NOTE AND WARRANT PURCHASE AGREEMENT
SPECIALTY ACQUISITION CORP.
$7,500,000 Principal Amount
14% Series A Senior Subordinated Notes
Due June 30, 2006
Warrants for
Common Stock
$.01 par value
______________, 2001
To the Purchasers (the "Purchasers")
named in Exhibit A hereto
Dear Sirs:
The undersigned, Specialty Acquisition Corp. ("SAC"), together with its
Subsidiaries, SC Corporation (d/b/a SC Direct), SC Publishing, Inc., SC
Licensing Corp., Royal Advertising & Marketing, Inc. and Daxbourne International
Limited, propose to jointly issue and sell to the Purchasers for cash $7,500,000
principal amount of its 14% Series A Senior Subordinated Notes due June 30, 2006
(the "Notes"), and SAC proposes to issue and sell to the Purchasers Warrants to
purchase shares of Common Stock which, if purchased in their entirety, shall at
all times, except as otherwise provided in the Warrant Agreement (as defined in
Section 1 below), equal not less than thirteen and four-tenths percent (13.4%)
of the Company's Fully-Diluted Common Stock (as defined in the Warrant
Agreement).
The Notes shall be issued by, and be the joint and several obligation
of each of the makers listed on Exhibit B hereto, and the Purchasers shall be
entitled to require any newly-formed or created direct or indirect Subsidiary of
SAC to execute, ratify or join as a maker of the Note, and will be issued
pursuant to and subject to the terms and conditions of this Agreement; and the
Warrants will be issued pursuant to and subject to the terms and conditions of
this Agreement and the Warrant Agreement. The Warrants and the Notes, and the
respective holders thereof, shall each be entitled to the continuing agreements
and rights set forth herein, but shall otherwise in all respects be separable
and may be transferred, sold, modified or otherwise held or dealt in as
independent instruments in accordance with the terms thereof. The Purchasers and
any holder of a Note shall have complete discretion to deal with any of the SAC
or any of its Subsidiaries separately as a maker of the Notes or otherwise with
respect to collection, credit or default under the Notes or the Agreement, and
no such course of dealing shall in any way alter the unconditional, joint and
several liability of each undersigned for the full amount due under the Notes.
PREAMBLE
WHEREAS, SAC has entered into a certain Agreement and Plan of
Recapitalization and Merger with Specialty Catalog Corp. ("SCC") pursuant to
which SAC will acquire certain shares of the outstanding capital stock of SCC
and will then merge with and into SCC (the "Merger"), with SCC being the
surviving entity and all shares of the outstanding capital stock of SCC not
owned by SAC will be cancelled in exchange for $3.75 per share (the "Merger
Consideration"), and
WHEREAS, the Company has requested that the Purchasers purchase the
Notes and Warrants in order to provide funds for the Company to pay the Merger
Consideration and to pay reasonable expenses of the Company associated with the
Merger; and
WHEREAS, the Purchasers are willing to purchase the Notes and Warrants
on the terms and subject to the conditions set forth herein.
NOW, THEREFORE, in connection with the issuance of the Notes and
Warrants, the Company agrees with each Purchaser, and each Purchaser severally
agrees with the Company as follows:
SECTION 1. DEFINITIONS.
(a) As used in this Agreement, the following terms shall have the
following meanings. Any term not defined in this Section 1 shall have the
meaning assigned to it elsewhere herein, or which is specifically incorporated
herein by reference.
"Affiliate" of any Person shall mean any other Person (a) that directly
or indirectly, through one or more intermediaries, controls or is controlled by,
or is under common control with such first Person, it being understood that this
shall include any officer or director of a Person which is a corporation, any
manager or director of a limited liability company, and any general partner of a
partnership, and any officer, director or owner of ten percent (10%) or more of
any entity which so serves as such manager or general partner, (b) that directly
or beneficially owns ten percent (10%) or more of any class of the voting stock
of such first Person, or (c) ten percent (10%) or more of whose voting stock (or
in the case of a Person which is not a corporation, ten percent (10%) or more of
whose equity interest) is owned directly or beneficially by such first Person.
