EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
among
YOUTH SERVICES INTERNATIONAL, INC.,
CORRECTIONAL SERVICES CORPORATION
and
PALM MERGER CORP.
Dated as of September 23, 1998
TABLE OF CONTENTS
Page
ARTICLE I THE MERGER 1
1.1. The Merger. 1
1.2. Closing. 1
1.3. Effective Time. 2
ARTICLE II THE SURVIVING CORPORATION 2
2.1. The Articles of Incorporation. 2
2.2. The Bylaws. 2
2.3. Directors. 2
2.4. Officers. 3
ARTICLE III CONVERSION OF SHARES 3
3.1. Effect on Stock. 3
3.2. Exchange of Certificates. 3
3.3. Appraisal Rights. 6
3.4. Adjustments to Prevent Dilution. 6
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE
COMPANY 6
4.1. Organization, Good Standing and Qualification. 7
4.2. Capitalization. 7
4.3 Company Subsidiaries. 8
4.4. Corporate Authority; Approval and Fairness. 8
4.5. Governmental Filings; No Violations. 8
4.6. Company Reports; Financial Statement. 9
4.7. Absence of Certain Changes. 10
4.8. Litigation and Liabilities. 11
4.9. Employee Benefits. 11
4.10. Compliance with Laws; Permits. 13
4.11. Takeover Statutes. 14
4.12. Environmental Matters. 14
4.13. Taxes. 15
4.14. Labor Matters. 15
4.15. Intellectual Property. 16
4.16. Title to Property. 17
4.17. Material Contracts. 18
4.18. Brokers and Finders. 18
4.19. Insurance Matters. 18
4.20. Affiliated Transactions. 19
4.21. Year 2000 Liability. 19
4.22. Accounting and Tax Matters. 19
ARTICLE V REPRESENTATIONS AND WARRANTIES OF PARENT AND
MERGER SUBSIDIARY 19
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5.1. Merger Subsidiary. 19
5.2. Organization, Good Standing and Qualification. 20
5.3. Capitalization. 20
5.4. Corporate Authority; Approval and Fairness. 21
5.5. Governmental Filings; No Violations. 22
5.6. Parent Reports; Financial Statements. 22
5.7. Absence of Certain Changes. 23
5.8. Litigation and Liabilities. 24
5.9. Employee Benefits. 24
5.10. Compliance with Laws; Permits. 26
5.11. Environmental Matters. 26
5.12. Taxes. 27
5.13. Labor Matters. 28
5.14. Intellectual Property. 28
5.15. Title to Property. 29
5.16. Material Contracts. 29
5.17. Brokers and Finders. 30
5.18. Insurance Matters. 30
5.19. Accounting and Tax Matters. 30
ARTICLE VI COVENANTS 30
6.1. Interim Operations of the Company. 30
6.2. Interim Operations of Parent. 32
6.3. Interim Operations of Merger Subsidiary. 33
6.4. Acquisition Proposals. 33
6.5. Information Supplied. 34
6.6. Stockholder Meetings. 35
6.7. Filings; Other Actions; Notification. 35
6.8. Taxation and Accounting. 36
6.9. Access. 37
6.10. Affiliates. 37
6.11. Stock Exchange Listing. 38
6.12. Publicity. 38
6.13. Benefits. 38
6.14. Expenses. 40
6.15. Indemnification; Directors' and Officers' Insurance. 40
6.16. Election to Parent's Board of Directors. 41
6.17. Takeover Statute. 41
6.18. Debentures. 41
6.19. Insurance. 41
ARTICLE VII CONDITIONS 42
7.1. Conditions to Each Party's Obligation to Effect the Merger. 42
7.2. Conditions to Obligations of Parent and Merger Subsidiary. 43
7.3. Conditions to Obligation of the Company. 44
ARTICLE VIII TERMINATION 45
8.1. Method of Termination. 45
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8.2. Effect of Termination. 47
ARTICLE IX MISCELLANEOUS AND GENERAL 48
9.1. Survival. 48
9.2. Modification or Amendment. 48
9.3. Waiver of Conditions. 48
9.4. Counterparts. 48
9.5. Governing Law; Waiver of Jury Trial. 48
9.6. Notices. 49
9.7. Entire Agreement; No Other Representations. 50
9.8. No Third Party Beneficiaries. 50
9.9. Severability. 51
9.10. Interpretation. 51
9.11. Assignment. 51
9.12. Definitions 51
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AGREEMENT AND PLAN OF MERGER
----------------------------
THIS AGREEMENT AND PLAN OF MERGER (hereinafter called this
"Agreement"), dated as of September 23, 1998 among Youth Services International,
Inc., a Maryland corporation (the "Company"), Correctional Services Corporation,
a Delaware corporation ("Parent"), and Palm Merger Corp., a Maryland corporation
and a wholly-owned subsidiary of Parent ("Merger Subsidiary").
RECITALS
WHEREAS, the respective boards of directors of each of Parent,
Merger Subsidiary and the Company have determined that the merger of the Merger
Subsidiary with and into the Company (the "Merger") upon the terms and subject
to the conditions set forth in this Agreement has significant strategic benefits
to Parent and the Company, and that the Merger is advisable and have approved
the Merger;
WHEREAS, the Company, Parent and Merger Subsidiary desire to make
certain representations, warranties, covenants and agreements in connection with
this Agreement; and
WHEREAS, it is intended that the Merger shall be recorded for
accounting purposes as a pooling of interests.
NOW, THEREFORE, in consideration of the premises, and of the
representations, warranties, covenants and agreements contained herein, the
parties hereto agree as follows:
ARTICLE I
THE MERGER
1.1. The Merger.
Upon the terms and subject to the conditions set forth in this
Agreement, at the Effective Time (as defined in Section 1.3.) the Merger
Subsidiary shall be merged with and into the Company and the separate corporate
existence of the Merger Subsidiary shall thereupon cease. The Company shall be
the surviving corporation in the Merger (sometimes hereinafter referred to as
the "Surviving Corporation"), and the separate corporate existence of the
Company with all its rights, privileges, immunities, powers and franchises shall
continue unaffected by the Merger except as otherwise provided herein. The
Merger shall have the effects specified in the Maryland General Corporation Law,
as amended (the "MGCL").
1.2. Closing.
The closing of the Merger (the "Closing") shall take place (i) at
the offices of Xxxxx & Xxxxxxx L.L.P., 000 X. Xxxxxxx Xxxxxx, Xxxxxxxxx,
Xxxxxxxx 00000 at 9:00 A.M. on the
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first business day after the day on which the last to be fulfilled or waived of
the conditions set forth in Article VII (other than those conditions that by
their nature are to be satisfied at the Closing, but subject to the fulfillment
or waiver of those conditions) shall be satisfied or waived in accordance with
this Agreement or (ii) at such other place and time and/or on such other date as
the Company and Parent may agree in writing (the "Closing Date").
1.3. Effective Time.
As soon as practicable following the Closing, the Company, Merger
Subsidiary and Parent will cause Articles of Merger (the "Articles of Merger")
to be executed, acknowledged and filed with and accepted for record by the
Maryland State Department of Assessments and Taxation (the "SDAT") as provided
in Section 3-102 of the MGCL. The Merger shall become effective at the time the
Articles of Merger is filed with the SDAT or at such later time agreed by the
Company and Parent and established under the Articles of Merger (the "Effective
Time").
ARTICLE II
THE SURVIVING CORPORATION
2.1. The Articles of Incorporation.
At the Effective Time, Article I of the articles of incorporation of
Merger Subsidiary shall be amended and restated in its entirety as follows: "I.
The name of the Corporation is Youth Services International, Inc." and, as so
amended, the articles of incorporation of the Merger Subsidiary shall be the
articles of incorporation of the Surviving Corporation, until thereafter amended
as provided therein or by applicable law (the "Articles of Incorporation").
2.2. The Bylaws.
The bylaws of Merger Subsidiary in effect at the Effective Time
shall be the Bylaws of the Surviving Corporation (the "Bylaws"), until
thereafter amended as provided therein, as set forth in the Articles of
Incorporation or by applicable law.
2.3. Directors.
The directors of Merger Subsidiary at the Effective Time shall, from
and after the Effective Time, be the directors of the Surviving Corporation
until their successors have been duly elected or appointed and qualified or
until their earlier death, resignation or removal in accordance with the
Articles of Incorporation and the Bylaws.
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2.4. Officers.
The officers of the Merger Subsidiary at the Effective Time shall,
from and after the Effective Time, be the officers of the Surviving Corporation
until their successors have been duly elected or appointed and qualified or
until their earlier death, resignation or termination.
ARTICLE III
CONVERSION OF SHARES
3.1. Effect on Stock.
At the Effective Time, as a result of the Merger and without any
action on the part of the holder of any stock of the Company:
(a) Merger Consideration. Each share of common stock, par value
$.01 per share, of Company ("Company Common Stock"), (each a "Share" or,
collectively, the "Shares") issued and outstanding immediately prior to the
Effective Time (other than any Shares of Company Common Stock to be canceled
pursuant to Section 3.1.(b)) shall be converted into, and become exchangeable
for the right to receive the "Merger Consideration", consisting of .375
shares of Common Stock, par value $.01 per share, of Parent (the "Parent Common
Stock") (the "Exchange Ratio"). At the Effective Time, all Shares shall no
longer be outstanding and shall automatically be canceled and retired and shall
cease to exist, and each certificate (a "Certificate") formerly representing any
of such Shares shall thereafter represent only the right to receive the Merger
Consideration, cash in lieu of fractional shares pursuant to Section 3.2.(e), if
any (without interest), and any distribution or dividend pursuant to Section
3.2.(c) (without interest).
(b) Cancellation of Shares. Each Share issued and outstanding
immediately prior to the Effective Time and owned by Parent or owned by the
Company or any direct or indirect Subsidiary of Parent or of the Company (in
each case other than Shares that are owned on behalf of third parties), shall,
by virtue of the Merger and without any action on the part of the holder
thereof, cease to be outstanding and shall be canceled and retired without
payment of any consideration therefor.
(c) Merger Subsidiary. At the Effective Time, each share of common
stock of Merger Subsidiary issued and outstanding immediately prior to the
Effective Time shall be converted into one validly issued, fully paid and
nonassessable share of common stock, $.01 par value, of the Surviving
Corporation.
3.2. Exchange of Certificates.
(a) Exchange Agent. Promptly after the Effective Time, Parent
shall deposit, or shall cause to be deposited, with American Stock Transfer and
Trust Company to act as exchange agent (the "Exchange Agent"), for the benefit
of the holders of Shares, certificates representing the shares of Parent Common
Stock and, after the Effective Time, if applicable, any
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cash, dividends or other distributions with respect to Parent Common Stock to be
issued or paid in accordance with Section 3.1.(a) (including cash in lieu of
fractional Shares) in exchange for Shares outstanding immediately prior to the
Effective Time upon due surrender of the Certificates (or affidavits of loss in
lieu thereof) pursuant to the provisions of this Article III (such certificates
for shares of Parent Common Stock, together with the amount of any dividends or
other distributions payable with respect thereto and any cash in lieu of
fractional Shares, being hereinafter referred to as the "Exchange Fund").
(b) Exchange Procedures. Promptly after the Effective Time, Parent
shall cause the Exchange Agent to mail to each holder of record of Shares (i) a
letter of transmittal specifying that delivery shall be effected, and risk of
loss and title to the Certificates shall pass, only upon delivery of the
Certificates (or affidavits of loss in lieu thereof) to the Exchange Agent,
such letter of transmittal to be in such form and have such other provisions as
Parent and the Company may reasonably agree prior to the Effective Time, and
(ii) instructions for use in effecting the surrender of the Certificates in
exchange for (A) certificates representing shares of Parent Common Stock and (B)
any unpaid dividends and other distributions and cash in lieu of fractional
shares. Subject to Section 3.2.(h), upon surrender of a Certificate for
cancellation to the Exchange Agent together with such letter of transmittal,
duly executed, the holder of such Certificate shall be entitled to receive in
exchange therefor (x) a certificate representing that number of whole shares of
Parent Common Stock that such holder is entitled to receive pursuant to this
Article III, (y) a check in the amount (after giving effect to any required tax
withholdings) of any cash in lieu of fractional shares plus any unpaid dividends
or other distributions that such holder has the right to receive pursuant to the
provisions of this Article III, and the Certificate so surrendered shall
forthwith be canceled. No interest will be paid or accrued on any amount
payable upon due surrender of the Certificates. In the event of a transfer of
ownership of Shares that is not registered in the transfer records of the
Company, a certificate representing the proper number of shares of Parent Common
Stock, together with a check for any cash to be paid upon due surrender of the
Certificate and any other dividends or distributions in respect thereof, may be
issued and/or paid to such a transferee if the Certificate formerly representing
such Shares is presented to the Exchange Agent, accompanied by all documents
required to evidence and effect such transfer and to evidence that any
applicable stock transfer taxes have been paid. If any certificate for shares
of Parent Common Stock is to be issued in a name other than that in which the
Certificate surrendered in exchange therefor is registered, it shall be a
condition of such exchange that the Person (as defined below) requesting such
exchange shall pay any transfer or other taxes required by reason of the
issuance of certificates for shares of Parent Common Stock in a name other than
that of the registered holder of the Certificate surrendered, or shall establish
to the satisfaction of Parent or the Exchange Agent that such tax has been paid
or is not applicable. For the purposes of this Agreement, the term "Person"
shall mean any individual, corporation (including not-for-profit), general or
limited partnership, limited liability company, limited liability partnership,
joint venture, estate, trust, association, organization, governmental entity or
other entity of any kind or nature.
(c) Distributions with Respect to Unexchanged Shares; Voting.
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(i) All shares of Parent Common Stock to be issued pursuant to
the Merger shall be deemed issued and outstanding as of the Effective Time and
whenever a dividend or other distribution is declared by Parent in respect of
Parent Common Stock, the record date for which is at or after the Effective
Time, that declaration shall include dividends or other distributions in respect
of all shares issuable pursuant to this Agreement. No dividends or other
distributions in respect of Parent Common Stock shall be paid to any holder of
any unsurrendered Certificate until such Certificate is surrendered for exchange
in accordance with this Article III. Subject to the effect of applicable laws,
following surrender of any such Certificate, there shall be issued and/or paid
to the holder of the certificates representing whole shares of Parent Common
Stock issued in exchange therefor, without interest, (A) at the time of such
surrender, the dividends or other distributions with a record date after the
Effective Time and a payment date on or prior to such time of surrender payable
with respect to such whole shares of Parent Common Stock and not paid and (B) at
the appropriate payment date, the dividends or other distributions payable with
respect to such whole shares of Parent Common Stock with a record date after the
Effective Time but with a payment date subsequent to surrender.
(ii) Holders of unsurrendered Certificates who were the
registered holders at the Effective Time shall be entitled to vote after the
Effective Time at any meeting of Parent stockholders (or consent in connection
with any consent of stockholders in lieu of a meeting) the number of whole
shares of Parent Common Stock represented by such Certificates, regardless of
whether such holders have exchanged their Certificates.
(d) Transfers. After the Effective Time, there shall be no
transfers on the stock transfer books of the Company of the Shares that were
outstanding immediately prior to the Effective Time.
(e) Fractional Shares. Notwithstanding any other provision of this
Agreement, no fractional shares of Parent Common Stock will be issued and any
holder of Shares entitled to receive a fractional share of Parent Common Stock
but for this Section 3.2.(e) shall be entitled to receive a cash payment in lieu
thereof, which payment shall equal the amount determined by multiplying (i) the
fraction of a share of Parent Common Stock to which such holder would otherwise
be entitled by (ii) the average closing price of a share of Parent Common
Stock as reported on the NASDAQ National Market Exchange ("NASDAQ") for the
twenty most recent days that Parent Common Stock has traded ending on the last
full trading day prior to the Effective Time. The fractional share interests of
each holder of Company Common Stock shall be aggregated, so that no such holder
shall receive cash in an amount equal to or greater than the value of one share
of Parent Common Stock.
(f) Termination of Exchange Fund. Any portion of the Exchange Fund
(including the proceeds of any investments thereof and any Parent Common Stock)
that remains unclaimed by the stockholders of the Company for 180 days after the
Effective Time shall be paid to Parent. Any stockholders of the Company who
have not theretofore complied with this Article III shall thereafter look only
to Parent for payment of their shares of Parent Common Stock and any cash,
dividends and other distributions in respect thereof payable and/or issuable
pursuant to Section 3.1. and Section 3.2.(c) upon due surrender of their
Certificates (or affidavits of loss in
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lieu thereof), in each case, without any interest thereon. Notwithstanding the
foregoing, none of Parent, the Surviving Corporation, the Exchange Agent or any
other Person shall be liable to any former holder of Shares for any amount
properly delivered to a public official pursuant to applicable abandoned
property, escheat or similar laws.
(g) Lost, Stolen or Destroyed Certificates. In the event any
Certificate shall have been lost, stolen or destroyed, upon the making and
delivery of an affidavit of that fact by the Person claiming such Certificate to
be lost, stolen or destroyed and, if required by Parent, the posting by such
Person of a bond in customary amount as indemnity against any claim that may be
made against it with respect to such Certificate, the Exchange Agent will issue
in exchange for such lost, stolen or destroyed Certificate the shares of Parent
Common Stock and any cash payable and any unpaid dividends or other
distributions in respect thereof pursuant to Section 3.2.(c).
(h) Affiliates. Notwithstanding anything herein to the contrary,
Certificates surrendered for exchange by any "Affiliate" (as determined pursuant
to Section 6.10.) of the Company shall not be exchanged until Parent has
received a written agreement from such Person as provided in Section 6.10.
hereof.
