against the
Corporation, other than a proceeding or
claim seeking or defending such person's
right to indemnification or advancement of
expense pursuant to Section 8.5 hereof or
otherwise.
(g) If any person is entitled under any
provision of this Article to
indemnification by the Corporation for some
portion of liability incurred by him, but
not the total amount thereof, the
Corporation shall indemnify such person for
the portion of such liability to which he
is entitled.
(h) The Corporation shall indemnify a director
or officer to the extent that he has been
successful, on the merits or otherwise, in
the defense of any proceeding to which he
was a party, or in defense of any claim,
issue or matter therein, because he is or
was a director or officer, against
reasonable expenses incurred by him in
connection with the proceeding.
Section 8.3 Advances for Expenses.
(a) The Corporation shall pay for or reimburse
the reasonable expenses incurred by a
director or officer as a party to a
proceeding in advance of final disposition
of the proceeding if:
(i) Such person furnishes the Corporation
a written affirmation of his good
faith belief that he has met the
standard of conduct set forth in
subsection 8.2(a) above, and
(ii) Such person furnishes the Corporation
a written undertaking (meeting the
qualifications set forth below in
subsection 8.3(b)), executed
personally or on his behalf, to repay
any advances if it
6
is ultimately determined that he is
not entitled to indemnification under
this Article or otherwise.
(b) The undertaking required by subsection
8.3(a)(ii) above must be an unlimited
general obligation of the proposed
indemnitee but need not be secured and
shall be accepted without reference to
financial ability to make repayment. If a
director or officer seeks to enforce his
rights to indemnification in a court
pursuant to Section 8.5, such undertaking
to repay shall not be applicable or
enforceable unless and until there is a
final court determination that he is not
entitled to indemnification, as to which
all rights of appeal have been exhausted or
have expired.
Section 8.4 Authorization of and Determination of
Entitlement to Indemnification.
(a) The Corporation acknowledges that
indemnification of a director or officer
under Section 8.2 has been pre-authorized
by the Corporation in the manner described
in subsection 8.4(b) below. Nevertheless,
the Corporation shall not indemnify a
director or officer under Section 8.2
unless a separate determination has been
made in the specific case that
indemnification of such person is
permissible in the circumstances because he
has met the standard of conduct set forth
in subsection 8.2(a); provided, however,
that no such entitlement decision need be
made prior to the advancement of expenses
and that, regardless of the result or
absence of any such determination, the
Corporation shall make any indemnification
mandated by Section 8.2(h) above.
(b) The determination referred to in subsection
8.4(a) above shall be made, at the election
of the Board of Directors (unless a Change
in Control shall have occurred, in which
case the proposed indemnitee director or
officer shall be entitled to designate that
the determination shall be made by special
legal counsel selected by him):
(i) by the Board of Directors of the
Corporation by majority vote of a
quorum consisting of directors not at
the time parties to the proceeding;
7
(ii) if a quorum cannot be obtained under
subdivision (i), by a majority vote of
a committee duly designated by the
Board of Directors (in which
designation directors who are parties
may participate), consisting solely of
two or more directors not at the time
parties to the proceeding;
(iii) by special legal counsel:
(1) selected by the Board of
Directors or its committee in the
manner prescribed in subdivision
(i) or (ii); or
(2) if a quorum of the Board of
Directors cannot be obtained
under subdivision (i) and a
committee cannot be designated
under subdivision (ii), selected
by a majority vote of the full
Board of Directors (in which
selection directors who are
parties may participate); or
(iv) by the stockholders; provided that
shares owned by or voted under the
control of directors or officers who
are at the time parties to the
proceeding may not be voted on the
determination.