"Agreement" shall mean this Note and Warrant Purchase Agreement,
together with all Exhibits and Schedules hereto, as from time to time amended,
modified or supplemented.
"Business Day" shall mean any day other than a Saturday, Sunday or
other day on which commercial banks in The Commonwealth of Massachusetts are
authorized or required to close under the laws of The Commonwealth of
Massachusetts
"Capital Expenditures" shall mean amounts paid or incurred (including,
without limitation, Indebtedness incurred and any capitalized consulting and
payroll expenditures), by any Corporation in connection with the purchase or
lease by any Corporation of capital assets that would be required to be
capitalized and shown on the balance sheet of such Corporation in accordance
with GAAP. As used in this definition, "capital assets" means fixed assets, both
tangible (such as land, buildings, fixtures, machinery and equipment) and
intangible (such as patents, copyrights, trademarks, franchises and goodwill);
provided, however, that capital assets shall not include any item customarily
charged directly as an expense or depreciated over a useful life of twelve (12)
months or less in accordance with GAAP.
"Capital Lease" shall mean any lease which is or should be capitalized
on the balance sheet of the lessee in accordance with GAAP and Statement of
Financial Accounting Standards No. 13.
"Capital Stock" shall mean any and all shares, interests,
participations or other equivalents (however designated) of capital stock of a
corporation, any and all equivalent ownership or equity interests in a Person
other than a corporation (including partnership interests and limited liability
company interests), and any and all warrants, options, conversion rights or
other rights to obtain any of the foregoing.
"Capitalized Lease Obligations" shall mean the amount of the liability
reflecting the aggregate discounted amount of future payments under all Capital
Leases calculated in accordance with GAAP and Statement of Financial Accounting
Standards No. 13.
"Change of Control" shall be deemed to occur (subject to the last
proviso set forth below) upon the occurrence of any event or series of events,
or the entering into of any agreement, contract or arrangement of any kind by
the Company, its Subsidiaries or any one or more of the Company's stockholders,
which results in, or which provides for, (i) the stockholders of the Company on
the date hereof owning beneficially less than a "Controlling Percentage" (as
defined below) of the Company's aggregate outstanding voting securities of any
and all kinds, or less than a Controlling Percentage of the Company's
Fully-Diluted Common Stock, (ii) the stockholders of the Company on the date
hereof (excluding Warrants and Warrant Shares held by the Purchasers) not having
the power to elect a majority or more of the Company's Board of Directors, or
otherwise to direct or cause the direction of the management and policies of the
Company, or agreeing to limit such right or power, (iii) the Company ceasing to
own both a Controlling Percentage and at least a majority of the issued and
outstanding Capital Stock of any Subsidiary (excluding for this purpose a sale
of a majority or greater interest in the Company's Western Schools or AHI
business in an arm's length, good faith transaction to an unaffiliated third
party, or the sale of any other Subsidiary which does not conduct any material
amount of business or own a material amount of assets), or (iv) Xxx Xxxxxx,
First Global Holdings Limited, Oracle Investments and Holdings Limited, Ionic
Holdings LDC and Three Greens Holdings Limited shall cease to own, directly or
indirectly, in the aggregate, thirty-five percent (35%) or more of the Company's
Common Stock or such
lesser percentage that results from exercise of all of the Warrants and/or
exercise of options granted under the Stock Option Plan; provided, however, that
in the case of any agreement entered into by the Company which, by its terms and
as a condition to consummation, calls for the repayment in full of the Notes
(including all accrued but unpaid interest, premiums, Principal Increases and
Costs and Expenses payable with respect thereto) and payment of all obligations,
if any, under the Purchaser Documents in accordance with the terms thereof, a
Change of Control shall only be deemed to occur upon the consummation of the
transactions called for in such agreement.