3.3. Appraisal Rights.
In accordance with Section 3-202(c) of the MGCL, no appraisal rights
shall be available to holders of Shares in connection with the Merger.
3.4. Adjustments to Prevent Dilution.
In the event that after the date hereof and prior to the Effective
Time the Company changes the number of Shares or securities convertible or
exchangeable into or exercisable for Shares, or Parent changes the number of
shares of Parent Common Stock or securities convertible or exchangeable into or
exercisable for shares of Parent Common Stock, issued and outstanding prior to
the Effective Time as a result of a reclassification, stock split (including a
reverse split), stock dividend or distribution, recapitalization, merger,
subdivision, issuer tender or exchange offer, or other similar transaction, the
Merger Consideration shall be equitably adjusted.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the corresponding sections or subsections of
the Company disclosure schedule attached to this Agreement (the "Company
Disclosure Schedule"), the Company hereby represents and warrants to Parent and
Merger Subsidiary that:
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4.1. Organization, Good Standing and Qualification.
The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Maryland, and each of its
Subsidiaries (as defined in Section 9.12.(b)) is a corporation or other entity
duly organized, validly existing and in good standing under the laws of its
respective jurisdiction of organization. Each of the Company and each of its
Subsidiaries has all requisite corporate or similar power and authority to own
and operate its properties and assets and to carry on its business as presently
conducted and is qualified to do business and is in good standing in each
jurisdiction where the ownership or operation of its properties or conduct of
its business requires such qualification, except where the failure to be so
qualified or in good standing, when taken together with all other such failures,
is not reasonably likely to have a Company Material Adverse Effect (as defined
in Section 9.12.(b)). The Company has made available to Parent a complete and
correct copy of the Company's and each Subsidiary's charter and by-laws or other
organizational documents, each as amended to and as in effect as of the date
hereof.
4.2. Capitalization.
The authorized capital stock of the Company consists of 70,000,000
Shares, of which 11,313,957 Shares were outstanding as of the close of business
on September 11, 1998. All of the outstanding Shares have been duly authorized
and are validly issued, fully paid and nonassessable. The Company has no
commitments to issue or deliver Shares except that, as of September 11, 1998,
there were (a) 971,187 Shares subject to issuance pursuant to the Company's
Stock Option Plan, 1995 Employee Stock Option Plan, 1996 Employee Stock Option
Plan, 1997 Employee Stock Option Plan, 1995 Director Stock Option Plan and 1998
Director Stock Option Plan (the "Company Stock Plans"), (b) 28,857 Shares
subject to issuance pursuant to warrants, (c) 2,582,197 Shares subject to
issuance pursuant to the Company's 7% Convertible Subordinated Debentures due
January 29, 2006 (the "Debentures") and (d) shares issuable pursuant to the
Directors' Compensation Plan on terms disclosed on Section 4.2. of the Company
Disclosure Schedule. Section 4.2. of the Company Disclosure Schedule contains a
list, as of the date hereof, of (x) each option to purchase or acquire Shares
under each of the Company Stock Plans (each a "Company Option"), including the
plan, the holder, date of grant, exercise price and number of Shares subject
thereto and (y) each warrant to purchase capital stock of the Company,
including, the holder, date of grant, expiration date, exercise price and number
of Shares subject thereto. Each of the outstanding shares of capital stock or
other securities of each of the Company's Subsidiaries is duly authorized,
validly issued, fully paid and nonassessable and owned by the Company or a
direct or indirect wholly-owned subsidiary of the Company, free and clear of
any lien, pledge, security interest, claim or other encumbrance. Except as
described in Section 4.2. of the Company Disclosure Schedule, there are no
preemptive or other outstanding rights, options, warrants, conversion rights,
stock appreciation rights, redemption rights, repurchase rights, agreements,
arrangements or commitments to issue or sell any shares of capital stock or
other securities of the Company or any of its Subsidiaries or any securities or
obligations convertible or exchangeable into or exercisable for, or giving any
Person a right to subscribe for or acquire, any securities of the Company or any
of its Subsidiaries, and no securities or obligations evidencing such rights are
authorized, issued or outstanding. Except as described in
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Section 4.2. of the Company Disclosure Schedule, the Company does not have
outstanding any bonds, debentures, notes or other obligations the holders of
which have the right to vote (or, except as referred to in this Section 4.2.,
convertible into or exercisable for securities having the right to vote) with
the stockholders of the Company on any matter.
4.3 Company Subsidiaries.
Except for the Company's Subsidiaries as set forth on Section 4.3.
of the Company Disclosure Schedule, the Company does not directly or indirectly
own any equity or similar interest in, or any interest convertible into or
exchangeable or exercisable for any equity or similar interest in, any
corporation, partnership, joint venture or other business association or
entity that directly or indirectly conducts any activity which is material to
the Company.
4.4. Corporate Authority; Approval and Fairness.
(a) The Company has all requisite corporate power and authority and
has taken all corporate action necessary in order to execute, deliver and
perform its obligations under this Agreement and subject only to approval of the
Merger by the holders of at least a majority of the outstanding Shares (the
"Company Requisite Vote"), to consummate the Merger. This Agreement is a valid
and binding obligation of the Company enforceable against the Company in
accordance with its terms, except as enforceability may be limited or affected
by bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and
other similar laws and equitable principles now or hereafter in effect and
affecting the rights and remedies of creditors generally.
(b) The Board of Directors of the Company (at a meeting duly called
and held) by unanimous vote (i) has approved this Agreement and the Merger and
the other transactions contemplated hereby and (ii) has resolved to submit the
Merger and the other transactions contemplated by this Agreement to, and
recommend approval thereof by, the stockholders of the Company. The Board of
Directors of the Company has received the opinion of its financial advisor
SunTrust Equitable Securities, to the effect that, as of the date of such
opinion, the Exchange Ratio is fair from a financial point of view to the
holders of Shares.
4.5. Governmental Filings; No Violations.
(a) Other than the filings, permits, authorizations, consents,
approvals and/or notices pursuant to or required by (i) Sections 1.3. and 4.5(b)
hereof, (ii) the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), (iii) the Securities Exchange Act of 1934 (the
"Exchange Act"), (iv) the Securities Act of 1933, as amended (the "Securities
Act"), (v) state securities or "blue-sky" laws, (vi) NASDAQ, and except as may
result from any facts or circumstances relating solely to Parent or Merger
Subsidiary or its affiliates, in connection with the execution and delivery of
this Agreement by the Company and the consummation by the Company of the Merger
and the other transactions contemplated hereby and thereby, there are no
filings, authorizations, consents, approvals or notices required with or by any
Court,
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administrative agency, commission, government or regulatory authority,
domestic or foreign, except those that the failure to make or obtain will not,
individually or in the aggregate, have a Company Material Adverse Effect or
prevent, materially delay or materially impair the ability of the Company to
consummate transactions contemplated by this Agreement.
(b) Subject to compliance with the filings described in Section
4.5.(a) and obtaining Private Consents (as defined below) applicable to the
Company and its Subsidiaries, the execution, delivery and performance of this
Agreement by the Company do not, and the consummation by the Company of the
Merger and the other transactions contemplated hereby will not, constitute or
result in (i) a breach or violation of, or a default under, the articles of
incorporation or by-laws of the Company or the comparable governing instruments
of any of its Subsidiaries, (ii) a breach or violation of, or a default under,
or the acceleration of any obligations or the creation of a lien, pledge,
security interest or other encumbrance on the assets of the Company or any of
its Subsidiaries (with or without notice, lapse of time or both) pursuant to,
any agreement, lease, contract, note, mortgage, indenture, arrangement or other
obligation ("Contracts") to which the Company or any of its Subsidiaries is a
party or by which any of its assets or properties are bound or affected, (iii)
any change in the rights or obligations of any party under any of those
Contracts, (iv) the impairment of the Company's or any of the Company's
Subsidiaries' business or adversely affect any licenses or approvals necessary
to enable the Company and its Subsidiaries to carry on their business as
presently conducted, except for any conflict, breach, violation, default,
acceleration, declaration, imposition or impairment that would not reasonably be
expected to have a Company Material Adverse Effect or prevent, materially
delay or materially impair the ability of the Company to consummate the
transactions contemplated by this Agreement. Section 4.5.(b) of the Company
Disclosure Schedule sets forth, to the knowledge of the Responsible Executive
Officers of the Company (as defined in Section 9.12.(b)), a list of contracts
(by category and type, where applicable) material to the Company and its
Subsidiaries, taken as a whole, pursuant to which consents or waivers ("Private
Consents") are or may be required prior to consummation of the transactions
contemplated by this Agreement (subject to the exception set forth above).
4.6. Company Reports; Financial Statement.
The Company has delivered or made available to Parent true and
complete copies of each registration statement, report, proxy statement or
information statement prepared by it since December 31, 1997 (the "Company Audit
Date"), including (a) the Company's Annual Report on Form 10-K for the year
ended December 31, 1997, (b) the Company's definitive Proxy Statement for its
1998 Annual Meeting of Stockholders dated April 22, 1998, and (c) the Company's
Quarterly Reports on Form 10-Q for the quarterly periods ended March 31 and June
30, 1998, each in the form (including exhibits, annexes and any amendments
thereto) filed with the Securities and Exchange Commission (the "SEC")
(collectively, including any such reports filed subsequent to the date hereof,
the "Company Reports"). As of their respective dates the Company Reports
complied, and any Company reports filed with the SEC subsequent to the date
hereof will comply, as to form in all material respects with the requirements of
the Securities Act or the Exchange Act, as applicable, and the rules and
regulations of the SEC. As of their respective dates, the Company Reports did
not, and any Company Reports filed with the SEC
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subsequent to the date hereof will not, contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements made therein, in light of the circumstances
under which they were made, not misleading. Each of the consolidated balance
sheets included in or incorporated by reference into the Company Reports
(including the related notes and schedules) fairly presents, or will fairly
present, the consolidated financial position of the Company and its Subsidiaries
as of its date and each of the consolidated statements of income and statements
of cash flows included in or incorporated by reference into the Company Reports
(including any related notes and schedules) fairly presents, or will fairly
present, the consolidated results of operations, retained earnings and cash
flows, as the case may be, of the Company and its Subsidiaries for the periods
set forth therein (subject, in the case of unaudited statements, to the absence
of notes and normal year-end audit adjustments that will not be material in
amount or effect), in each case in accordance with generally accepted accounting
principles ("GAAP") consistently applied during the periods involved, except as
may be noted therein or in Section 4.6. of the Company Disclosure Schedule.
4.7. Absence of Certain Changes.
Except as disclosed in the Company Reports filed prior to the date
hereof, in any Company press releases issued prior to the date hereof, or as set
forth on Section 4.7. of the Company Disclosure Schedule and except as otherwise
provided in or contemplated by this Agreement, since the Company Audit Date, the
Company and its Subsidiaries have conducted their respective businesses only in,
and have not engaged in any material transaction other than according to, the
ordinary and usual course of such businesses and there has not been: (a) any
change in the business, assets, liabilities, condition (financial or otherwise)
or results of operations of the Company and its Subsidiaries, or any
transaction, commitment, dispute or other event or, to the knowledge of the
Responsible Executive Officers of the Company any other development
or combination of developments, that, individually or in the aggregate, has had
or is reasonably likely to result in a Company Material Adverse Effect; (b) any
material damage, destruction or other casualty loss with respect to any material
asset or property owned, leased or otherwise used by the Company or any of its
Subsidiaries, whether or not covered by insurance; (c) any authorization,
declaration, setting aside or payment of any dividend or other distribution in
respect of the stock of the Company, except as permitted by Section 6.1. hereof;
(d) any change by the Company in accounting principles, practices or methods
other than as required by changes in applicable GAAP; (e) any repurchase or
redemption of any Shares; or (f) any material amendment, modification or
termination of any material contract, license or permit to which the
Company is a party or which it holds. Since the Company Audit Date, except as
provided for herein or as disclosed in the Company Reports filed prior to the
date hereof or as set forth on Section 4.7. of the Company Disclosure Schedule,
there has not been any increase in the compensation payable or that could become
payable by the Company or any of its Subsidiaries to officers at the senior vice
president level or above or any amendment of any of the Company Compensation and
Benefit Plans (as defined in Section 4.9.(a)).
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4.8. Litigation and Liabilities.
Except as disclosed in the Company Reports filed prior to the date
hereof or as set forth on Section 4.8. of the Company Disclosure Schedule, there
are no (a) civil, criminal or administrative actions, suits, claims, hearings,
investigations, proceedings, judgments, decrees, orders or injunctions
outstanding, pending or, to the knowledge of the Responsible Executive Officers
of the Company, threatened against the Company or any of its Subsidiaries or
(b) obligations or liabilities of any nature, whether or not accrued, contingent
or otherwise and whether or not required to be disclosed, or any other facts or
circumstances of which the Responsible Executive Officers of the Company have
knowledge, that have resulted in or could reasonably be expected to result in
any claims against, or obligations or liabilities of, the Company or any of the
Subsidiaries, except for such actions, suits, claims, hearings, investigations,
proceedings, obligations and liabilities that would not, individually or in the
aggregate, have a Company Material Adverse Effect or prevent or materially
impair the ability of the Company to consummate the transactions contemplated by
this Agreement.
4.9. Employee Benefits.
(a) A copy of each bonus, deferred compensation, pension,
retirement, profit-sharing, thrift, savings, employee stock ownership, stock
bonus, stock purchase, restricted stock, stock option, employment, termination,
severance, change of control, compensation, medical, health or other employee
benefit plan, agreement, policy or arrangement that covers employees, directors,
former employees or former directors of the Company and its Subsidiaries (the
"Company Compensation and Benefit Plans") and any trust agreement or insurance
contract forming a part of such Company Compensation and Benefit Plans has been
made available to Parent prior to the date hereof. For the three most recent
plan years, all annual reports (Form 5500 series) on each Company Compensation
and Benefit Plan that have been filed with any governmental agency and the
current summary plan description and subsequent summaries of material
modifications for each Company Compensation and Benefit Plan have been made
available to Parent prior to the date hereof. The Compensation and Benefit
Plans are listed on Section 4.9. of the Company Disclosure Schedule.
(b) All Company Compensation and Benefit Plans are in substantial
compliance with all applicable law, including, to the extent applicable, the
Internal Revenue Code of 1986, as amended (the "Code") and the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"). Each Company
Compensation and Benefit Plan that is an "employee pension benefit plan" within
the meaning of Section 3(2) of ERISA (a "Pension Plan") and that is intended to
be qualified under Section 401(a) of the Code has received a favorable
determination letter from the Internal Revenue Service (the "IRS"), and the
Company is not aware of any circumstances likely to result in revocation of any
such favorable determination letter. There is no pending or, to the knowledge
of the Responsible Executive Officers of the Company, threatened litigation
relating to the Company Compensation and Benefit Plans. Neither the Company nor
any of its Subsidiaries has engaged in a transaction with respect to any Company
Compensation and Benefit Plan that, assuming the taxable period of such
transaction expired as of the date hereof, would subject the
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Company or any of its Subsidiaries to a material tax or penalty imposed by
either Section 4975 of the Code or Section 502 of ERISA.
(c) As of the date hereof, no liability under Subtitle C or D of
Title IV of ERISA has been or is expected to be incurred by the Company or any
of its Subsidiaries with respect to any ongoing, frozen or terminated
"single-employer plan," within the meaning of Section 4001(a)(15) of ERISA,
currently or formerly maintained by any of them, or the single-employer plan of
any entity which is considered one employer with the Company under Section 4001
of ERISA or Section 414 of the Code (an "ERISA Affiliate"). The Company and
its Subsidiaries have not incurred and do not expect to incur any withdrawal
liability with respect to a multiemployer plan under Subtitle E to Title IV of
ERISA. The Company and its Subsidiaries have not contributed, or been obligated
to contribute, to a multiemployer plan under Subtitle E of Title IV of ERISA at
any time since September 26, 1980. No notice of a "reportable event", within
the meaning of Section 4043 of ERISA for which the 30-day reporting requirement
has not been waived, has been required to be filed for any Pension Plan or by
any ERISA Affiliate of the Company within the 12-month period ending on the date
hereof or will be required to be filed in connection with the transactions
contemplated by this Agreement.
(d) All contributions required to be made under the terms of any
Company Compensation and Benefit Plan as of the date hereof have been timely
made or have been reflected on the most recent consolidated balance sheet filed
or incorporated by reference in the Company Reports prior to the date hereof.
Neither any Pension Plan nor any single-employer plan of an ERISA Affiliate of
the Company has an "accumulated funding deficiency" (whether or not waived)
within the meaning of Section 412 of the Code or Section 302 of ERISA. Neither
the Company nor its Subsidiaries has provided, or is required to provide,
security to any Pension Plan or to any single-employer plan of an ERISA
Affiliate of the Company pursuant to Section 401(a)(29) of the Code.
(e) Under each Pension Plan of the Company which is a
single-employer plan, as of the last day of the most recent plan year ended
prior to the date hereof, the actuarially determined present value of all
"benefit liabilities", within the meaning of Section 4001(a)(16) of
ERISA (as determined on the basis of the actuarial assumptions contained in the
Pension Plan's most recent actuarial valuation), did not exceed the then current
value of the assets of such Pension Plan, and there has been no material change
in the financial condition of such Pension Plan since the last day of the most
recent plan year. For each Pension Plan of the Company, the Company has
furnished to Parent a true and complete copy of the actuarial valuation reports
issued by the actuaries of that Pension Plan for the three most recent years,
setting forth: (i) the actuarial present value (based upon the same actuarial
assumptions as were used for that period for funding purposes) of all vested and
nonvested accrued benefits under that Pension Plan; (ii) the actuarial present
value (based upon the same actuarial assumptions, other than turnover
assumptions, as were used for that period for funding purposes) of vested
benefits under that Pension Plan; (iii) the net fair market value of that
Pension Plan's assets; and (iv) a detailed description of the funding method
used under that Pension Plan.