(c) As acknowledged above, the Corporation has
pre-authorized the indemnification of
directors and officers hereunder, subject
to a case-by-case determination that the
proposed indemnitee met the applicable
standard of conduct under subsection
8.2(a). Consequently, no further decision
need or shall be made on a case-by-case
basis as to the authorization of the
Corporation's indemnification of, or
advancement of expenses to, directors and
officers hereunder. Nevertheless, except
as set forth in subsection 8.4(d) below,
evaluation as to reasonableness of expenses
of a director or officer in the specific
case shall be made in the same manner as
the determination that indemnification is
permissible, as described in subsection
8.4(d) above, except that if the
determination is made by special legal
counsel, evaluation as to reasonableness of
8
expenses shall be made by those entitled
under subsection 8.4(b)(iii) to select
counsel.
(d) Notwithstanding the requirement under
subsection 8.4(c) that the Reviewing Party
evaluate the reasonableness of expenses
claimed by the proposed indemnitee, any
expenses claimed by the proposed indemnitee
shall be deemed reasonable if the Reviewing
Party fails to make the evaluation required
by subsection 8.4(c) within thirty (30)
days following the proposed indemnitee's
written request for indemnification for, or
advancement of, expenses.
(e) The Reviewing Party, however chosen, shall
make the requested determination as
promptly as reasonably practical after a
request for indemnification is presented.
Section 8.5 Court-Ordered Indemnification and
Advances for Expenses. A director or officer who is a party to
a proceeding may apply for indemnification or advances for
expenses to the court conducting the proceeding or to another
court of competent jurisdiction. For purposes of this Article,
the Corporation hereby consents to personal jurisdiction and
venue in any court in which is pending a proceeding to which a
director or officer is a party. Regardless of any
determination by the Reviewing Party that the proposed
indemnitee is not entitled to indemnification or advancement of
expenses or as to the reasonableness of expenses, and
regardless of any failure by the Reviewing Party to make a
determination as to such entitlement or the reasonableness of
expenses, such court's review shall be a de novo review. On
application, the court, after giving any notice it considers
necessary, may order indemnification or advancement of expenses
if it determines that:
(i) The applicant is entitled to mandatory
indemnification under Section 8.2(h) above (in
which case the Corporation shall pay the
indemnitee's reasonable expenses incurred to
obtain court-ordered indemnification);
(ii) The applicant is fairly and reasonably entitled
to indemnification in view of all the relevant
circumstances, whether or not he met the
standard of conduct set forth in subsection
8.2(a) above or was adjudged liable as described
in subsection 8.2(d) above (in which case any
court-ordered indemnification need not be
limited to reasonable expenses incurred by the
indemnitee but may include expenses, penalties,
fines, judgments, amounts paid in settlement and
any other amounts ordered by the court to be
indemnified, and,
9
whether or not so ordered, the Corporation shall
pay the applicant's reasonable expenses incurred
to obtain court-ordered indemnification); or
(iii) In the case of advances for expenses, the
applicant is entitled pursuant to this Restated
Certificate of Incorporation, Amended and
Restated Bylaws or applicable resolution or
agreement to payment for or reimbursement of his
reasonable expenses incurred as a party to a
proceeding in advance of final disposition of
the proceeding (in which case the Corporation
shall pay the applicant's reasonable expenses
incurred to obtain court-ordered advancement of
expenses); or
(iv) The applicant is otherwise entitled to
enforcement of his rights hereunder (in which
case the Corporation shall pay the indemnitee's
reasonable expenses incurred to obtain such
enforcement).
Section 8.6 Indemnification of Employees and Agents.
The Corporation may, subject to authorization in the specific
case, indemnify and advance expenses under this Article to an
employee or agent of the Corporation who is not a director or
officer, to the same extent as to a director or officer or to
any lesser extent (or greater extent if permitted by law)
determined by the Board of Directors.
Section 8.7 Liability Insurance. The Corporation
may purchase and maintain insurance on behalf of a director or
officer or an individual who is or was an employee or agent of
the Corporation or who, while a director, officer, employee or
agent of the Corporation, is or was serving at the request of
the Corporation as a director, officer, partner, trustee,
employee or agent of another foreign or domestic corporation,
partnership, joint venture, trust, employee benefit plan, or
other enterprise against liability asserted against or incurred
by him in that capacity or arising from his status as a
director, officer, employee, or agent, whether or not the
Corporation would have power to indemnify him against the same
liability under Section 8.2, Section 8.3 or Section 8.4 above.