"Closing Date" shall mean the date of the Closing of the issuance and
sale of the Notes and Warrants to the Purchasers pursuant hereto.
"Closing" shall mean the closing of the issuance and sale of the Notes
and Warrants to the Purchasers pursuant hereto.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
"Common Stock" shall mean the Company's Common Stock, $.01 par value.
"Consolidated" or "Consolidating," and "consolidated" or
"consolidating" shall, when used with reference to any financial information
pertaining to (or when used as a part of any defined term or statement
pertaining to the financial condition of) the Company and its Subsidiaries, mean
the accounts of the Company and its Subsidiaries determined on a consolidated or
consolidating basis, as the case may be, all determined as to principles of
consolidation and, except as otherwise specifically required by the definition
of such term or by such statements, as to such accounts, in accordance with
GAAP.
"Controlling Percentage" shall mean that portion of the voting Capital
Stock of all classes of the Company, or the applicable Subsidiary, which shall
be necessary to give the holders thereof the power, without the consent of any
other holder of capital stock, to approve the merger, consolidation,
recapitalization, liquidation or dissolution of such entity, and/or the sale of
all or substantially all of its assets, and any similar extraordinary
transaction, whether under the applicable charters, bylaws, or similar governing
instruments, or otherwise.
"Corporation" or the "Company" shall mean (a) prior to the Closing
Date, SAC, SCC and their respective Subsidiaries, and (b) from and after the
Closing Date, SCC (as the surviving entity after the Merger of SAC with and into
SCC) and its Subsidiaries.
"Costs and Expenses" shall having the meaning set forth in Section
15.5.
"Default" shall mean any one of the events specified in Section 9 which
is or would become, with the lapse of time specified therein or the giving of
any required notice, or both, an Event of Default.
"Distribution", in respect of any Corporation, shall mean and include:
(i) the payment of any dividends or other distributions on Capital Stock of the
Corporation (except
distributions made in additional shares of such stock) and (ii) the redemption
or acquisition of securities of the Corporation (or any warrant or option for
the purchase of any such securities).
"Dollars" and "$" shall mean dollars in lawful currency of the United
States of America.
"EBITDA" shall mean for any period (a) Net Income plus (b) all amounts
deducted in computing Net Income in respect of (i) interest expense on
Indebtedness, (ii) taxes based on or measured by income and (iii) depreciation
and amortization expense, in each case for the period under review.
"Environmental Law" shall mean any federal, state or local statute,
law, rule, regulation, ordinance, code, policy or rule of common law now or
hereafter in effect and in each case as amended, and any judicial or
administrative interpretation thereof, including any judicial or administrative
order, consent decree or judgment, relating to the environment, health, safety
or Hazardous Materials, including without limitation, the Rivers and Harbors Act
of 1899, 33 U.S.C.ss.401, et seq., the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended by the Superfund Amendment
and Reauthorization Act of 1986, as amended ("CERCLA") 42 U.S.C.ss.9601 et seq.;
the Hazardous Materials Transportation Act, as amended, 49 U.S.C.ss.1801 et
seq.; the Solid Waste Disposal Act, as amended by the Resource Conservation and
Recovery Act, as amended, 42 U.S.C.ss.6901 et seq.; the Federal Water Pollution
Control Act, as amended, 33 U.S.C.ss.1251 et seq.; the Toxic Substances Control
Act, 15 U.S.C.ss.2601 et seq.; the Clean Air Act, 42 U.S.C.ss.7401 et seq.; the
Clean Water Act, 33 U.S.C.ss.1251, et seq., the Safe Drinking Water Act, 42
U.S.C.ss.3808 et seq.; and their counterparts under state and any local law.