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(f) Neither the Company nor its Subsidiaries have any obligations
for retiree health and life benefits under any Company Compensation and Benefit
Plan. The Company or its Subsidiaries may amend or terminate any such plan
under the terms of such plan at any time without incurring any material
liability thereunder.
(g) The Merger will not result in any breach or violation of, or a
default under, any of the Company Compensation and Benefit Plans or except as
set forth in Section 4.9. of the Company Disclosure Schedule, (i) entitle any
employees of the Company or its Subsidiaries to severance pay, or (ii)
accelerate the time of payment or vesting or trigger any payment of compensation
or benefits under, increase the amount payable or trigger any other material
obligation pursuant to, any of the Company Compensation and Benefit Plans.
(h) All Company Compensation and Benefit Plans covering current or
former non-U.S. employees of the Company and its Subsidiaries comply in all
material respects with applicable local law. The Company and its Subsidiaries
have no material unfunded liabilities with respect to any Pension Plan that
covers such non-U.S. employees.
4.10. Compliance with Laws; Permits.
Except as set forth in the Company Reports filed prior to the date
hereof or on Section 4.10. of the Company Disclosure Schedule, the businesses of
each of the Company and its Subsidiaries have been, and are being, conducted in
compliance with all applicable federal, state, local or foreign law, statute,
ordinance, rule, regulation, judgment, order, injunction, decree, arbitration
award, agency requirement, license or permit of any governmental entity
("Laws"), and all notices, reports, documents and other information required to
be filed thereunder within the last three years were properly filed and were in
compliance with such Laws, except in any such case for noncompliance that,
individually or in the aggregate, would not reasonably be expected to have a
Company Material Adverse Effect or prevent or materially impair the ability of
the Company to consummate the transactions contemplated by this Agreement.
Except as set forth in the Company Reports filed prior to the date hereof or on
Section 4.10. of the Company Disclosure Schedule and except for routine
examinations and audits by state governmental entities charged with supervision
of educational and rehabilitative facilities of the type operated by the
Company and the Subsidiaries ("State Regulators"), no investigation or review by
any governmental entity with respect to the Company or any of its Subsidiaries
is pending or, to the knowledge of the Responsible Executive Officers of the
Company, threatened, nor has any governmental entity indicated an intention to
conduct the same, except for those the outcome of which would not, individually
or in the aggregate, reasonably be expected to have a Company Material Adverse
Effect or prevent or materially impair the ability of the Company to consummate
the transactions contemplated by this Agreement. No material change is required
in the Company's or any of its Subsidiaries' processes, properties or procedures
in connection with any such Laws, and the Company has not received any notice or
communication of any noncompliance with any such Laws that would reasonably be
expected to have a Material Adverse Effect or that has not been cured as of the
date hereof. The Company and its Subsidiaries each has all permits, licenses,
franchises, variances, exemptions, orders and other governmental authorizations,
consents and approvals necessary to conduct its business as
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presently conducted except those the absence of which would not, individually or
in the aggregate, have a Company Material Adverse Effect or prevent or
materially impair the ability of the Company to consummate the Merger and the
other transactions contemplated by this Agreement.
4.11. Takeover Statutes.
No restrictive provision of any "fair price," "moratorium," "control
share" or other similar anti-takeover statute or regulation, including, but not
limited to, Section 3-602 of the MGCL, (each a "Takeover Statute") or
restrictive provision of any applicable anti-takeover provision in the Articles
of Incorporation or Bylaws of the Company, is, or at the Effective Time will be,
applicable to the Company, Parent, the Shares, the Merger or any other
transaction contemplated by this Agreement.
4.12. Environmental Matters.
Except as disclosed in the Company Reports filed prior to the date
hereof or on Section 4.12. of the Company Disclosure Schedule, and except for
such matters that, alone or in the aggregate, would not have a Company Material
Adverse Effect: (a) the Company and its Subsidiaries have complied with all
applicable Environmental Laws (as defined in Section 9.12.(b)); (b) to the
knowledge of the Responsible Executive Officers of the Company, the properties
currently owned or operated by the Company (including soils, groundwater,
surface water, buildings or other structures) are not contaminated with any
Hazardous Substances (as defined in Section 9.12.(b)) and do not contain
wetlands, dumps, filled in land, PCBs, asbestos or underground storage tanks;
(c) to the knowledge of the Responsible Executive Officers of the Company, the
properties formerly owned or operated by the Company or any of its Subsidiaries
were not contaminated with Hazardous Substances during the period of ownership
or operation by the Company or any of its Subsidiaries; (d) to the knowledge of
the Responsible Executive Officers of the Company, neither the Company nor any
Subsidiary is subject to liability for any Hazardous Substance disposal or
contamination on any third party property; (e) to the knowledge of the
Responsible Executive Officers of the Company, no Hazardous Substance has
been transported from any of the properties owned or operated by the Company or
any of its Subsidiaries other than as permitted under applicable Environmental
Law; (f) neither the Company nor any of its Subsidiaries has received any
written notice, demand, letter, claim or request for information from any
Governmental Entity or third party indicating that the Company or any of its
Subsidiaries may be in violation of or liable under any Environmental Law; (g)
the Company and its Subsidiaries are not subject to any court order,
administrative order or decree arising under any Environmental Law and are not
subject to any indemnity or other agreement with any third party relating to
liability under any Environmental Law or relating to Hazardous Substances; and
(h) there are no circumstances or conditions involving the Company or any of its
Subsidiaries that could reasonably be expected to result in any material claims,
liability, investigations, costs or restrictions on the ownership, use, or
transfer of any property of the Company pursuant to any Environmental Law.
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4.13. Taxes.
Except as set forth on Section 4.13. of the Company Disclosure
Schedule:
(a) the Company and each of its Subsidiaries have (or, in the case
of returns becoming due after the date hereof and on or before the Closing Date,
will have prior to the Closing Date) timely and accurately filed all Tax Returns
(as defined in Section 9.12.(b)) which are required by all applicable laws to be
filed by them, and have paid, or made adequate provision for the payment of, all
Taxes (as defined in Section 9.12.(b)) which have or may become due and payable
pursuant to said Tax Returns and all other Taxes, governmental charges and
assessments received to date other than those Taxes being contested in good
faith for which adequate provision has been made on the most recent balance
sheet included in the Company Reports. The Tax Returns of the Company and its
Subsidiaries have been (or, in the case of returns becoming due after the date
hereof and on or before the Closing Date, will be) prepared, in all material
respects, in accordance with all applicable laws consistently applied;
(b) all Taxes which the Company and its Subsidiaries are required
by law to withhold and collect have been duly withheld and collected, and have
been paid over, in a timely manner, to the proper Taxing Authorities (as defined
in Section 9.12.(b)) to the extent due and payable;
(c) no liens for Taxes exist with respect to any of the assets or
properties of the Company or its Subsidiaries, except for statutory liens for
Taxes not yet due or payable or that are being contested in good faith; and
(d) all Tax Returns have been examined by the relevant taxing
authorities, or closed without audit by applicable statutes, and all
deficiencies proposed as a result of such examinations have been paid or
settled, for all taxable years prior to and including the taxable year
ended June 30, 1995; and
(e) there is no audit, examination, deficiency, or refund
litigation pending with respect to any Taxes and during the past three years no
Taxing Authority has given written notice of the commencement of any audit,
examination, deficiency or refund litigation, with respect to any Taxes.
(f) Section 4.13 of the Company Disclosure Schedule sets forth the
net operating loss carryover and capital loss carryover available for Federal
income tax purposes to the affiliated group filing consolidated Federal income
tax returns of which the Company is the common parent corporation as of the end
of the taxable period ended June 30, 1998.
4.14. Labor Matters.
(a) Neither the Company nor any of its Subsidiaries is a party to
or otherwise bound by any collective bargaining agreement, contract or other
agreement or understanding with a labor union or labor organization. There are
no strikes or work stoppages pending or, to the knowledge of the Responsible
Executive Officers of the Company, threatened with respect to the
-15
employees of the Company or any of its Subsidiaries. There is no representation
claim or petition or complaint pending before the National Labor Relations Board
or any state or local labor agency and, to the knowledge of the Responsible
Executive Officers of the Company, no question concerning representation has
been raised or threatened. Except as set forth on Section 4.14 of the Company
Disclosure Schedule, no charges with respect to or relating to the business of
the Company or any its Subsidiaries are pending before the Equal Employment
Opportunity Commission, or any state or local agency responsible for the
prevention of unlawful employment practices, which would if adversely determined
have a Company Material Adverse Effect.
(b) Section 4.14. of the Company Disclosure Schedule contains a
complete and correct list of all current employment, management or other
consulting agreements with any Persons employed or retained by the Company or
any of its Subsidiaries which are not terminable at will. True, complete and
correct copies of all such written agreements have been delivered to Parent.
4.15. Intellectual Property.
(a) Except as set forth on Section 4.15. of the Company Disclosure
Schedule, the Company and/or each of its Subsidiaries owns, or is licensed or
otherwise possesses rights to use all patents, trademarks, trade names, service
marks, copyrights, and any applications therefor, technology, know-how, computer
software programs or applications, and tangible or intangible proprietary
information or materials that are used in the business of the Company and its
Subsidiaries as currently conducted, and all patents, trademarks, trade names,
service marks and copyrights held by the Company and/or its Subsidiaries are
valid and subsisting.
(b) Except as disclosed in Company Reports filed prior to the date
hereof or Section 4.15. of the Company Disclosure Schedule:
(i) the Company is not, nor will it be as a result of the
execution and delivery of this Agreement or the performance of its obligations
hereunder or as contemplated hereby, in violation of any licenses, sublicenses
and other agreements as to which the Company is a party and pursuant to which
the Company is authorized to use any third-party patents, trademarks, service
marks, and copyrights ("Company Third-Party Intellectual Property Rights");
(ii) no claims with respect to (A) the patents, registered and
unregistered trademarks and service marks, copyrights, trade names, and any
applications therefor owned by the Company or any its Subsidiaries (the "Company
Intellectual Property Rights"); (B) any trade secret material to the Company; or
(C) Company Third-Party Intellectual Property Rights are currently pending or
threatened by any Person;
(iii) (A) the sale, licensing or use of any product as now used,
sold or licensed or proposed for use, sale or license by the Company or any of
its Subsidiaries, does not infringe in any respect that would have a Company
Material Adverse Effect on any copyright, patent, trademark, service xxxx or
trade secret; and (B) there are no valid grounds for any material claims against
the use by the Company or any of its Subsidiaries, of any material trademarks,
trade names, trade secrets, copyrights, patents, technology, know-how or
computer
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software programs and applications used in the business of the Company or any of
its Subsidiaries as currently conducted challenging the ownership, validity or
effectiveness of any of the Company Intellectual Property Rights or other trade
secret material to the Company or challenging the license or legally enforceable
right to use of the Company Third-Party Intellectual Rights by the Company or
any of its Subsidiaries; and
(iv) to the knowledge of the Responsible Executive Officers of
the Company, there is no unauthorized use, infringement or misappropriation of
any of the Company Intellectual Property Rights by any third party, including
any employee or former employee of the Company or any of its Subsidiaries.
(c) Section 4.15. of the Company Disclosure Schedule lists all
material (i) patents, patent applications, registered and unregistered
trademarks, trade names and service marks, registered and unregistered
copyrights, and maskworks included in the Company Intellectual Property Rights
and (ii) licenses, sublicenses and other agreements as to which the Company is a
party and pursuant to which any person is authorized to use any of the Company
Intellectual Property Rights.
4.16. Title to Property.
Except as set forth in the Company Reports or on Section 4.16. of
the Company Disclosure Schedule, the Company and each of its Subsidiaries had
good title to all of their properties and assets as set forth on the June 30,
1998 balance sheet included in the Company Reports, free and clear of all
encumbrances, except liens for taxes not yet due and payable and such
encumbrances or other imperfections of title, if any, as do not materially
detract from the value of or materially interfere with the present use of the
property affected thereby or which would not reasonably be expected to have a
Company Material Adverse Effect, and except for encumbrances which secure
indebtedness reflected in the financial statements included in the Company
Reports. Section 4.16. of the Company Disclosure Schedule sets forth a true and
correct list of all leases, subleases or other agreements under which the
Company or any of its Subsidiaries is lessee or lessor of any material real
property or has any interest in material real property and, except as set forth
in Section 4.16. of the Company Disclosure Schedule, there are no rights or
options held by the Company or any of its Subsidiaries, or any contractual
obligations on its part, to purchase or otherwise acquire (including by way of
lease or sublease) any interest in or use of any material real property, nor any
rights or options granted by the Company or any of its Subsidiaries, or any
contractual obligations entered into by it, to sell or otherwise dispose of
(including by way of lease or sublease) any interest in or use of any material
real property. All such leases, subleases and other agreements are in full
force and effect and, to the knowledge of the Responsible Executive Officers of
the Company, constitute legal, valid and binding obligations of the respective
parties thereto, with no existing or claimed default or event of default, or
event which with notice or lapse of time or both would constitute a default or
event of default, by the Company or any of its Subsidiaries, or, to the
knowledge of the Responsible Executive Officers of the Company, by any other
party thereto, which would materially and adversely affect the Company or any of
its Subsidiaries.
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4.17. Material Contracts.
All of the material contracts of the Company and its Subsidiaries
that are required to be described in the Company Reports or to be filed as
exhibits thereto pursuant to Item 601 of Regulation S-K promulgated by the SEC
are described in the Company Reports or filed as exhibits thereto and are in
full force and effect. Section 4.17. of the Company Disclosure Schedule sets
forth a list of all other contracts currently in force between the Company or
any Subsidiary and any agency or other party to place youths in the juvenile
justice programs of the Company or its Subsidiaries. True and complete copies
of all contracts referred to in the previous two sentences (the "Section 4.17.
Contracts") have been made available by the Company to Parent. Neither the
Company nor any of its Subsidiaries nor, to the knowledge of the Responsible
Executive Officers of the Company, any other party, is in breach of or in
default under any Section 4.17. Contract, and to the knowledge of the
responsible Executive Officers of the Company, no condition exists which with
the lapse of time or notice or both, will result in any such breach or default,
except for such breaches and defaults as individually or in the aggregate
have not had and would not reasonably be expected to have a Company Material
Adverse Effect. Except as set forth on Section 4.17 of the Company Disclosure
Schedule, to the knowledge of the Responsible Executive Officers of the Company,
no third party to any Section 4.17. Contract is currently seeking to terminate,
amend, modify or fail to renew any such contract which is material to the
business of the Company, whether or not as a result of the Merger nor, to the
knowledge of the Responsible Executive Officers of the Company, is there any
development or combination of developments that are reasonably likely to result
in any such termination, amendment, modification or failure to renew any such
contract which is material to the business of the Company. Neither the Company
nor any of its Subsidiaries is party to any agreement containing any provision
or covenant limiting in any respect that would reasonably be expected to
have a Company Material Adverse Effect the ability of the Company or any of its
Subsidiaries to (a) sell any products or services of or to any other person, (b)
engage in any line of business or (c) compete with or obtain products or
services from any person or limiting the ability of any person to provide
products or services to the Company or any of its Subsidiaries.
4.18. Brokers and Finders.
Neither the Company nor any of its executive officers, directors or
employees has employed any broker or finder or incurred any liability for any
brokerage fees, commissions or finders fees in connection with the Merger or the
other transactions contemplated in this Agreement, except that the Company has
employed SunTrust Equitable Securities as its financial advisor, the
arrangements with respect to which are set forth on Section 4.18. of the Company
Disclosure Schedule.
4.19. Insurance Matters.
The Company has heretofore provided Parent with true, complete and
correct copies of all material fire and casualty, general liability, business
interruption, product liability and other insurance policies maintained by the
Company and its Subsidiaries. All such policies are in full force and effect
and no event has occurred that would give any insurance carrier a right to
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terminate any such policy. Neither the Company nor any of its Subsidiaries has
been denied or had any policy of insurance revoked or rescinded. All such
policies are adequate to insure against risks to which the Company and its
properties are exposed in such amounts and subject to such terms as are
commercially reasonable.
4.20.Affiliated Transactions.
The Company has not engaged in any transaction required to be
described in the Company Reports pursuant to Item 404 of Regulation S-K, which
has not been so described in the Company Reports.
4.21. Year 2000 Liability.
To the knowledge of the Responsible Executive Officers of the
Company, the cost of upgrading and enhancing the Company's computer software
systems to recognize years beginning with 2000, will not be material to the
Company's financial position, liquidity or results of operations.
4.22. Accounting and Tax Matters.
(a) As of the date hereof, neither the Company nor any of its
Affiliates has taken or agreed to take any action, nor do the Responsible
Executive Officers of the Company have any knowledge of any fact or
circumstance, that would prevent Parent or the Company from accounting for the
business combination to be effected by the Merger as a "pooling-of-interests"
or prevent the Merger and the other transactions contemplated by this Agreement
from qualifying as a "reorganization" within the meaning of Section 368(a) of
the Code.
(b The Company has provided to the Company's and Parent's
independent accountants all information concerning actions taken or agreed to be
taken by the Company or any of its Affiliates on or before the date of this
Agreement that could reasonably be expected to adversely affect the ability of
Parent to account for the business combination to be effected by the Merger as a
pooling of interests.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF
PARENT AND MERGER SUBSIDIARY
Except as set forth in the corresponding sections or subsections of
the Parent Disclosure Schedule attached to this Agreement (the "Parent
Disclosure Schedule"), Parent and Merger Subsidiary hereby, jointly and
severally, represent and warrant to the Company that:
5.1. Merger Subsidiary.
(a) Merger Subsidiary is a corporation duly organized, validly
existing and in good standing under the laws of the State of Maryland.