Section 8.8 Witness Fees. Nothing in this Article
shall limit the Corporation's power to pay or reimburse
expenses incurred by a person in connection with his appearance
as a witness in a proceeding at a time when he has not been
made a named defendant or respondent in this proceeding.
Section 8.9 Report to Stockholders. If the
Corporation indemnities or advances expenses to a director or
officer in connection with a proceeding by or in the right of
the Corporation, to the extent required by law the Corporation
shall report the indemnification or advance, in writing, to the
stockholders with or before the notice of the next
stockholders' meeting.
10
Section 8.10 Security for Indemnification
Obligations. The Corporation may at any time and in any
manner, at the discretion of the Board of Directors, secure the
Corporation's obligations to indemnify or advance expenses to a
person pursuant to this Article.
Section 8.11 No Duplication of Payments. The
Corporation shall not be liable under this Article to make any
payment to a person hereunder to the extent such person has
otherwise actually received payment (under any insurance
policy, agreement or otherwise) of the amounts otherwise
payable hereunder.
Section 8.12 Subrogation. In the event of payment
under this Article, the Corporation shall be subrogated to the
extent of such payment to all of the rights of recovery of the
indemnitee, who shall execute all papers required and shall do
everything that may be necessary to secure such rights,
including the execution of such documents necessary to enable
the Corporation effectively to bring suit to enforce such
rights.
Section 8.13 Contract Rights. The right to
indemnification and advancement of expenses conferred hereunder
to directors and officers shall be a contract right and shall
not be affected adversely to any director or officer by any
amendment of this Restated Certificate of Incorporation with
respect to any action or inaction occurring prior to such
amendment; provided, however, that this provision shall not
confer upon any indemnitee or potential indemnitee (in his
capacity as such) the right to consent or object to any
subsequent amendment of this Restated Certificate of
Incorporation.
Section 8.14 Specific Performance. In any
proceeding brought by or on behalf of an officer or director to
specifically enforce the provisions of this Article, the
Corporation hereby waives the claim or defense therein that the
plaintiff or claimant has an adequate remedy at law, and the
Corporation shall not urge in any such proceeding the claim or
defense that such remedy at law exists. The provisions of this
Section 8.14, however, shall not prevent the officer or
director from seeking a remedy at law in connection with any
breach of the provisions of this Article.
Section 8.15 Non-exclusivity, Etc. The rights of a
director or officer hereunder shall be in addition to any other
rights with respect to indemnification, advancement of expenses
or otherwise that he may have under contract or the General
Corporation Law of the State of Delaware or otherwise.
Section 8.16 Amendments. It is the intent of the
Corporation to indemnify and advance expenses to its directors
and officers to the full extent permitted by the Delaware
General Corporation Law, as amended from time to time. To the
extent that the Delaware General Corporation Law is hereafter
amended to permit a Delaware business corporation to provide to
its
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directors greater rights to indemnification or advancement of
expenses than those specifically set forth hereinabove, this
Article shall be construed to require such greater
indemnification or more liberal advancement of expenses to the
Corporation's directors and officers, in each case consistent
with the Delaware General Corporation Law as so amended from
time to time. No amendment, modification or rescission of this
Article, or any provision hereof, the effect of which would
diminish the rights to indemnification or advancement of
expenses as set forth herein shall be effective as to any
person with respect to any action taken or omitted by such
person prior to such amendment, modification or rescission.
Section 8.17 Severability. To the extent that the
provisions of this Article are held to be inconsistent with the
provisions of Section 145 of the Delaware General Corporation
Law (including subsection (f) thereof), such provisions of such
statute shall govern. In the event that any of the provisions
of this Article (including any provision within a single
section, subsection, division or sentence) is held by a court
of competent jurisdiction to be invalid, void or otherwise
unenforceable, the remaining provisions of this Article shall
remain enforceable to the fullest extent permitted by law.