"Environmental Notice" shall mean any summons, citation, directive,
information request, notice of potential responsibility, notice of violation or
deficiency, order, claim, complaint, investigation, proceeding, judgment,
letters or other communication, written or oral, actual or threatened, from the
United States Environmental Protection Agency or other Governmental Authority,
concerning any intentional or unintentional act or omission which involves
Management of Hazardous Substances on or off the Property of any Corporation, or
concerning any alleged violation of or responsibility under Environmental Laws,
in each case which reasonably could be expected to result in a material
liability to any of the Corporations or the imposition of a Lien on any Property
of any of the Corporations.
"ERISA Affiliate" shall mean each trade or business (whether or not
incorporated) which together with any Corporation would be treated as a single
employer under the provisions of Title I or Title IV of ERISA.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended.
"Event of Default" shall mean any one or more of the events specified
in Section 9, provided that any requirement set forth in such Section 9 for the
giving of notice or the lapse of time, or both, has been satisfied.
"Excess Cash Flow" shall mean, for any period, Operating Cash Flow less
Total Debt Service, each determined for such period.
"Financial Statements" shall have the meaning set forth in Section
4.7(a).
"Fully-Diluted Common Stock" shall have the meaning given thereto in
the Warrant Agreement.
"Funded Debt" shall mean, on a consolidated basis, all Indebtedness of
the Company and its Subsidiaries for borrowed money or for the deferred purchase
price of property or services (including Capitalized Lease Obligations but
excluding trade accounts payable incurred in the ordinary course of business and
not yet payable in accordance with their terms and contingent obligations).
"GAAP" shall mean generally accepted accounting principles as defined
by controlling pronouncements of the Financial Accounting Standards Board, as
from time to time supplemented and amended, or in the case of SC(UK), as
generally accepted in the United Kingdom, in all cases consistently applied in
conformity with the accounting methods and practices used in connection with the
preparation of the Company's audited Financial Statements for the twelve months
ended December 30, 2000.
"Governmental Authority" shall mean any nation or government, any state
or other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
"Hazardous Materials" means (a) any petroleum or petroleum products,
radioactive materials, asbestos in any form that is or could become friable,
urea formaldehyde foam insulation, transformers or other equipment that contain
dielectric fluid containing levels of polychlorinated biphenyls, and radon gas;
(b) any chemicals, materials or substances defined as or included in the
definition of "hazardous substances," "hazardous wastes," "hazardous materials,"
"extremely hazardous wastes," "restricted hazardous wastes," "toxic substances,"
"toxic pollutants," "contaminants" or "pollutants," or words of similar import,
under any applicable Environmental Law; and (c) any other chemical, material or
substance exposure to which is prohibited, limited or regulated by any
Governmental Authority.
"Indebtedness" shall mean, as to any Person, all obligations,
contingent and otherwise, which in accordance with GAAP should be classified
upon such Person's balance sheet as liabilities, but in any event including
liabilities (whether or not classified as liabilities in accordance with GAAP)
secured by any mortgage, pledge, security interest, lien, charge or other
encumbrance existing on property owned or acquired by such Person whether or not
the liability secured thereby shall have been assumed, obligations with respect
to letters of credit, obligations under acceptance facilities, Capitalized Lease
Obligations and all obligations as guarantors or sureties or on account of
endorsements and any other contingent obligations in respect of the Indebtedness
of others whether or not reflected on such balance sheet or in a footnote
thereto.
"Investors" shall have the meaning given thereto in Section 12.2.
"Licenses" shall have the meaning set forth in Section 4.16.
"Lien" shall mean any interest in Property securing an obligation owed
to, or a claim by, a Person other than the owner of the Property, whether such
interest is based on common law, statute or contract. The term "Lien" shall also
include reservations, exceptions, encroachments, agreements, rights-of-way,
covenants, conditions, restrictions, leases and other title exceptions and
encumbrances affecting Property. For the purpose of this Agreement, a Person
shall be deemed to be the owner of any Property which it has acquired or holds
subject to a conditional sale agreement or other arrangement pursuant to which
title to the Property has been retained by or vested in some other Person for
security purposes.