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(b) The authorized capital stock of Merger Subsidiary consists of
1,000 shares of common stock, par value $.01 per share, all of which are validly
issued and outstanding and are, and at the Effective Time will be, owned solely
by Parent, and there are (i) no other voting securities of Merger Subsidiary,
(ii) no securities of Merger Subsidiary convertible into or exchangeable for
shares of common stock or other voting securities of Merger Subsidiary and
(iii) no options or other rights to acquire from Merger Subsidiary, and no
obligations of Merger Subsidiary to issue or deliver, shares of common stock or
other voting securities or securities convertible into or exchangeable for
shares of common stock or other voting securities of Merger Subsidiary.
(c) Merger Subsidiary has not conducted any business prior to the
date hereof and has no, and prior to the Effective Time will have no, assets,
liabilities or obligations of any nature other than those incident to its
formation and pursuant to this Agreement and the Merger and the other
transactions contemplated by this Agreement.
5.2. Organization, Good Standing and Qualification.
Parent is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware, and each of its Subsidiaries
is a corporation or other entity duly organized, validly existing and in good
standing under the laws of its respective jurisdiction of organization. Each of
Parent and each of its Subsidiaries has all requisite corporate or similar
power and authority to own and operate its properties and assets and to carry on
its business as presently conducted and is qualified to do business and is in
good standing in each jurisdiction where the ownership or operation of its
properties or conduct of its business requires such qualification, except where
the failure to be so qualified or in good standing, when taken together
with all other such failures, is not reasonably likely to have a Parent Material
Adverse Effect (as defined in Section 9.12.(b)). Parent has made available to
the Company a complete and correct copy of Parent's and each Subsidiaries'
charter and by-laws or other organizational documents, each as amended to and as
in effect as of the date hereof.
5.3. Capitalization.
The authorized capital stock of Parent consists of 30,000,000 shares
of Parent Common Stock, par value $.01 per share, of which 7,791,142 shares were
outstanding as of the close of business on September 14, 1998, and 1,000,000
shares of preferred stock, par value $.01 per share (the "Parent Preferred
Shares" and together with Parent Common Stock, the "Parent Shares"), none of
which were outstanding as of the close of business on September 14, 1998. All
of the outstanding Parent Shares have been duly authorized and are validly
issued, fully paid and nonassessable. Parent has no commitments to issue or
deliver Parent Shares, except that (i) as of September 9, 1998, there were
677,925 shares of Parent Common Stock subject to issuance pursuant to Parent's
1993 Stock Option Plan and 1994 Directors' Stock Option plan (the "Parent
Stock Plans") and 205,000 shares of Parent Common Stock subject to issuance
pursuant to other options held by employees and (ii) as of September 23, 1998,
there were 685,066 shares of Parent Common Stock subject to issuance pursuant to
warrants. Section 5.3. of the Parent Disclosure
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Schedule contains a list, which is complete and accurate in all respects as of
the date specified therein, of ach outstanding option to purchase or acquire
Shares under each of the Parent Stock Plans (each a "Parent Option"), including
the plan, the holder, date of grant, exercise price and number of Parent Shares
subject thereto. Each of the outstanding shares of capital stock or other
securities of each of Parent's Subsidiaries is duly authorized, validly issued,
fully paid and nonassessable and owned by Parent or a direct or indirect
wholly-owned subsidiary of Parent, free and clear of any lien, pledge, security
interest, claim or other encumbrance. Except as described in Section 5.3. of
the Parent Disclosure Schedule, there are no preemptive or other outstanding
rights, options, warrants, conversion rights, stock appreciation rights,
redemption rights, repurchase rights, agreements, arrangements or commitments to
issue or sell any shares of capital stock or other securities of Parent or any
of its Subsidiaries or any securities or obligations convertible or exchangeable
into or exercisable for, or giving any Person a right to subscribe for or
acquire, any securities of Parent or any of its Subsidiaries, and no securities
or obligations evidencing such rights are authorized, issued or outstanding.
Parent does not have outstanding any bonds, debentures, notes or other
obligations the holders of which have the right to vote (or, except as referred
to in this Section 5.3., convertible into or exercisable for securities having
the right to vote) with the stockholders of Parent on any matter.
5.4. Corporate Authority; Approval and Fairness.
(a) Each of Parent and Merger Subsidiary has all requisite
corporate power and authority and has taken all corporate action necessary in
order to execute, deliver and perform its obligations under this Agreement, and,
with respect to Parent, subject only to approval of the issuance of Parent
Common Stock by the holders of at least a majority of the outstanding shares of
Parent Common Stock (the "Parent Requisite Vote"), to consummate the
Merger. This Agreement is a valid and binding obligation of each of Parent and
Merger Subsidiary, as the case may be, enforceable against Parent and Merger
Subsidiary in accordance with its terms, except as enforceability may be limited
or affected by bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance and other similar laws and equitable principles now or hereafter in
effect and affecting the rights and remedies of creditors generally.
(b) The Board of Directors of Parent (at a meeting duly called and
held) by unanimous vote (i) has approved this Agreement and the Merger and the
other transactions contemplated hereby and thereby and (ii) has resolved to
submit the proposed issuance of Parent Common Stock in the Merger and the other
transactions contemplated by this Agreement to, and recommend approval thereof
by, the stockholders of the Parent. The Parent Common Stock, when issued in
connection with the consummation of the transactions contemplated hereby, will
be validly issued, fully paid and nonassessable, and no stockholder of Parent
will have any preemptive right of subscription or purchase in respect thereof.
The Parent Common Stock, when so issued, will be registered under the Securities
Act and Exchange Act and registered or exempt from registration under any
applicable state securities or "blue sky" laws.
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5.5. Governmental Filings; No Violations.
(a) Other than the filings, permits, authorizations, consents,
approvals and/or notices pursuant to or required by (i) Sections 1.3. and
5.5.(b) hereof, (ii) the HSR Act, (iii) the Exchange Act, (iv) the Securities
Act, (v) state securities or "blue-sky" laws, (vi) NASDAQ and except as may
result from any facts or circumstances relating solely to the Company or its
affiliates, in connection with the execution and delivery of this Agreement by
Parent and Merger Subsidiary and the consummation by Parent and Merger
Subsidiary of the Merger and the other transactions contemplated hereby, there
are no filings, authorizations, consents, approvals or notices required with or
by any Court, administrative agency, commission, government or
regulatory authority, domestic or foreign, except those that the failure to make
or obtain would not, individually or in the aggregate, have a Parent Material
Adverse Effect or prevent, materially delay or materially impair the ability of
Parent or Merger Subsidiary to consummate transactions contemplated by this
Agreement.
(b) Subject to compliance with the filings described in Section
5.5.(a) and obtaining Private Consents applicable to the Parent and its
Subsidiaries, the execution, delivery and performance of this Agreement and by
Parent and the Merger Subsidiary, as the case may be, does not, and the
consummation by Parent or Merger Subsidiary of the Merger and the other
transactions contemplated hereby or thereby will not, constitute or result in
(i) a breach or violation of, or a default under, the certificate of
incorporation or bylaws of Parent or Merger Subsidiary, or the comparable
governing instruments of any of Parent's other Subsidiaries, (ii) a
breach or violation of, or a default under, the acceleration of any obligations
or the creation of a lien, pledge, security interest or other encumbrance on the
assets of Parent or any of its Subsidiaries (with or without notice, lapse of
time or both) pursuant to, any Contracts to which Parent or any of its
Subsidiaries is a party or by which any of its assets or properties are bound or
affected, (iii) any change in the rights or obligations of any party under any
of those Contracts, (iv) the impairment of Parent's or any of Parent's
Subsidiaries' business or adversely affect any licenses or approvals necessary
to enable Parent and its Subsidiaries to carry on their business as
presently conducted, except for any conflict, breach, violation, default,
acceleration, declaration, imposition or impairment that would not reasonably be
expected to have a Parent Material Adverse Effect or prevent, materially delay
or materially impair the ability of Parent or Merger Subsidiary to consummate
the transactions contemplated by this Agreement, as the case may be. Section
5.5.(b) of the Parent Disclosure Schedule sets forth, to the knowledge
of the Responsible Executive Officers of Parent (as defined in Section 9.12.(b))
a list of contracts (by category and type, where applicable) material to Parent
and its Subsidiaries, taken as a whole, pursuant to which Private Consents are
or may be required prior to consummation of the transactions contemplated by
this Agreement (subject to the exception set forth above).
5.6. Parent Reports; Financial Statements.
Parent has delivered or made available to the Company true and
complete copies of each registration statement, report, proxy statement or
information statement prepared by it since December 31, 1997 (the "Parent Audit
Date"), including (a) Parent's Annual Report on Form 10-K for the year ended
December 31, 1997, (b) Parent's definitive Proxy Statement for its
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1998 Annual Meeting of Stockholders dated June 18, 1998, and (c) Parent's
Quarterly Report on Form 10-Q for the quarterly periods ended March 31 and
June 30, 1998, each in the form (including exhibits, annexes and any amendments
thereto) filed with the SEC (collectively, including any such reports filed
subsequent to the date hereof, the "Parent Reports"). As of their respective
dates, the Parent Reports complied, and any Parent Reports filed with
the SEC subsequent to the date hereof will comply, as to form in all material
respects with the requirements of the Securities Act or the Exchange Act, as
applicable, and the rules and regulations of the SEC. As of their respective
dates, the Parent Reports did not, and any Parent Reports filed with the SEC
subsequent to the date hereof will not, contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein
or necessary to make the statements made therein, in light of the circumstances
under which they were made, not misleading. Each of the consolidated balance
sheets included in or incorporated by reference into the Parent Reports
(including the related notes and schedules) fairly presents, or will fairly
present, the consolidated financial position of Parent and its Subsidiaries as
of its date and each of the consolidated statements of income and of statements
of cash flows included in or incorporated by reference into the Parent Reports
(including any related notes and schedules) fairly presents, or will fairly
present, the consolidated results of operations, retained earnings and cash
flows, as the case may be, of Parent and its Subsidiaries for the periods set
forth therein (subject, in the case of unaudited statements, to the absence of
notes and normal year-end audit adjustments that will not be material in amount
or effect), in each case in accordance with GAAP consistently applied
during the periods involved, except as may be noted therein or in Section 5.6.
of the Parent Disclosure Schedule.
5.7. Absence of Certain Changes.
Except as disclosed in the Parent Reports filed prior to the date
hereof or as set forth on Section 5.7. of the Parent Disclosure Schedule and
except as otherwise provided in or contemplated by this Agreement, since the
Parent Audit Date, Parent and its Subsidiaries have conducted their respective
businesses only in, and have not engaged in any material transaction
other than according to, the ordinary and usual course of such businesses and
there has not been: (a) any change in the business, assets, liabilities,
condition (financial or otherwise) or results of operations of Parent and its
Subsidiaries, or any transaction, commitment, dispute or other event
or, to the knowledge of the Responsible Executive Officers of Parent, any other
development or combination of developments, that, individually or in the
aggregate, has had or is reasonably likely to result in a Parent Material
Adverse Effect; (b) any material damage, destruction or other casualty loss with
respect to any material asset or property owned, leased or otherwise used by
Parent or any of its Subsidiaries, whether or not covered by insurance; (c) any
authorization, declaration, setting aside or payment of any dividend or other
distribution in respect of the stock of Parent, except as permitted by Section
6.2. hereof; (d) any change by Parent in accounting principles, practices or
methods other than as required by changes in applicable GAAP or statutory
accounting principles; (e) any repurchase or redemption of any shares of Parent
Common Stock; or (f) any material amendment, modification or termination of any
material contract, license or permit to which Parent is a party or which it
holds. Since the Parent Audit Date, except as provided for herein or as
disclosed in the Parent Reports filed prior to the date hereof or as set forth
on Section 5.7. of the Parent Disclosure Schedule, there has not been any
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increase in the compensation payable or that could become payable by Parent or
any of its Subsidiaries to officers at the senior vice president level or above
or any amendment of any of the Parent Compensation and Benefit Plans (as defined
in Section 5.10.(a)).
5.8. Litigation and Liabilities.
Except as disclosed in the Parent Reports filed prior to the date
hereof or as set forth on Section 5.8. of the Parent Disclosure Schedule, there
are no (a) civil, criminal or administrative actions, suits, claims, hearings,
investigations, proceedings, judgments, decrees, orders or injunctions
outstanding, pending or, to the knowledge of the Responsible Executive
Officers of Parent, threatened against Parent or any of its Subsidiaries or (b)
obligations or liabilities of any nature, whether or not accrued, contingent or
otherwise and whether or not required to be disclosed, or any other facts or
circumstances of which the Responsible Executive Officers of Parent have
knowledge, that have resulted in or could reasonably be expected to result
in any claims against, or obligations or liabilities of, Parent or any of its
Subsidiaries, except for such actions, suits, claims, hearings, investigations,
proceedings, obligations and liabilities that would not, individually or in the
aggregate, have a Parent Material Adverse Effect or prevent or materially impair
the ability of Parent or Merger Subsidiary to consummate the transactions
contemplated by this Agreement.
5.9. Employee Benefits.
(a) A copy of each bonus, deferred compensation, pension,
retirement, profit-sharing, thrift, savings, employee stock ownership, stock
bonus, stock purchase, restricted stock, stock option, employment, termination,
severance, change of control, compensation, medical, health or other benefit
plan, agreement, policy or arrangement that covers employees, directors, former
employees or former directors of Parent and its Subsidiaries (the "Parent
Compensation and Benefit Plans") and any trust agreement or insurance contract
forming a part of such Parent Compensation and Benefit Plans has been made
available to the Company prior to the date hereof. For the three most recent
plan years, all annual reports (Form 5500 series) on each Parent Compensation
and Benefit Plan that have been filed with any governmental agency and the
current summary plan description and subsequent summaries of material
modifications for each Parent Compensation and Benefit Plan have been made
available to the Company prior to the date hereof. The Parent Compensation and
Benefit Plans are listed on Section 5.9. of the Parent Disclosure Schedule.
(b) All Parent Compensation and Benefit Plans are in substantial
compliance with all applicable law, including, to the extent applicable, the
Code and ERISA. Each Parent Compensation and Benefit Plan that is a Pension
Plan and that is intended to be qualified under Section 401(a) of the Code has
received a favorable determination letter from the IRS, and Parent is not aware
of any circumstances likely to result in revocation of any such favorable
determination letter. There is no pending or, to the knowledge of the
Responsible Executive Officers of Parent, threatened litigation relating to the
Parent Compensation and Benefit Plans. Neither Parent nor any of its
Subsidiaries has engaged in a transaction with respect to any Parent
Compensation and Benefit Plan that, assuming the taxable period of such
transaction expired as of
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the date hereof, would subject Parent or any of its Subsidiaries to a material
tax or penalty imposed by either Section 4975 of the Code or Section 502 of
ERISA.
(c) As of the date hereof, no liability under Subtitle C or D of
Title IV of ERISA has been or is expected to be incurred by Parent or any of its
Subsidiaries with respect to any ongoing, frozen or terminated "single-employer
plan", within the meaning of Section 4001(a)(15) of ERISA, currently or formerly
maintained by any of them, or the single-employer plan of any entity which is
considered an ERISA Affiliate of Parent. Parent and its Subsidiaries have not
incurred and do not expect to incur any withdrawal liability with respect to a
multiemployer plan under Subtitle E to Title IV of ERISA. Parent and its
Subsidiaries have not contributed, or been obligated to contribute, to a
multiemployer plan under Subtitle E of Title IV of ERISA at any time since
September 26, 1980. No notice of a "reportable event", within the meaning of
Section 4043 of ERISA for which the 30-day reporting requirement has not been
waived, has been required to be filed for any Pension Plan or by any ERISA
Affiliate of Parent within the 12-month period ending on the date hereof or will
be required to be filed in connection with the transactions contemplated by this
Agreement.
(d) All contributions required to be made under the terms of any
Parent Compensation and Benefit Plan as of the date hereof have been timely made
or have been reflected on the most recent consolidated balance sheet filed or
incorporated by reference in the Parent Reports prior to the date hereof.
Neither any Pension Plan nor any single-employer plan of an ERISA Affiliate of
Parent has an "accumulated funding deficiency" (whether or not waived)
within the meaning of Section 412 of the Code or Section 302 of ERISA. Neither
Parent nor its Subsidiaries has provided, or is required to provide, security to
any Pension Plan or to any single-employer plan of an ERISA Affiliate of Parent
pursuant to Section 401(a)(29) of the Code.
(e) Under each Pension Plan of the Parent which is a
single-employer plan, as of the last day of the most recent plan year ended
prior to the date hereof, the actuarially determined present value of all
"benefit liabilities", within the meaning of Section 4001(a)(16) of ERISA (as
determined on the basis of the actuarial assumptions contained in the
Pension Plan's most recent actuarial valuation), did not exceed the then current
value of the assets of such Pension Plan, and there has been no material change
in the financial condition of such Pension Plan since the last day of the most
recent plan year. For each Pension Plan of the Parent, Parent has furnished to
the Company a true and complete copy of the actuarial valuation reports issued
by the actuaries of that Pension Plan for the three most recent years, setting
forth: (i) the actuarial present value (based upon the same actuarial
assumptions as were used for that period for funding purposes) of all vested and
nonvested accrued benefits under that Pension Plan; (ii) the actuarial
present value (based upon the same actuarial assumptions, other than turnover
assumptions, as were used for that period for funding purposes) of vested
benefits under that Pension Plan; (iii) the net fair market value of that
Pension Plan's assets; and (iv) a detailed description of the funding method
used under that Pension Plan.
(f) All Parent Compensation and Benefit Plans covering current or
former non-U.S. employees of Parent and its Subsidiaries comply in all material
respects with applicable
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local law. Parent and its Subsidiaries have no material unfunded liabilities
with respect to any Pension Plan that covers such non-U.S. employees.
5.10. Compliance with Laws; Permits.
Except as set forth in the Parent Reports filed prior to the date
hereof or on Section 5.10. of the Parent Disclosure Schedule, the businesses of
each of Parent and its Subsidiaries have been, and are being, conducted in
compliance with all applicable Laws, and all notices, reports, documents and
other information required to be filed thereunder within the last three years
were properly filed and were in compliance with such Laws, except in any such
case for noncompliance that, individually or in the aggregate, would not
reasonably be expected to have a Parent Material Adverse Effect or prevent or
materially impair the ability of Parent or Merger Subsidiary to consummate the
transactions contemplated by this Agreement. Except as set forth in the Parent
Reports filed prior to the date hereof or on Section 5.10. of the Parent
Disclosure Schedule and except for routine examinations by State Regulators, no
investigation or review by any governmental entity with respect to Parent or any
of its Subsidiaries is pending or, to the knowledge of the Responsible Executive
Officers of Parent, threatened, nor has any governmental entity indicated an
intention to conduct the same, except for those the outcome would not,
individually or in the aggregate, reasonably be expected to have a Parent
Material Adverse Effect or prevent or materially impair the ability of Parent or
Merger Subsidiary to consummate the transactions contemplated by this Agreement.
No material change is required in Parent's or any of its Subsidiaries'
processes, properties or procedures in connection with any such Laws, and Parent
has not received any notice or communication of any material noncompliance with
any such Laws that has not been cured as of the date hereof. Parent and its
Subsidiaries each has all permits, licenses, trademarks, patents, trade names,
copyrights, service marks, franchises, variances, exemptions, orders and other
governmental authorizations, consents and approvals necessary to conduct its
business as presently conducted except those the absence of which would not,
individually or in the aggregate, have a Parent Material Adverse Effect or
prevent or materially impair the ability of Parent or Merger Subsidiary to
consummate the Merger and the other transactions contemplated by this Agreement.
5.11. Environmental Matters.
Except as disclosed in the Parent Reports filed prior to the date
hereof or in Section 5.11. of the Parent Disclosure Schedule, and except for
such matters that, alone or in the aggregate, would not have a Parent Material
Adverse Effect: (a) Parent and its Subsidiaries have complied with all
applicable Environmental Laws; (b) to the knowledge of the Responsible
Executive Officers of Parent, the properties currently owned or operated by
Parent (including soils, groundwater, surface water, buildings or other
structures) are not contaminated with any Hazardous Substances and do not
contain wetlands, dumps, filled in land, PCBs, asbestos or underground storage
tanks; (c) to the knowledge of the Responsible Executive Officers of Parent,
the properties formerly owned or operated by Parent or any of its Subsidiaries
were not contaminated with Hazardous Substances during the period of ownership
or operation by Parent or any of its Subsidiaries; (d) to the knowledge of the
Responsible Executive Officers of Parent, neither Parent nor any Subsidiary is
subject to liability for any Hazardous Substance disposal or
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contamination on any third party property; (e) to the knowledge of the Parent
Responsible Executive Officers, no Hazardous Substance has been transported from
any of the properties owned or operated by Parent or any of its Subsidiaries
other than as permitted under applicable Environmental Law; (f) neither Parent
nor any of its Subsidiaries has received any written notice, demand, letter,
claim or request for information from any Governmental Entity or third party
indicating that Parent or any of its Subsidiaries may be in violation of or
liable under any Environmental Law; (g) Parent and its Subsidiaries are not
subject to any court order, administrative order or decree arising under any
Environmental Law and are not subject to any indemnity or other agreement with
any third party relating to liability under any Environmental Law or relating to
Hazardous Substances; and (h) there are no circumstances or conditions
involving Parent or any of its Subsidiaries that could reasonably be expected to
result in any material claims, liability, investigations, costs or restrictions
on the ownership, use, or transfer of any property of Parent pursuant to any
Environmental Law.
5.12. Taxes.
Except as provided in Section 5.12. of the Parent Disclosure
Schedule:
(a) Parent and each of its Subsidiaries have (or, in the case of
returns becoming due after the date hereof and on or before the Closing Date,
will have prior to the Closing Date) timely and accurately filed all Tax Returns
which are required by all applicable laws to be filed by them, and have paid, or
made adequate provision for the payment of, all Taxes which have or may become
due and payable pursuant to said Tax Returns and all other Taxes, governmental
charges and assessments received to date other than those Taxes being contested
in good faith for which adequate provision has been made on the most recent
balance sheet included in the Parent Reports. The Tax Returns of Parent and its
Subsidiaries have been (or, in the case of returns becoming due after the date
hereof and on or before the Closing Date will be) prepared, in all material
respects, in accordance with all applicable laws consistently applied;
(b) all Taxes which Parent and its Subsidiaries are required by law
to withhold and collect have been duly withheld and collected, and have been
paid over, in a timely manner, to the proper Taxing Authorities to the extent
due and payable;
(c) no liens for Taxes exist with respect to any of the assets or
properties of Parent or its Subsidiaries, except for statutory liens for Taxes
not yet due or payable or that are being contested in good faith; and
(d) all Tax Returns have been examined by the relevant taxing
authorities, or closed without audit by applicable statutes, and all
deficiencies proposed as a result of such examinations have been paid or
settled, for all taxable years prior to and including the taxable year
ended December 31, 1993; and
(e) there is no audit, examination, deficiency, or refund
litigation pending with respect to any Taxes and during the past three years no
Taxing Authority has given written notice of the commencement of any audit,
examination, deficiency or refund litigation, with respect to any Taxes.
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5.13 Labor Matters.
Neither Parent nor any of its Subsidiaries is a party to or
otherwise bound by any collective bargaining agreement, contract or other
agreement or understanding with a labor union or labor organization. There are
no strikes or work stoppages pending or, to the knowledge of the Responsible
Executive Officers of Parent, threatened with respect to the employees of Parent
or any of its Subsidiaries. There is no representation claim or petition or
complaint pending before the National Labor Relations Board or any state or
local labor agency and, to the knowledge of the Responsible Executive Officers
of Parent, no question concerning representation has been raised or threatened.
No charges with respect to or relating to the business of Parent or any its
Subsidiaries are pending before the Equal Employment Opportunity Commission, or
any state or local agency responsible for the prevention of unlawful employment
practices, which would if adversely determined have a Parent Material Adverse
Effect.
5.14. Intellectual Property.
(a) Except as set forth on Section 5.14. of the Parent Disclosure
Schedule, Parent and/or each of its Subsidiaries owns, or is licensed or
otherwise possesses rights to use all patents, trademarks, trade names, service
marks, copyrights, and any applications therefor, technology, know-how, computer
software programs or applications, and tangible or intangible proprietary
information or materials that are used in the business of Parent and its
Subsidiaries as currently conducted, and all patents, trademarks, trade names,
service marks and copyrights held by Parent and/or its Subsidiaries are valid
and subsisting.
(b) Except as disclosed in the Parent Reports filed prior to the
date hereof or Section 5.14. of the Parent Disclosure Schedule:
(i) Parent is not, nor will it be as a result of the execution
and delivery of this Agreement or the performance of its obligations hereunder
or as contemplated hereby, in violation of any licenses, sublicenses and other
agreements as to which Parent is a party and pursuant to which Parent is
authorized to use any third-party patents, trademarks, service marks, and
copyrights ("Parent Third-Party Intellectual Property Rights");
(ii) no claims with respect to (A) the patents, registered and
unregistered trademarks and service marks, copyrights, trade names, and any
applications therefor owned by Parent or any its Subsidiaries (the "Parent
Intellectual Property Rights"); (B) any trade secret material to Parent; or (C)
Parent Third-Party Intellectual Property Rights are currently pending or
threatened by any Person;
(iii) (A) the sale, licensing or use of any product as now used,
sold or licensed or proposed for use, sale or license by Parent or any of its
Subsidiaries, does not infringe in any respect that would have a Parent Material
Adverse Effect on any copyright, patent, trademark, service xxxx or trade
secret; and (B) there are no valid grounds for any material claims against the
use by Parent or any of its Subsidiaries, of any material trademarks, trade
names, trade secrets, copyrights, patents, technology, know-how or computer
software programs and applications used in the business of Parent or any of its
Subsidiaries as currently conducted
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challenging the ownership, validity or effectiveness of any of Parent
Intellectual Property Rights or other trade secret material to Parent or
challenging the license or legally enforceable right to use of the Parent
Third-Party Intellectual Rights by Parent or any of its Subsidiaries; and
(iv) to the knowledge of the Responsible Executive Officers of
Parent, there is no unauthorized use, infringement or misappropriation of any of
Parent Intellectual Property Rights by any third party, including any employee
or former employee of Parent or any of its Subsidiaries.
(c) Section 5.14. of the Parent Disclosure Schedule lists all
material (i) patents, patent applications, registered and unregistered
trademarks, trade names and service marks, registered and unregistered
copyrights, and maskworks included in the Parent Intellectual Property Rights,
and (ii) licenses, sublicenses and other agreements as to which the Parent is a
party and pursuant to which any person is authorized to use any of the Parent
Intellectual Property Rights.
5.15. Title to Property.
Except as set forth in the Parent Reports or on Section 5.15. of
the Parent Disclosure Schedule, Parent and each of its Subsidiaries have good
title to all of their properties and assets, free and clear of all encumbrances,
except liens for taxes not yet due and payable and such encumbrances or other
imperfections of title, if any, as do not materially detract from the value of
or materially interfere with the present use of the property affected thereby or
which would not reasonably be expected to have a Parent Material Adverse Effect,
and except for encumbrances which secure indebtedness reflected in the financial
statements included in the Parent Reports.
5.16. Material Contracts.
All of the material contracts of Parent and its Subsidiaries that are
required to be described in the Parent Reports or to be filed as exhibits
thereto pursuant to Item 601 of Regulation S-K promulgated by the SEC are
described in the Parent Reports or filed as exhibits thereto and are in full
force and effect. True and complete copies of all such material contracts
have been made available by Parent to the Company. Neither Parent nor any of
its Subsidiaries nor, to the knowledge of the Responsible Executive Officers of
Parent, any other party is in breach of or in default under any such contract,
except for such breaches and defaults as individually or in the aggregate have
not had and would not reasonably be expected to have a Parent Material Adverse
Effect. Neither Parent nor any of its Subsidiaries is party to any agreement
containing any provision or covenant limiting in any respect that would
reasonably be expected to have a Parent Material Adverse Effect the ability of
Parent or any of its Subsidiaries to (a) sell any products or services of or to
any other person, (b) engage in any line of business or (c) compete with or
obtain products or services from any person or limiting the ability of any
person to provide products or services to Parent or any of its Subsidiaries.
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5.17. Brokers and Finders.
Neither Parent nor any of its executive officers, directors or
employees has employed any broker or finder or incurred any liability for any
brokerage fees, commissions or finders fees in connection with the Merger or the
other transactions contemplated in this Agreement, except that Parent has
employed X.X. Xxxxxxxx as its financial advisors, the arrangements with respect
to which are set forth on Section 5.17. of the Parent Disclosure Schedule.
5.18. Insurance Matters.
Parent has heretofore provided the Company with true, complete and
correct copies of all material fire and casualty, general liability, business
interruption, product liability and other insurance policies maintained by
Parent and its Subsidiaries. All such policies are in full force and effect and
no event has occurred that would give any insurance carrier a right to
terminate any such policy. Neither Parent nor any of its Subsidiaries has been
denied or had any policy of insurance revoked or rescinded. All such policies
are adequate to insure against risks to which Parent and its properties are
exposed in such amounts and subject to such terms as are commercially
reasonable.
5.19. Accounting and Tax Matters.
(a) As of the date hereof, neither Parent nor any of its
Affiliates has taken or agreed to take any action, nor do the Responsible
Executive Officers of Parent have any knowledge of any fact or circumstance,
that would prevent Parent or the Company from accounting for the business
combination to be effected by the Merger as a "pooling-of-interests" or prevent
the Merger and the other transactions contemplated by this Agreement from
qualifying as a "reorganization" within the meaning of Section 368(a) of the
Code.
(b) Parent has provided to Parent's and the Company's independent
accountants all information concerning actions taken or agreed to be taken by
Parent or any of its Affiliates on or before the date of this Agreement that
could reasonably be expected to adversely affect the ability of Parent to
account for the business combination to be effected by the Merger as a pooling
of interests.
ARTICLE VI
COVENANTS
6.1. Interim Operations of the Company.
The Company covenants and agrees as to itself and its Subsidiaries
that, after the date hereof and prior to the Effective Time (except as otherwise
expressly contemplated by this Agreement or as set forth in Section 6.1. of the
Company Disclosure Schedule), without the prior written consent of Parent, which
consent shall not be unreasonably withheld or delayed:
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(a) its and its Subsidiaries' businesses shall be conducted in all
material respects in the ordinary and usual course;
(b) it and its Subsidiaries shall use their reasonable best efforts
to preserve intact in all material respects their present business
organizations, to keep available the services of its key officers and employees,
to maintain its assets and properties in good working order and condition,
ordinary wear and tear excepted, to maintain insurance on its tangible assets
and businesses in such amounts and against such risks and losses as are
currently in effect, to maintain existing relations and goodwill with contract
parties, customers, suppliers, distributors, creditors, lessors, employees and
business associates, and to comply in all material respects with all Laws;
(c) it shall not (i) issue, sell, pledge, dispose of or encumber
any capital stock owned by it in any of its Subsidiaries; (ii) amend its
articles of incorporation or by-laws; (iii) split, combine or reclassify its
outstanding shares of stock; (iv) authorize, declare, set aside or pay any
dividend payable in cash, stock or property in respect of any capital stock
other than intercompany transactions in the ordinary course of business
consistent with past practice; or (v) repurchase, redeem or otherwise acquire,
except in connection with any of the Company Stock Plans, or permit any of its
Subsidiaries to purchase or otherwise acquire, any shares of its stock or any
securities convertible into or exchangeable or exercisable for any shares of its
stock;
(d) neither it nor any of its Subsidiaries shall: (i) except as
permitted under Section 6.1.(e), issue, sell, pledge, dispose of or encumber any
(A) shares of, or securities convertible into or exchangeable or exercisable
for, or options, warrants, calls, commitments or rights of any kind to acquire
any shares of, its capital stock of any class or (B) securities convertible into
or exchangeable for any other property or assets (other than Shares issuable
pursuant to options outstanding on the date hereof under any of the Company
Stock Plans and Shares issuable upon exercise of warrants); (ii) other than in
the ordinary and usual course of business, transfer, lease, license, guarantee,
sell, mortgage, pledge, dispose of or encumber any other material property or
assets or take any action to incur or modify any material indebtedness;
(iii) make or authorize or commit for any capital expenditures other than in
amounts less than $500,000 in the aggregate; (iv) enter into or terminate any
material contract, license or permit if such action is not in the ordinary and
usual course of business consistent with past practices, (v) amend or modify in
any materially adverse way any material contract, license or permit, (vi) enter
into any agreement with any Affiliate of the Company if such action is not on an
arm's length basis, or (vii) make any acquisition of, or investment in, the
assets or stock of any other Person or entity (other than a Subsidiary) except
for ordinary course investment activities or as otherwise permitted by Section
6.1.(a);
(e) neither it nor any of its Subsidiaries shall terminate,
establish, adopt, enter into, make any new grants or awards under, amend or
otherwise modify, any Company Compensation and Benefit Plans or increase the
salary, wage, bonus or other compensation of any employees except increases for
employees of the Company occurring in the ordinary and usual course of business
(which shall be limited to, (i) regular grants of options and shares of capital
stock under the Company Stock Plans and the Directors' Compensation Plan
pursuant to the terms of such plans, the number of Company Options subject to
and the recipient of each such grant to be determined in consultation with
Parent; provided that the maximum number of Shares
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issuable pursuant to such options shall be calculated in accordance with past
practice and the terms of the Company Stock Plans and shall not exceed 25,000
Shares, (ii) grants and payment of awards under any management incentive plans
in accordance with the terms of such plans, and (iii) salary increases for those
employees who have a rank of vice president or higher in accordance with the
Company's normal salary guidelines and salary increases for other employees
which do not exceed, in the aggregate, 4.0% of their aggregate current
salaries), except as necessary to comply with Section 6.13.(a)(i) and provided,
however, that the Company reserves the right to make payments in connection with
the retention of key employees, which payments shall not exceed $200,000 in the
aggregate (it being understood that the Company will adjust such bonuses, to the
extent reasonable, to take into account Parent's desires to retain certain
employees permanently and certain employees for a period beyond closing);
(f) neither it nor any of its Subsidiaries shall pay, discharge,
settle or satisfy any claims, liabilities or obligations except (i) in the
ordinary course of business and consistent with past practice or (ii) ordinary
course repayment of indebtedness or payment of contractual obligations when due;
(g) neither it nor any of its Subsidiaries shall make or change any
Tax election, settle any material audit or file any material amended tax
returns;
(h) neither it nor any of its Subsidiaries shall enter into any
agreement containing any provision or covenant limiting in any material respect
the ability of the Company or any Subsidiary or affiliate to (i) sell any
products or services of or to any other person, (ii) engage in any line of
business or (iii) compete with or to obtain products or services from any person
or limiting the ability of any person to provide products or services to the
Company or any of its Subsidiaries or Affiliates;
(i) neither it nor any of its Subsidiaries shall take any action
that would cause any of its representations and warranties herein to become
untrue in any material respect; and
(j) neither it nor any of its Subsidiaries will authorize or enter
into an agreement to do any of the foregoing.