"Manage" or "Management" shall mean to generate, handle, manufacture,
process, treat, store, use, re-use, refine, recycle, reclaim, blend or burn for
energy recovery, incinerate, accumulate speculatively, transport, transfer,
dispose of, release, threaten to release or abandon Hazardous Materials.
"Material Adverse Effect" shall mean the effect of any event or
condition which, alone or when taken together with other events or conditions
previously occurring, or existing concurrently therewith (a) has or is
reasonably expected to have a material adverse effect upon the business,
operations, performance, Property, assets or condition (financial or otherwise)
of the Company and its Subsidiaries taken as a whole, whether immediately or
over the term of the Notes, (b) impairs in any material manner the ability of
the Company or any of its Subsidiaries to perform their respective obligations
under the Transaction Documents to which they are parties or (c) impairs in any
material manner the ability of the Purchasers to enforce a covenant or
agreement, or collect any material amount of the Company's obligations of the
Company or any of its Subsidiaries, under any of the Purchaser Documents.
"Material Indebtedness" shall have the meaning given thereto in Section
6.1(k).
"Merger Consideration" is defined in the Preamble to this Agreement.
"Multiemployer Plan" shall mean a "multiemployer plan" as defined in
Section 4001(a)(3) of ERISA.
"Net Income" shall mean the net income (or loss) of the Company and its
Subsidiaries for any period (in each case after excluding non-operating
transaction expenses incurred in connection with the Merger to the extent the
same have been deducted in computing Net Income) determined in accordance with
GAAP on a consolidated basis.
"Notes" shall have the meaning given thereto in the first paragraph of
this Agreement. The Notes shall be in the form of Exhibit B hereto.
"Operating Cash Flow" shall mean (a) EBITDA less (b) the sum of the
Company's and its Subsidiaries' (i) unfinanced Capital Expenditures plus (ii)
net cash payments for taxes for the applicable period.
"PBGC" shall mean the Pension Benefit Guaranty Corporation.
"Pension Plan" shall mean any Plan which is subject to the provisions
of Title IV of ERISA.
"Permitted Lien" shall mean a Lien permitted by Section 7.1.
"Person" shall mean any individual, sole proprietorship, partnership,
joint venture, trust, unincorporated organization, limited liability company,
association, corporation, institution, entity, party, or government (whether
national, federal, state, county, city, municipal or otherwise, including
without limitation any instrumentality, division, agency, body or department
thereof).
"Plan" shall mean any employee benefit plan within the meaning of
Section 3(3) of ERISA and which is maintained (in whole or in part) for
employees of any Corporation or any ERISA Affiliate.
"Principal Increase" shall have the meaning given thereto in Section
3.1(c).
"Property" shall mean any interest in any kind of property or asset,
whether real, personal or mixed, or tangible or intangible.
"Purchase Money Indebtedness" shall mean and include (i) Indebtedness
(other than the Senior Debt) for the payment of all or any part of the purchase
price of any fixed assets, (ii) any Indebtedness (other than the Senior Debt)
incurred at the time of or within ten (10) days prior to or after the
acquisition of any fixed assets for the purpose of financing all or any part of
the purchase price thereof, and (iii) any renewals, extensions or refinancings
thereof, but not any increases in the principal amounts thereof outstanding at
the time; provided, however that in each such case such Indebtedness is not in
excess of the purchase price of the fixed assets acquired, and is secured
solely, if at all, by a Purchase Money Lien.
"Purchase Money Lien" shall mean a Lien upon fixed assets which secures
Purchase Money Indebtedness, but only if such Lien shall at all times be
confined solely to the fixed assets (together with all additions, replacements,
substitutions, modifications, attachments and proceeds thereof) the purchase
price of which was financed through the incurrence of the Purchase Money
Indebtedness secured by such Lien.
"Purchaser Documents" shall mean, collectively, this Agreement, the
Notes, the Warrant Agreement, the Warrants, the Subsidiary Guaranties, the
Stockholders Agreement, the Senior Subordination Agreement and any other
agreement, document or certificate relating to any thereof, including amendments
thereto, and any other document entered into between the Purchasers and the
Company and any of its Subsidiaries.