6.2. Interim Operations of Parent.
Parent covenants and agrees as to itself and its Subsidiaries that,
after the date hereof and prior to the Effective Time (except as otherwise
expressly contemplated by this Agreement or as set forth in Section 6.2. of the
Parent Disclosure Schedule), without the prior written consent of the Company,
which consent shall not be unreasonably withheld or delayed:
(a) its and its Subsidiaries' businesses shall be conducted in all
material respects in the ordinary and usual course;
(b) it and its Subsidiaries shall use their reasonable best efforts
to preserve intact in all material respects their present business
organizations, to maintain existing relations
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and goodwill with contract parties, customers, suppliers, distributors,
creditors, lessors, employees and business associates, and to comply in all
material respects with all Laws;
(c) it shall not (i) amend its certificate of incorporation or
bylaws in any respect that would require a shareholder vote or adversely affect
the rights of shareholders; (ii) authorize, declare, set aside or pay any
dividend payable in cash, stock or property in respect of any capital stock; or
(iii) repurchase, redeem or otherwise acquire, except in connection with
any of the Parent Stock Plans, or permit any of its Subsidiaries to purchase or
otherwise acquire, any shares of its stock or any securities convertible into or
exchangeable or exercisable for any shares of its stock;
(d) neither it nor any of its Subsidiaries shall: (i) issue, sell,
pledge, dispose of or encumber any (A) shares of, or securities convertible into
or exchangeable or exercisable for, or options, warrants, calls, commitments or
rights of any kind to acquire any shares of, its capital stock of any class or
(B) securities convertible into or exchangeable for any other property or
assets (other than shares of Parent Common Stock issuable pursuant to options
outstanding on the date hereof, or options granted in the ordinary course, under
any of the Parent Stock Plans or securities issued in any transaction or series
of transactions for consideration determined by the Board of Directors of Parent
in good faith to constitute fair market value); (ii) other than in the ordinary
and usual course of business or in any transaction or series of transactions for
consideration determined by the Board of Directors of Parent in good faith to
constitute fair market value, transfer, lease, license, guarantee, sell,
mortgage, pledge, dispose of or encumber any other material property or assets
(including capital stock of any of its Subsidiaries) or take any action to incur
or modify any material indebtedness or other material liability; or (iii) make
any acquisition of, or investment in, the assets or stock of any other Person or
entity (other than a Subsidiary) except for ordinary course investment
activities or in any transaction or series of transactions for consideration
determined by the Board of Directors of Parent in good faith to constitute fair
market value, or as otherwise permitted by Section 6.2.(a);
(e) neither it nor any of its Subsidiaries shall take any action
that would cause any of its representations and warranties herein to become
untrue in any material respect; and
(f) neither it nor any of its Subsidiaries will authorize or enter
into an agreement to do any of the foregoing.
6.3. Interim Operations of Merger Subsidiary.
During the period from the date of this Agreement to the Effective
Time, Merger Subsidiary shall not engage in any activities of any nature except
as provided in or contemplated by this Agreement.
6.4. Acquisition Proposals.
From the date hereof until the termination hereof and except as
expressly permitted by the following provisions of this Section 6.4., the
Company shall not, and the Company shall not authorize or permit any officer,
director or employee of, or any financial advisor, attorney,
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accountant or other advisor or representative retained by, the Company to,
solicit, initiate, encourage (including by way of furnishing information),
endorse or enter into any agreement with respect to, or take any other action to
knowingly facilitate, any inquiries or the making of any proposal that
constitutes, or may reasonably be expected to lead to, any Acquisition Proposal
(as hereafter defined). The Company shall as soon as reasonably practicable
advise Parent of any Acquisition Proposal or any inquiries or discussions with
respect thereto, including the name of the proposed acquiror and the material
terms of the Acquisition Proposal. Subject to the rights of the Company under
Article VIII of this Agreement, neither the Board of Directors of the
Company nor any committee thereof shall (a) withdraw or modify, or propose to
withdraw or modify, in a manner adverse to Parent the approval or recommendation
by the Board of Directors of the Company of the Merger or this Agreement or (b)
approve or recommend, or propose to approve or recommend, any Acquisition
Proposal other than pursuant to the Merger or this Agreement. Notwithstanding
the foregoing, nothing contained in this Agreement shall prevent the
Board of Directors of the Company from (i) furnishing information to or entering
into discussions or negotiations with any person or entity if and only to the
extent that the Board of Directors of the Company shall have determined in good
faith that such action is required in the exercise of its fiduciary duties,
based upon the advice of outside counsel, (ii) complying with Rules 14d-9 and
14e-2 promulgated under the Exchange Act, (iii) making any disclosure to the
Company's stockholders if the Board of Directors shall have determined, after
consultation with outside counsel, that failure to make such disclosures would
be inconsistent with applicable law or regulation of any national securities
exchange or interdealer quotation system or (iv) withdrawing or modifying its
approval or recommendation of the Merger or this Agreement, if and only to the
extent that the Board of Directors of the Company shall have determined in good
faith that such action is required in the exercise of its fiduciary duties,
based upon the advice of outside counsel. The Company will as soon as
reasonably practicable notify Parent if any such inquiries or proposals are
received by, any such information is requested from, or any such
negotiations or discussions are sought to be initiated or continued with the
Company and inform Parent of the status of any such Acquisition Proposal from
time to time. As used in this Agreement, "Acquisition Proposal" shall mean any
tender or exchange offer, or proposal, other than a proposal by Parent or any of
its affiliates, for a merger, share exchange or other business combination
involving the Company or any proposal or offer to acquire in any manner a
substantial equity interest in the Company or a substantial portion of the
assets of the Company.
6.5. Information Supplied.
Each of the Company and Parent agree, as to itself and its
Subsidiaries, that none of the information supplied or to be supplied by it or
its Subsidiaries for inclusion or incorporation by reference in (a) the
Registration Statement on Form S-4 to be filed with the SEC by Parent in
connection with the issuance of shares of Parent Common Stock in the Merger
(including the joint proxy statement and prospectus (the "Prospectus/Proxy
Statement") constituting a part thereof) (the "S-4 Registration Statement")
will, at the time the S-4 Registration Statement becomes effective under the
Securities Act, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein, not misleading, and (b) the Prospectus/Proxy Statement and
any amendment or supplement thereto will, at the date of mailing to stockholders
and at the times of the meetings of stockholders of the
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Company and Parent to be held in connection with the Merger, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading.
6.6. Stockholder Meetings.
The Company will take, in accordance with its articles of
incorporation and bylaws, all action necessary to convene a meeting of holders
of Shares (the "Stockholders Meeting"), to be held as promptly as practicable
after the S-4 Registration Statement is declared effective, to consider and vote
upon the approval of the Merger, and the Company's board of directors, subject
to fiduciary obligations under applicable law as referred to in Section 6.4.,
will recommend such approval by its stockholders, will not withdraw or modify
such recommendation and shall take all lawful action to solicit such approval.
Parent will take, in accordance with its certificate of incorporation and
bylaws, all action necessary to convene a meeting of holders of Parent Common
Stock (the "Parent Stockholders Meeting"), to be held as promptly as practicable
after the S-4 Registration Statement is declared effective, to consider and vote
upon the approval of the issuance of Parent Common Stock in the Merger, and
Parent's board of directors, subject to fiduciary obligations under applicable
law, will recommend such approval by its stockholders, will not withdraw or
modify such recommendation and will take all lawful action to solicit such
approval.
6.7. Filings; Other Actions; Notification.
(a) Parent and the Company shall promptly prepare and file with the
SEC the Prospectus/Proxy Statement, and Parent shall prepare and file with the
SEC the S-4 Registration Statement as promptly as practicable. Parent and the
Company each shall use its reasonable best efforts to have the S-4 Registration
Statement declared effective under the Securities Act as promptly as practicable
after such filing, and promptly thereafter mail the Prospectus/Proxy Statement
to the respective stockholders of each of the Company and Parent. Parent shall
also use its reasonable best efforts to obtain prior to the effective date of
the S-4 Registration Statement all necessary state securities law or "blue sky"
permits and approvals required in connection with the Merger and to consummate
the other transactions contemplated by this Agreement and will pay all expenses
incident thereto.
(b) The Company and Parent each shall use all reasonable efforts to
cause to be delivered to the other party and its directors a letter of its
independent auditors, dated (i) the date on which the S-4 Registration Statement
shall become effective and (ii) the Closing Date, and addressed to the other
party and its directors, in form and substance customary for "comfort" letters
delivered by independent public accountants in connection with registration
statements similar to the S-4 Registration Statement.
(c) The Company and Parent each shall from the date hereof until
the Effective Time cooperate with the other and use (and shall cause their
respective Subsidiaries to use) its reasonable best efforts to cause to be done
all things necessary, proper or advisable on its part
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under this Agreement and applicable Laws to consummate and make effective the
Merger and the other transactions contemplated by this Agreement as soon as
practicable, including preparing and filing as promptly as practicable all
documentation to effect all necessary notices, reports and other filings and to
obtain as promptly as practicable all consents, registrations, approvals,
permits and authorizations necessary or advisable to be obtained from any third
party and/or any governmental entity in order to consummate the Merger or any of
the other transactions contemplated by this Agreement.
(d) The Company and Parent each shall, upon request by the other,
furnish the other with all information concerning itself, its Subsidiaries,
directors, executive officers and stockholders and such other matters as may be
reasonably necessary or advisable in connection with the Prospectus/Proxy
Statement, the S-4 Registration Statement or any other statement, filing, notice
or application made by or on behalf of Parent, the Company or any of their
respective Subsidiaries to any third party and/or any governmental entity in
connection with the Merger and the transactions contemplated by this Agreement.
(e) The Company and Parent each shall keep the other apprised of
the status of matters relating to completion of the transactions contemplated
hereby, including promptly furnishing the other with copies of notice or other
communications received by Parent or the Company, as the case may be, or any of
its Subsidiaries, from any third party and/or any governmental entity with
respect to the Merger and the other transactions contemplated by this Agreement.
The Company and Parent each shall give prompt notice to the other of any change
that is reasonably likely to result in a Company Material Adverse Effect or
Parent Material Adverse Effect, respectively.
6.8. Taxation and Accounting.
(a) Neither Parent nor the Company shall, nor shall they permit
either of their respective Subsidiaries or Affiliates to, take or cause to be
taken any action, whether before or after the Effective Time, that would
disqualify the Merger as a "pooling of interests" for accounting purposes or as
a "reorganization" within the meaning of Section 368(a) of the Code. Each of
Parent and the Company agrees to use its reasonable best efforts to cure
any impediment to the qualification of the Merger as a "pooling of interests"
for accounting purposes or as a "reorganization" within the meaning of Section
368(a) of the Code.
(b) The Company shall instruct its accountants, Xxxxxx Xxxxxxxx
LLP, to deliver and shall use its reasonable best efforts to cause such
accountants to deliver to Parent letters dated as of the Closing Date, addressed
to Parent, containing both (i) its concurrence with the conclusion of the
Company's management that no conditions exist with respect to the Company that
would preclude accounting for the Merger as a "pooling of interests," which
letter shall be in customary form; and (ii) such matters as are customarily
contained in auditors' letters regarding information about the Company included
in the Proxy/Registration Statement, which auditors' letters shall be in form
and substance reasonably satisfactory to Parent. Parent shall use its
reasonable best efforts to cause its accountants, Xxxxx Xxxxxxxx LLP, to
deliver to the Company letters at such times to the effect that Parent satisfies
the tests applicable to it such that
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the Merger can be accounted for as a "pooling of interests", which letter shall
be in customary form.
(c) Parent shall use its reasonable best efforts to publish
combined financial statements of Parent and the Company for the 30 day period
immediately following Closing as soon as practicable after the completion of
such 30 day period.
(d) The Company shall prepare and file the consolidated Federal
income tax return for the tax year ended June 30, 1998, for the affiliated group
of which the Company is the common parent corporation, prior to the Closing Date
and in a manner consistent (including elections and accounting methods and
conventions) with such return for the prior tax year, except as otherwise
required by applicable law or agreed to by the Parent, and shall provide Parent
with a copy of such return prior to the filing of such return.
6.9. Access.
Upon reasonable notice, and except as may otherwise be required by
applicable law, the Company and Parent each shall (and shall cause its
Subsidiaries to) afford the other's executive officers, employees, counsel,
accountants and other authorized representatives ("Representatives") access,
during normal business hours throughout the period prior to the Effective Time,
to its properties, books, contracts and records and, during such period, each
shall (and shall cause its Subsidiaries to) furnish promptly to the other all
information concerning its business, properties and personnel as may reasonably
be requested, provided that no investigation pursuant to this Section shall
affect or be deemed to modify any representation or warranty made by the
Company, Parent or Merger Subsidiary, and provided, further, that the foregoing
shall not require the Company or Parent to permit any inspection, or to disclose
any information, that (i) in the reasonable judgment of the Company or Parent,
as the case may be, would result in the disclosure of any trade secrets of third
parties or violate any of its obligations with respect to confidentiality if the
Company or Parent, as the case may be, shall have used all reasonable efforts
to obtain the consent of such third party to such inspection or disclosure or
(ii) would violate any attorney-client privilege of the Company or Parent, as
the case may be. All requests for information made pursuant to this Section
6.9. shall be directed to such Person as may be designated by the Company and
Parent, as the case may be, pursuant to Section 9.6. hereof. All such
information shall be governed by the terms of the Confidentiality Agreement
(as hereinafter defined).
6.10. Affiliates.
(a) Attached hereto as Exhibit A-1 is a list of names and addresses
of those Persons who are, in the opinion of the Company (after consultation with
outside legal counsel), "Affiliates" of the Company within the meaning of Rule
145 under the Securities Act and for the purposes of applicable interpretations
regarding the pooling-of-interests method of accounting. The Company shall
exercise its best efforts to deliver or cause to be delivered to Parent, at
least 35 days prior to the Effective Time, from each affiliate of the Company
identified in the foregoing list, a letter in the form attached as Exhibit A-2
(the "Company Affiliates Letter"). The
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certificates representing Parent Common Stock received by such Affiliates shall
bear a customary legend regarding applicable Securities Act restrictions and
"pooling restrictions."
(b) At least 35 days prior to the Effective Time, Parent shall
deliver to the Company a list of names and addresses of those Persons who are,
in the opinion of Parent (after consultation with outside legal counsel),
"Affiliates" of Parent for the purposes of applicable interpretations regarding
the pooling-of-interests method of accounting. Parent shall exercise its
best efforts to deliver or cause to be delivered to the Company, at least 35
days prior to the Effective Time, from each Affiliate of Parent identified in
the foregoing list, a letter in the form attached as Exhibit A-3 (the "Parent
Affiliates Letter").
6.11 Stock Exchange Listing.
Parent shall use its best efforts to cause the shares of Parent
Common Stock to be issued in the Merger to be approved for listing on the NASDAQ
subject to official notice of issuance, prior to the Closing Date.
6.12. Publicity.
The Company and Parent shall consult with each other prior to
issuing, and will provide each other with a meaningful opportunity to review,
comment upon and concur with, any press releases or otherwise making public
announcements with respect to the Merger and the other transactions contemplated
by this Agreement, and prior to making any filings with any third party and/or
any governmental entity with respect thereto, except as may be required by law,
court process or by obligations pursuant to any listing agreement with or rules
of any national securities exchange or interdealer quotation service.
6.13. Benefits.
(a) Stock Options.
(i) At the Effective Time, each Company Option whether vested
or unvested, without any action on the part of the holder, shall be deemed to
constitute an option to acquire, on the same terms and conditions as were
applicable under such Company Option, a number of shares of Parent Common Stock
equivalent to (A) the number of Shares that could have been purchased
immediately prior to the Effective Time under such Company Option multiplied by
(B) the Exchange Ratio (rounded down to the nearest whole number), at a price
per share of Parent Common Stock (rounded up to the nearest whole cent) equal to
the exercise price per share pursuant to such Company Option immediately prior
to the Effective Time divided by the Exchange Ratio; provided, however, that the
foregoing provisions shall be subject to such adjustments as are necessary in
order to satisfy the requirements of Section 424(a) of the Code in the case of
any Company Option to which Section 422 of the Code applies. At or prior to the
Effective Time, the Company shall make all necessary arrangements with respect
to the Company
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Stock Plans to permit the assumption of the unexercised Company Options by
Parent pursuant to this Section 6.13.
(ii) Effective at the Effective Time, Parent shall assume each
Company Option in accordance with the terms of the relevant Company Stock Plan
under which it was issued and the stock option agreement by which it is
evidenced. At or prior to the Effective Time, Parent shall take all corporate
action necessary to reserve for issuance a sufficient number of shares of Parent
Common Stock for delivery upon exercise of Company Options assumed by it in
accordance with this Section. As soon as practicable, and in no event later
than 10 days after the Effective Time, Parent shall file a registration
statement on Form S-8, (or any successor or other appropriate forms) (or shall
cause such Company Option to be deemed to be issued pursuant to a Parent Stock
Plan for which shares of Parent Common Stock have previously been registered
pursuant to an appropriate registration form) with respect to Parent Common
Stock subject to such Company Options.
(b) Employee Benefits. Subject to this Section 6.13.(b), Parent
agrees that all employees of the Company and its Subsidiaries who are provided
with benefits under employee benefit plans of the Company (other than plans
involving the issuance of Shares) (the "Company Benefit Plans") shall continue
to be covered under the Company Benefit Plans after the Effective Time.