"Purchaser Representatives" shall have the meaning given thereto in
Section 6.10.
"Purchaser Transactions" shall mean all transactions contemplated by
the Purchaser Documents.
"Purchaser" shall mean any holder from time to time of any of the
Notes, Warrants or Warrant Shares.
"Release" shall mean any actual or threatened spilling, leaking,
pumping, pouring, emitting, emptying, discharging, injecting, escaping,
leaching, dumping or disposing of Hazardous Materials into the environment, as
"environment" is defined in CERCLA.
"Reportable Event" shall mean a Reportable Event as defined in Section
4043(b) of ERISA as to which the PBGC has not by regulation waived the
requirement that it be notified within 30 days of the occurrence of such an
event.
"Respond" or "Response" shall mean any action taken pursuant to
Environmental Laws to correct, remove, remediate, clean up, prevent, mitigate,
monitor, evaluate, investigate or assess the Release of a Hazardous Material.
"SCC Merger Documents" shall mean the Agreement and Plan of
Recapitalization and Merger dated as of May 4, 2001 between SAC and SCC, the
Stockholders Agreement, any subscription agreement between SAC and a Purchaser,
the proxy statement and all other filings made in connection with the Merger
with the Securities and Exchange Commission pursuant to the Securities Act, the
Securities Exchange Act of 1934 or the rules and regulations promulgated
thereunder, and all other documents executed and/or delivered in connection with
either of the foregoing (including, without limitation, any employment
agreements and option agreements entered into between the Company and its senior
executives or directors).
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Senior Debt Documents" shall mean (i) the Senior Loan Agreement, the
promissory notes delivered thereunder and the other documents delivered pursuant
thereto or in connection therewith, or (ii) any replacement senior debt
documents relating to any refinancing permitted pursuant to Section 7.15.
"Senior Debt" shall have the meaning given thereto in the Senior
Subordination Agreement.
"Senior Funded Debt" shall mean, on a consolidated basis, (a) all
Indebtedness of the Company and its Subsidiaries for borrowed money or for the
deferred purchase price of property or services (including Capitalized Lease
Obligations but excluding trade accounts payable incurred in the ordinary course
of business and not yet payable in accordance with their terms and contingent
obligations), less (b) all subordinated indebtedness of the Company and its
Subsidiaries. As used in this definition, "subordinated indebtedness" shall mean
Indebtedness of the Company and its Subsidiaries which is subordinated to the
Senior Debt, on terms and conditions approved in writing by the Senior Lender,
including, without limitation, the Indebtedness evidenced by the Purchaser
Documents.
"Senior Lender" shall mean each of (i) Fleet National Bank or (ii) any
replacement senior lender(s) in any refinancing permitted pursuant to Section
7.15.
"Senior Loan Agreement" shall mean the Loan Agreement dated as of
December 27, 2000 between the Company and the Senior Lender, as the same may be
amended from time to time or any replacement senior loan agreement in any
refinancing permitted pursuant to Section 7.15.
"Senior Management" shall mean the Company's Chief Executive Officer,
President, Chief Financial Officer, Controller, and any Vice President of the
Company, as well as any officer, manager or employee who reports to any of the
foregoing and is primarily responsible for marketing or merchandising,
information systems, warehouse operations or inventory management, call center
operations or fulfillment, and any person who holds such office or performs such
function for any Subsidiary.
"Senior Subordination Agreement" shall mean the Subordination Agreement
dated as of the date hereof among the Purchasers, the Company, and the Senior
Lender, or any such agreement with a Senior Lender in any refinancing permitted
pursuant to Section 7.15.
"Stockholders Agreement" shall mean the Stockholders Agreement dated as
of May 4, 2001, among the Company and its stockholders, as the same may be
further amended, restated, modified or supplemented from time to time,
including, without limitation, as of the date hereof.