Notwithstanding the foregoing, Parent may terminate all of the Company
Benefit Plans, provided that: (i) each Company employee and each employee of the
Company's Subsidiaries is provided coverage under Parent employee benefit plans
(other than plans involving the issuance of shares) (the "Parent Benefit Plans")
on the same terms and conditions as similarly situated Parent employees; (ii)
Parent causes each Parent Benefit Plan covering employees of the Company or its
Subsidiaries to recognize prior service and accrued vacation of such employees
with the Company or its Subsidiaries as service and accrued vacation with Parent
and its Subsidiaries (A) for purposes of any waiting period, eligibility
requirements and benefit accruals under any Parent Benefit Plan that is not a
"pension plan" (as defined in Section 3(2) of ERISA), and (B) for purposes of
eligibility (including eligibility for early retirement benefits) and vesting
(but not benefit accrual) under any Parent Benefit Plan that is a "pension plan"
(as defined in Section 3(2) of ERISA); (iii) Parent causes coverage to be
immediately available for employees of the Company and its Subsidiaries under
the comparable Parent Benefit Plan, if any, at the time coverage ceases under
any Company Benefit Plan sought to be terminated; and (iv) to the extent
Parent elects to terminate any Company Benefit Plan, it will terminate the other
Company Benefit Plans in accordance herewith as soon as practicable after the
termination of such Company Benefit Plan. Notwithstanding the foregoing,
nothing herein shall require Parent to offer benefits under the Parent Benefit
Plans comparable to those offered under the Company Benefit Plans. Following
the Effective Time, Parent shall honor, or shall cause the Surviving Company to
honor, all individual employment or severance agreements in effect for employees
(or former employees) of the Company as of the date hereof to the extent that
such individual agreements are listed in Section 4.14.(b) of the Company
Disclosure Schedule; provided, however, that nothing contained herein shall
prevent Parent from amending or terminating any such agreement in accordance
with its terms.
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6.14. Expenses.
Except as otherwise provided in Section 8.2.(b), whether or not the
Merger is consummated, all costs and expenses incurred in connection with this
Agreement, and the Merger and the other transactions contemplated hereby and
thereby shall be paid by the party incurring such expense, except that expenses
incurred in connection with the filing fee for the S-4 Registration Statement
and printing and mailing the Prospectus/Proxy Statement shall be divided
equally between Parent and the Company.
6.15. Indemnification; Directors' and Officers' Insurance.
(a) From and after the Effective Time for a period of six years,
Parent agrees that it will indemnify and hold harmless each present and former
director and officer of the Company, (when acting in such capacity) determined
as of the Effective Time (each, an Indemnified Party and, collectively, the
"Indemnified Parties"), against any costs or expenses (including reasonable
attorneys' fees and expenses), judgments, fines, losses, amounts paid in
settlement claims, damages or liabilities (collectively, "Costs") incurred in
connection with any claim, action, suit, proceeding or investigation, actual or
threatened, whether civil, criminal, administrative or investigative, in whole
or in part based on or arising in whole or in part out of matters existing or
occurring at or prior to the Effective Time, whether asserted or claimed prior
to, at or after the Effective Time, to the fullest extent that the Company would
have been permitted under Maryland law and its articles of incorporation or
bylaws in effect on the date hereof to indemnify such Person (and Parent shall
also advance expenses as incurred to the fullest extent permitted under
applicable law provided the Person to whom expenses are advanced provides (i) a
written affirmation of his or her good faith belief that the standard of conduct
necessary for indemnification has been met, and (ii) an undertaking to repay
such advances if it is ultimately determined that such Person is not entitled to
indemnification).
(b) Parent shall cause to be maintained, for a period of not less
than six years from the Effective Time, the Company's current directors' and
officers' liability insurance policy to the extent that it provides coverage for
events occurring prior to the Effective Time (the "D&O Insurance") for all
present and former directors and officers of the Company or any subsidiary
thereof, so long as the annual premium therefor would not be in excess of 150%
of the last annual premium paid for the D&O Insurance prior to the date of this
Agreement (150% of such premium, the "Maximum Premium"); provided that Parent
may, in lieu of maintaining such existing D&O Insurance as provided above, cause
no less favorable coverage to be provided under any policy maintained for the
benefit of the directors and officers of Parent or a separate policy provided by
the same insurer. If the existing D&O Insurance expires, is terminated or
canceled by the insurer or if the annual premium would exceed the Maximum
Premium during such period, Parent shall obtain, in lieu of such D&O Insurance,
such comparable directors' and officers' liability insurance as can be obtained
for the remainder of such period for an annualized premium not in excess of the
Maximum Premium and on terms and conditions no less advantageous than the
existing D&O Insurance.
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(c) The provisions of this Section are in addition to the rights
that an Indemnified Party may have under the articles of incorporation, bylaws
or agreements of or with the Company or any of its Subsidiaries or under
applicable law. Parent agrees to pay all costs and expenses (including fees and
expenses of counsel) that may be incurred by any Indemnified Party in
successfully enforcing the indemnity or other obligations under this Section.
The provisions of this Section shall survive the Merger and are intended to be
for the benefit of, and shall be enforceable by, each of the Indemnified
Parties, their heirs and their representatives.
6.16. Election to Parent's Board of Directors.
Promptly after the Effective Time of the Merger, Parent shall cause
one person designated prior to the Effective Time by the Company with Parent's
consent (not to be unreasonably withheld) to be appointed to the Parent Board of
Directors.
6.17. Takeover Statute.
If any Takeover Statute is or may become applicable to the Merger or
the other transactions contemplated by this Agreement, each of Parent and the
Company and its board of directors shall grant such approvals and take such
actions as are necessary so that such transactions may be consummated as
promptly as practicable on the terms contemplated by this Agreement or by the
Merger and otherwise act to eliminate or minimize the effects of such statute
or regulation on such transactions.
6.18. Debentures.
At the Effective Time, Parent shall execute and deliver (a) an
Amendment to the Company's Indenture dated as of October 15, 1996 to the Chase
Manhattan Bank, as Trustee, acknowledging the Parent's obligation to issue
Parent Common Stock to the holders of the Debentures not electing redemption of
their Debentures on the Holder Redemption Date (as defined therein) and (b) an
Amendment to the Company's Fiscal and Paying Agency Agreement dated as of
January 29, 1996 to the Chase Manhattan Bank, as Fiscal Agent, acknowledging the
Parent's obligation to issue Parent Common Stock to the holders of the
Debentures not electing redemption of their Debentures on the Holder Redemption
Date (as defined therein).
6.19. Insurance.
The Company shall cooperate with the Parent and the Company's
insurers to arrange for the purchase, prior to the Effective Time, of tail
period insurance coverage for the benefit of the Surviving Corporation.
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ARTICLE VII
CONDITIONS
7.1. Conditions to Each Party's Obligation to Effect the Merger.
The respective obligation of each party to effect the Merger is
subject to the satisfaction or waiver at or prior to the Effective Time of each
of the following conditions:
(a) Stockholder Approval. The Merger shall have been duly approved
by holders of Shares constituting the Company Requisite Vote and shall have been
duly approved by the sole member of Merger Subsidiary in accordance with
applicable law, and the issuance of Parent Common Stock pursuant to the Merger
shall have been duly approved by the holders of Parent Common Stock constituting
the Parent Requisite Vote.
(b) NASDAQ Listing. The shares of Parent Common Stock issuable to
the Company stockholders pursuant to this Agreement shall have been authorized
for listing on the NASDAQ upon official notice of issuance.
(c) Regulatory Consents. The waiting period applicable to the
consummation of the Merger under the HSR Act shall have expired or been
terminated. Other than the filing provided for in Section 1.3., all other
notices, reports and other filings required to be made prior to the Effective
Time by the Company or Parent or any of their respective Subsidiaries with, and
all consents, registrations, approvals, permits and authorizations required to
be obtained prior to the Effective Time by the Company or Parent or any of their
respective Subsidiaries from, any governmental entity (collectively,
"Governmental Consents"), in connection with the execution and delivery of this
Agreement and the consummation of the Merger and the other transactions
contemplated by this Agreement shall have been made or obtained, except where
the failure to make any such filings or obtain any such Governmental Consents
would not have a material adverse effect on either Parent, the Company and their
respective Subsidiaries in all jurisdictions requiring such filings or
Governmental Consents in the event such filings are not made or such Consents
are not obtained.
(d) Litigation. No court or governmental entity of competent
jurisdiction shall have enacted, issued, promulgated, enforced or entered any
law, statute, ordinance, rule, regulation, judgment, decree, injunction or other
order (whether temporary, preliminary or permanent) that is in effect and
restrains, enjoins or otherwise prohibits consummation of the Merger
(collectively, an "Order") and no governmental entity shall have instituted any
proceeding which continues to be pending seeking any such Order.
(e) S-4. The S-4 Registration Statement shall have become
effective under the Securities Act. No stop order suspending the effectiveness
of the S-4 Registration Statement shall have been issued, and no proceeding for
that purpose shall have been initiated or be threatened, by the SEC.
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(f) Company Fairness Opinion. The Company shall have received an
opinion from SunTrust Equitable Securities, its financial advisor, dated as of
the date of the mailing to stockholders of the Company of the Prospectus/Proxy
Statement included within the S-4 Registration Statement confirming the opinion
referred to in Section 4.4(b) hereof.
(g) Parent Fairness Opinion. Parent shall have received an opinion
from X.X. Xxxxxxxx, its financial advisor, dated as of the date of the mailing
to stockholders of Parent of the Prospectus/Proxy Statement included in the S-4
Registration Statement, to the effect that, as of the date of such opinion, the
Exchange Ratio is fair from a financial point of view to the Parent's
stockholders.
7.2. Conditions to Obligations of Parent and Merger Subsidiary.
The obligations of Parent and Merger Subsidiary to effect the Merger
are also subject to the satisfaction or waiver by Parent at or prior to the
Effective Time of the following conditions:
(a) Representations and Warranties. (i) Except as provided in (ii)
below, the representations and warranties of the Company set forth in this
Agreement that are qualified as to materiality shall be true and correct as of
the Closing Date and those not so qualified by materiality shall be true and
correct in all material respects as of the Closing Date; and (ii) the
representations and warranties of the Company set forth in this Agreement made
as of a specified date earlier than the Closing Date shall be true and correct
as of such date, except as affected by the transactions contemplated by this
Agreement; and Parent shall have received a certificate signed on behalf of the
Company by an executive officer of the Company to the effect stated in the
foregoing clauses (i) and (ii).
(b) Performance of Obligations of the Company. The Company shall
have performed in all material respects all obligations required to be performed
by it under this Agreement at or prior to the Closing Date, and Parent shall
have received a certificate signed on behalf of the Company by an executive
officer of the Company to such effect.
(c)There shall have been no changes that have had or are reasonably
likely to have a Company Material Adverse Effect since the date of this
Agreement, except for changes contemplated by this Agreement.
(d) Consents. The Company shall have obtained all Private Consents
referred to in Section 4.5.(b).
(e) Tax Opinion. Parent shall have received the opinion of Xxxxxxx
Xxxxxx & Green, P.C., counsel to Parent, in the form of Exhibit B dated the
Closing Date, to the effect that the Merger will not result in taxation to the
Parent or the Merger Subsidiary under the Code. In rendering such opinion,
Xxxxxxx Xxxxxx & Green, P.C. shall require delivery of and rely upon the
representations letters delivered by Parent, Merger Subsidiary and the Company
substantially in the forms of Exhibit C and Exhibit D hereto.
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(f) Pooling Letters; Accountant Letters. Parent shall have
received (i) at least 35 days prior to the Effective Time, the Company
Affiliates Letters from all persons identified on Exhibit A-1 and any other
person who Parent reasonably believes to be an affiliate of the Company and (ii)
Parent shall have received, in form and substance reasonably satisfactory to
Parent, from Xxxxxx Xxxxxxxx LLP, the Company's accountants (or its successor)
and Xxxxx Xxxxxxxx LLP, the Parent's accountants (or its successor) favorable
letters dated the Closing Date, regarding the appropriateness of
"pooling-of-interests" accounting treatment for the Merger.
(g) Comfort Letters. Parent shall have received letters from
Xxxxxx Xxxxxxxx LLP dated as of the effective date of the S-4 Registration
Statement and as of the Closing Date, in each case addressed to Parent
containing such matters as are customarily contained in auditors' letters
regarding the Company financial information provided expressly for inclusion in
such S-4 Registration Statement, in form and substance reasonably satisfactory
to Parent.
(h) Audited Nine Month Financial Statements. Parent shall have
received a copy of an audited consolidated balance sheet of the Company dated as
of September 30, 1998 and the audited consolidated statement of income and cash
flows of the Company for the nine-month period then ended, accompanied by the
related report of Xxxxxx Xxxxxxxx LLP to the Company.
7.3. Conditions to Obligation of the Company.
The obligation of the Company to effect the Merger is also subject
to the satisfaction or waiver by the Company at or prior to the Effective Time
of the following conditions:
(a) Representations and Warranties. (i) Except as provided in
(ii) below, the representations and warranties of Parent set forth in this
Agreement that are qualified as to materiality shall be true and correct as of
the Closing Date and those not so qualified by materiality shall be true and
correct in all material respects as of the Closing Date; and (ii) the
representations and warranties of Parent set forth in this Agreement made as of
a specified date earlier than the Closing Date shall be true and correct as of
such date, except as affected by the transactions contemplated by this
Agreement; and the Company shall have received a certificate signed on behalf of
Parent by an executive officer of Parent and on behalf of Merger Subsidiary by
an executive officer of Merger Subsidiary to the effect stated in the foregoing
clauses (i) and (ii).
(b)Performance of Obligations of Parent and Merger Subsidiary. Each
of Parent and Merger Subsidiary shall have performed in all material respects
all obligations required to be performed by it under this Agreement at or prior
to the Closing Date, and the Company shall have received a certificate signed on
behalf of Parent by an executive officer of Parent and on behalf of Merger
Subsidiary by an executive officer of Merger Subsidiary to such effect.
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(c) There shall have been no changes that have had or are
reasonably likely to have a Parent Material Adverse Effect since the date of
this Agreement, except for changes contemplated by this Agreement.
(d) Consents Under Agreements. Parent shall have obtained the
consent or approval of each Person whose consent or approval shall be required
in order to consummate the transactions contemplated by this Agreement under any
Contract to which Parent or any of its Subsidiaries is a party, except those for
which failure to obtain such consents and approvals, individually or in the
aggregate, is not reasonably likely to have a Parent Material Adverse Effect
or is not reasonably likely to prevent or to materially burden or materially
impair the ability of Parent to consummate the transactions contemplated by this
Agreement.
(e) Tax Opinion. The Company shall have received the opinion of
Xxxxx & Xxxxxxx L.L.P., counsel to the Company, in the form of Exhibit E, dated
the Closing Date, to the effect that neither the Company nor the holders of
Shares will recognize income for federal income tax purposes as a result of the
Merger. In rendering such opinion, Xxxxx & Xxxxxxx L.L.P. shall require
delivery of and rely upon the representations letters delivered by Parent,
Merger Subsidiary and the Company substantially in the forms of Exhibit C and
Exhibit D hereto.
(f) Accountant Letters. The Company shall have received, in form
and substance reasonably satisfactory to the Company, from Xxxxxx Xxxxxxxx LLP,
the Company's accountants (or its successor) and Xxxxx Xxxxxxxx LLP, the
Parent's accountants (or its successor) favorable letters dated the Closing
Date, regarding the appropriateness of "pooling-of-interests" accounting
treatment for the Merger.
ARTICLE VIII
TERMINATION
8.1. Method of Termination.
This Agreement may be terminated or abandoned only as follows:
(a) By the mutual consent of Company and Parent, notwithstanding
prior approval by the stockholders of any or all of such corporations;
(b) By Company or Parent if the other party shall have failed to
comply in any material respect with any of its covenants or agreements contained
in this Agreement required to be complied with prior to the date of such
termination (in the case of Parent, including any failure to comply by Merger
Subsidiary), which failure to comply has not been cured within thirty (30)
business days following receipt by such party of written notice from the
non-breaching party of such failure to comply;
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(c) By Company or Parent if there has been (i) a breach by the
other party (in the case of Parent, including any material breach by Merger
Subsidiary) or any representation or warranty that is not qualified by
materiality which has the effect of making such representation or
warranty not true and correct in all material respects or (ii) a breach by the
other party (in the case of Parent, including any material breach by Merger
Subsidiary) of any representation or warranty that is qualified as to
materiality, in each case which breach has not been cured within thirty (30)
business days following receipt by the breaching party from the non-breaching
party of written notice of the breach;
(d) By Company after January 31, 1999, if any of the conditions set
forth in Article VII hereof, to which the Company's obligations are subject,
have not been fulfilled or waived, unless such fulfillment has been frustrated
or made impossible by any act or failure to act of the Company;
(e) By Parent after January 31, 1999, if any of the conditions set
forth in Article VII hereof, to which the Parent and the Merger Subsidiary are
subject, have not been fulfilled or waived, unless such fulfillment has been
frustrated or made impossible by any act or failure to act of Parent or the
Merger Subsidiary;
(f) By Parent or the Company if holders of Shares constituting the
Company Requisite Vote do not approve the Merger at the Stockholders Meeting,
(provided that the Company may not terminate this Agreement under this Section
8.1.(f) if the Company is in breach of Section 6.6.);
(g) By Parent or the Company if holders of shares of Parent Common
Stock constituting the Parent Requisite Vote do not approve the issuance of
shares of Parent Common Stock at the Parent stockholders meeting called for that
purpose (provided that Parent may not terminate this Agreement under this
Section 8.1.(g) if Parent is in breach of Section 6.6.);
(h) By the Company or Parent if a court or governmental entity of
competent jurisdiction institutes an Order prohibiting the consummation of the
transactions contemplated by this Agreement, provided that the order is not the
result of an action or proceeding instituted by the terminating party;
(i) By the Company if in the exercise of its good faith
determination, as set forth in Section 6.4., as to its fiduciary duties to the
Company's stockholders imposed by law, the Board of Directors of the Company
decides that such termination is required;
(j) By Parent if the Board of Directors of the Company shall have
withdrawn or modified in any manner adverse to Parent its approval or
recommendation of the Merger or this Agreement; and
(k) By the Company if the Board of Directors of Parent shall have
withdrawn or modified in any manner adverse to Company its approval or
recommendation of the issuance of Parent Common Stock in the Merger.
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8.2. Effect of Termination.
(a) Except as provided in Sections 6.14. and 8.2.(b), and except as
provided in the immediately succeeding sentence, in the event of a termination
of this Agreement pursuant to Section 8.1. hereof, each party shall pay the
costs and expenses incurred by it in connection with this Agreement, and no
party (or any of its officers, directors, employees, agents, representatives
or stockholders) shall be liable to any other party for any costs, expenses,
damage or loss of anticipated profits hereunder. Subject to Section 8.2.(b)
hereof, in the event of any termination of this Agreement, all provisions of
this Agreement except for Section 6.14. and this Section 8.2. shall forthwith
become void and have no effect, without any liability hereunder on the part of
any party or its directors, officers or stockholders, provided, however, that
nothing in this Section 8.2. shall relieve any party to this Agreement of
liability for any willful or intentional breach of this Agreement.
(b) In the event this Agreement is terminated by the Company in
accordance with Section 8.1.(i) or by Parent in accordance with Section 8.1.(j)
(but in any case only if (i) an Acquisition Proposal is made by a third party
prior to the date of termination and the Board of Directors of the Company
determines to recommend such Acquisition Proposal, or (ii) this Agreement is
terminated following a withdrawal or modification of approval or recommendation
of the Merger or this Agreement by the Board of Directors of the Company if such
withdrawal or modification is due primarily to a decline in the market price of
the Parent Common Stock prior to the Effective Time and the Company within 12
months thereafter enters into an agreement with a third party regarding an
Acquisition Proposal), the Company shall promptly pay (i) all reasonable costs
and expenses of Parent and Merger Subsidiary incurred in connection with the
negotiation and performance of this Agreement including without limitation fees
and expenses of counsel, fees and expenses of independent public accountants,
printing expenses and registration fees, in an amount not to exceed $500,000 and
(ii) to Parent a fee in the amount of $1,500,000. In the case of any
termination of this Agreement triggering payment of the amounts specified in
the preceding sentence and provided the Company has not breached any of the
covenants provided for in Section 6.4. or 6.6. hereof, payment of the amount
specified in the preceding sentence shall constitute liquidated damages and
shall be the sole and exclusive remedy of Parent and the Merger Subsidiary for
any and all damages arising under or in connection with this Agreement, and,
upon payment of the amount specified in the preceding sentence, neither the
Company nor any officers, directors, employees, agents, representatives or
stockholders of the Company shall have any liability or further obligation to
the Parent or the Merger Subsidiary under or in connection with this Agreement
or any such termination hereof.
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ARTICLE IX
0MISCELLANEOUS AND GENERAL
9.1. Survival.
This Article IX and the agreements of the Company, Parent and Merger
Subsidiary contained in Sections 6.8. (Taxation and Accounting), Sections 6.13.
(Benefits), 6.15. (Indemnification; Directors' and Officers' Insurance) 6.16.
(Election to Parent's Board of Directors) and 6.18. (Debentures) shall survive
the consummation of the Merger. This Article IX and the agreements of the
Company, Parent and Merger Subsidiary contained in Sections 6.14. (Expenses),
and Section 8.2. (Effect of Termination) shall survive the termination of this
Agreement. All other representations, warranties, covenants and agreements in
this Agreement shall not survive the consummation of the Merger or the
termination of this Agreement.
9.2. Modification or Amendment.
Subject to the provisions of the applicable law, at any time prior
to the Effective Time, the parties hereto may modify or amend this Agreement, by
written agreement executed and delivered by duly authorized officers of the
respective parties.
9.3. Waiver of Conditions.
The conditions to each of the parties' obligations to consummate the
Merger are for the sole benefit of such party and may be waived by such party in
whole or in part to the extent permitted by applicable law.
9.4. Counterparts.
This Agreement may be executed in any number of counterparts, each
such counterpart being deemed to be an original instrument, and all such
counterparts shall together constitute the same agreement.
9.5. Governing Law; Waiver of Jury Trial.
(a) THIS AGREEMENT SHALL BE DEEMED TO BE MADE IN AND IN
ALL RESPECTS SHALL BE INTERPRETED, CONSTRUED AND GOVERNED BY AND
IN ACCORDANCE WITH THE LAW OF THE STATE OF MARYLAND WITHOUT
REGARD TO THE CONFLICT OF LAW PRINCIPLES THEREOF.
(b) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY
CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO
INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH SUCH
PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT
SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION
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DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT,
OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH PARTY
CERTIFIES AND ACKNOWLEDGES THAT (i) NO REPRESENTATIVE, AGENT OR
ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR
OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF
LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (ii) EACH PARTY
UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER,
(iii) EACH PARTY MAKES THIS WAIVER VOLUNTARILY, AND (iv) EACH PARTY HAS
BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS,
THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 9.5.
9.6. Notices.
Any notice, request, instruction or other document to be given
hereunder by any party to the others shall be in writing and delivered
personally or sent by registered or certified mail, postage prepaid, or by
facsimile:
if to Parent or Merger Subsidiary:
Xxxxx Xxxxxxxx
Correctional Services Corporation
0000 Xxxx Xxxxxx
Xxxxx 0000
Xxxxxxxx, Xxxxxxx 00000
fax: 000-000-0000
and
General Counsel
Correctional Services Corporation
0000 Xxxx Xxxxxx
Xxxxx 0000
Xxxxxxxx, Xxxxxxx 00000
fax: 000-000-0000
Copy to:
Xxxxxx Xxxxxx, Esq.
Xxxxxxx Xxxxxx & Green, P.C.
000 Xxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000-0000
fax: (000) 000-0000
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if to the Company:
Xxxx X. Xxxxxxx
General Counsel
Youth Services International, Inc.
0 Xxxx Xxxxxx Xxxxx
Xxxxx 000
Xxxxxx Xxxxx, XX 00000
fax: (000)000-0000
Copy to:
Xxxxxxx X. Silver, Esq.,
Xxxxx & Xxxxxxx L.L.P.
000 Xxxxx Xxxxxxx Xxxxxx
Xxxxxxxxx, Xxxxxxxx 00000
fax: (000) 000-0000
or to such other persons or addresses as may be designated in writing by the
party to receive such notice as provided above.
9.7. Entire Agreement; No Other Representations.
This Agreement (including any exhibits hereto), the Company
Disclosure Schedule, the Parent Disclosure Schedule, the Confidentiality
Agreement dated June 26, 1998, between Parent and the Company (the
"Confidentiality Agreement") and the Nondisclosure Agreement between Parent
and the Company dated August 7, 1998 (the "Nondisclosure Agreement) constitute
the entire agreement, and supersede all other prior agreements, understandings,
representations and warranties both written and oral, among the parties, with
respect to the subject matter hereof. The parties hereto agree that the
Confidentiality Agreement and the Nondisclosure Agreement shall each be hereby
amended to provide that any provision therein which in any manner would be
inconsistent with this Agreement or the transactions contemplated hereby or
thereby shall terminate as of the date hereof; provided, however, that
such provisions of the Confidentiality Agreement and the Nondisclosure Agreement
shall be reinstated in the event of any termination of this Agreement.
9.8. No Third Party Beneficiaries.
Except as provided in Section 6.13. (Benefits), Section 6.15.
(Indemnification; Directors' and Officers' Insurance), Section 6.16. (Election
to Parent's Board of Directors) and Section 6.18. (Debentures) this Agreement is
not intended to confer upon any Person other than the parties hereto any rights
or remedies hereunder.
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9.9. Severability.
The provisions of this Agreement shall be deemed severable and the
invalidity or unenforceability of any provision shall not affect the validity or
enforceability or the other provisions hereof. If any provision of this
Agreement, or the application thereof to any Person or any circumstance, is
invalid or unenforceable, (a) a suitable and equitable provision shall be
substituted therefor in order to carry out, so far as may be valid and
enforceable, the intent and purpose of such invalid or unenforceable provision
and (b) the remainder of this Agreement and the application of such provision to
other Persons or circumstances shall not be affected by such invalidity or
unenforceability, nor shall such invalidity or unenforceability affect the
validity or enforceability of such provision, or the application thereof, in any
other jurisdiction.
9.10. Interpretation.
The table of contents and headings herein are for convenience of
reference only, do not constitute part of this Agreement and shall not be deemed
to limit or otherwise affect any of the provisions hereof. Where a reference in
this Agreement is made to a Section or Exhibit, such reference shall be to a
Section of or Exhibit to this Agreement unless otherwise indicated. Whenever
the words "include," "includes" or "including" are used in this Agreement, they
shall be deemed to be followed by the words "without limitation."
9.11. Assignment.
This Agreement shall not be assignable by operation of law or
otherwise; provided, however, that Parent may designate, by written notice to
the Company, another wholly-owned direct or indirect Subsidiary to be a party to
the Merger in lieu of Merger Subsidiary, in which event all references herein to
Merger Subsidiary shall be deemed references to such other Subsidiary, except
that all representations and warranties made herein with respect to Merger
Subsidiary as of the date of this Agreement shall be deemed representations and
warranties made with respect to such other Subsidiary as of the date of such
designation.
9.12. Definitions
(a) Location of Certain Definitions.
Section
Acquisition Proposal 6.4
Affiliate 6.10
Agreement Preamble
Articles of Incorporation 2.1
Articles of Merger 1.3
Bylaws 2.2
Certificate 3.1(a)
Closing 1.2
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Section
Closing Date 1.2
Code 4.9(b)
Company Preamble
Company Affiliates Letter 6.10(a)
Company Audit Date 4.6
Company Benefit Plans 6.13(b)
Company Common Stock 3.1(a)
Company Compensation and Benefit Plans 4.9(a)
Company Disclosure Schedule Preamble to
Article IV
Company Intellectual Property Rights 4.15(b)(ii)
Company Material Adverse Effect 9.12(b)
Company Reports 4.6
Company Requisite Vote 4.4(a)
Company Stock Plans 4.2
Company Third-Party Intellectual Property Rights 4.15(b)(i)
Confidentiality Agreement 9.7
Contracts 4.5(b)
Costs 6.15(a)
Debentures 4.2
D&O Insurance 6.15(b)
Effective Time 1.3
Environmental Law 9.12(b)
ERISA 4.9(b)
ERISA Affiliate 4.9(c)
Exchange Act 4.5(a)
Exchange Agent 3.2(a)
Exchange Fund 3.2(a)
Exchange Ratio 3.1(a)
GAAP 4.6
Governmental Consents 7.1(c)
Hazardous Substance 9.12(b)
HSR Act 4.5(a)
Indemnified Parties 6.15(a)
IRS 4.9(b)
Laws 4.10
MGCL 1.1
Maximum Premium 6.15(b)
Merger Recitals
Merger Consideration 3.1(a)
Merger Subsidiary Preamble
NASDAQ 3.2(e)
Order 7.1(d)
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Section
Parent Preamble
Parent Affiliates Letter 6.10(b)
Parent Audit Date 5.7(a)
Parent Benefit Plans 6.13(b)
Parent Common Stock 3.1(a)
Parent Compensation and Benefit Plan 5.9(a)
Parent Disclosure Schedule Preamble to
Article V
Parent Intellectual Property Rights 5.14(b)(ii)
Parent Material Adverse Effect 9.12(b)
Parent Preferred Shares 5.3
Parent Reports 5.6
Parent Requisite Vote 5.4(a)
Parent Rights Agreement 5.3
Parent Shares 5.3
Parent Stockholders Meeting 6.6
Parent Stock Plans 5.3
Parent Third-Party Intellectual Property Rights 5.14(b)(i)
Pension Plan 4.9(b)
Person 3.2(b)
Private Consents 4.5(b)
Prospectus/Proxy Statement 6.5
Representatives 6.9
Responsible Executive Officers of Parent 9.12(b)
Responsible Executive Officers of the Company 9.12(b)
S-4 Registration Statement 6.5
SEC 4.6
SDAT 1.3
Securities Act 4.5(a)
Share, Shares 3.1(a)
State Regulators 4.10
Stockholders Meeting 6.6
Subsidiary 9.12(b)
Surviving Corporation 1.1
Takeover Statute 4.11
Tax, Taxes, Taxable 9.12(b)
Taxing Authority 9.12(b)
Tax Return 9.12(b)
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(b) Certain Other Definitions
"Company Material Adverse Effect" means any event, change, or effect
that individually or when taken together with all other such events, changes or
effects is or could reasonably be expected (as far as can be foreseen at the
time) to be materially adverse to the business, assets, liabilities, condition
(financial or otherwise) or results of operations of the Company and its
Subsidiaries taken as a whole, other than effects caused by changes in general
economic conditions or conditions generally affecting the types of businesses in
which the Company and its Subsidiaries are engaged.
"Environmental Law" means any federal, state, local or foreign law,
statute, ordinance, regulation, judgment, order, decree, arbitration award,
agency requirement, license, permit, authorization or opinion, relating to: (i)
the protection, investigation or restoration of the environment, health and
safety, or natural resources, (ii)the handling, use, presence, disposal, release
or threatened release of any Hazardous Substance or (iii) noise, odor, wetlands,
pollution, contamination or any injury or threat of injury to persons or
property, including but not limited to the Comprehensive Environmental Response,
Compensation, and Liability Act, 42 USC Section 9601 et. sec.
"Hazardous Substance" means any substance or waste that is: (i)
listed, classified or regulated pursuant to any Environmental Law; (ii) any
petroleum product or by-product, asbestos-containing material, lead-containing
paint or plumbing, polychlorinated biphenyls, radioactive materials or radon; or
(iii) any other substance or waste which may be the subject of regulatory action
by any Government Authority pursuant to any Environmental Law.
"Knowledge" of any individual means actual knowledge of such
individual.
"Parent Material Adverse Effect" means any event, change, or effect
that individually or when taken together with all other such events, changes or
effects is or could reasonably be expected (as far as can be foreseen at the
time) to be materially adverse to the business, assets, liabilities, condition
(financial or otherwise) or results of operations of Parent and its Subsidiaries
taken as a whole, other than effects caused by changes in general economic
conditions or conditions generally affecting the types of businesses in which
the Parent and its Subsidiaries are engaged.
"Responsible Executive Officers of the Company" shall mean the
persons designated as such in the preamble to the Company Disclosure Schedule.
"Responsible Executive Officers of Parent" shall mean the persons designated as
such in the preamble to the Parent Disclosure Schedule.
"Subsidiary" means, with respect to the Company, Parent or Merger
Subsidiary, as the case may be, any entity, whether incorporated or
unincorporated, of which at least a majority of the securities or ownership
interests having by their terms ordinary voting power to elect a majority of the
board of directors or other persons performing similar functions is directly or
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indirectly owned or controlled by such party or by one or more of its respective
Subsidiaries or by such party and any one or more of its respective
Subsidiaries.
"Tax" (including, with correlative meaning, the terms "Taxes" and
"Taxable") shall mean, with respect to any Person, (i) all taxes, domestic or
foreign, including without limitation any income (net, gross or other, including
recapture of any tax items such as investment tax credits), alternative or
add-on minimum tax, gross income, gross receipts, gains, sales, use, leasing,
lease, user, ad valorem, transfer, recording, franchise, profits, property (real
or personal, tangible or intangible), fuel, license, withholding on amounts paid
to or by such Person, payroll, employment, unemployment, social security,
excise, severance, stamp, occupation, premium, environmental or windfall profit
tax, custom, duty or other tax, or other like assessment or charge of any kind
whatsoever, together with any interest, levies, assessments, charges, penalties,
additions to tax or additional amounts imposed by any Taxing Authority, (ii) any
joint or several liability of such Person with any other Person for the payment
of any amounts of the type described in (a) of this definition and (iii) any
liability of such Person for the payment of any amounts of the type described in
(i) as a result of any express or implied obligation to indemnify any other
Person.
"Tax Return(s)" shall mean all returns, consolidated or otherwise
(including without limitation informational returns), required to be filed with
any Taxing Authority.
"Taxing Authority" shall mean any authority responsible for the
imposition of any Tax.
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IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered by the duly authorized officers or managers of the parties hereto as
of the date first written above.
YOUTH SERVICES INTERNATIONAL, INC.
By: /s/ Xxxxxxx X. Xxxx
Name: Xxxxxxx X. Xxxx
Title: Chairman and Chief Executive Officer
CORRECTIONAL SERVICES CORPORATION
By: /s/ Xxxxx X. Xxxxxxxx
Name: Xxxxx X. Xxxxxxxx
Title: President
PALM MERGER CORP.
By: /s/ Xxxxx X. Xxxxxxxx
Name: Xxxxx X. Xxxxxxxx
Title: President
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Exhibits
Exhibit A-1 Company Affiliates
Exhibit A-2 Company Affiliates Letter
Exhibit A-3 Parent Affiliates Letter
Exhibit B Tax Opinion of Parent Counsel
Exhibit C Parent Tax Letter
Exhibit D Company Tax Letter
Exhibit E Tax Opinion of Company Counsel