"Stock Option Plan" shall have the meaning given thereto in the Warrant
Agreement.
"Subsidiary Guaranties" shall mean (i) the Guaranties dated as of the
date hereof by each of the Company's Subsidiaries in favor of the Purchasers,
each in the form of Exhibit F hereto and (ii) any guaranty hereafter executed in
favor of the Purchasers by any other Subsidiary pursuant to Section 7.5 hereof
(such guaranties hereafter executed also to be in the form of Exhibit F hereto).
"Subsidiary" shall mean, with respect to any Person: either (i)(a) any
corporation of which more than fifty percent (50%) of the outstanding Capital
Stock having ordinary voting power to elect a majority of the board of directors
of such corporation (irrespective of whether at the time stock of any other
class or classes of such corporation shall have or might have voting power by
reason of the happening of any contingency) is at the time directly or
indirectly owned by such Person or (b) any corporation the Capital Stock of
which having more than fifty percent (50%) of the aggregate fair market value of
all of such corporation's outstanding Capital Stock is at the time directly or
indirectly owned by such Person; or (ii) any partnership, limited liability
company or joint venture or other entity of which more than fifty percent (50%)
of the outstanding equity interests are at the time directly or indirectly owned
by such Person. For purposes of this Agreement, references to "Subsidiary" or
"Subsidiaries" shall specifically include each of SC Corporation (d/b/a SC
Direct), SC Publishing, Inc., Daxbourne International Limited, SC Licensing
Corp., Royal Advertising & Marketing, Inc. and any other Subsidiary of the
Company created after the date hereof in accordance with Section 7.5 hereof.
"Total Debt Service" shall mean for any period the sum of the Company's
and its
Subsidiaries' (a) interest expense for such period, plus (b) principal payments
on Indebtedness required to be made during such period.
"Transaction Documents" shall mean, collectively, the Purchaser
Documents, the Senior Debt Documents, the SCC Merger Documents and all other
agreements, instruments and documents executed and/or delivered in connection
therewith, as each of the same has been or may hereafter be, amended, modified
or supplemented from time to time with the consent of the Purchasers.
"Transactions" shall mean all transactions contemplated by the
Transaction Documents.
"Warrant Agreement" shall mean the Warrant Agreement dated as of the
date hereof among the Company and the Purchasers, as the same may be amended,
modified or supplemented, and shall be in the form of Exhibit C hereto.
"Warrant Shares" shall mean the shares of the Company's Common Stock
issuable or issued upon exercise of the Warrants, and shall also include any
securities issued in replacement thereof, as a dividend or distribution thereon,
or any stock, equity interest, securities or assets issued in the case of any
reorganization, reclassification, consolidation, merger or sale of assets of the
character referred to in Section 9(b) of the Warrant Agreement.
"Warrants" shall mean each warrant issued pursuant to the Warrant
Agreement.
(b) As used herein, in the other Purchaser Documents, and in any
certificate, report or other document made or delivered pursuant hereto or
thereto, unless otherwise defined herein accounting terms shall have the
respective meanings given to them under GAAP.
(c) The words "hereof," "herein," "hereunder" and "hereto" and words of
similar import when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provision of this Agreement; and Section,
Schedule and Exhibit references contained in this Agreement are references to
sections, Schedules and Exhibits in or to this Agreement, unless otherwise
specified.
(d) The meanings given to the terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
(e) References herein to the Purchasers' "approval," "discretion" or
"judgment" shall mean the Purchasers' sole and absolute discretion or judgment,
exercisable without reference to any external standard, or approval by the
Purchasers in such sole and absolute discretion or judgment.
SECTION 2. PURCHASE AND SALE OF NOTES AND WARRANTS.
2.1 Notes. The Company agrees to sell to each Purchaser, and each
Purchaser severally agrees to purchase from the Company, on the Closing Date, at
par, Notes in the principal amount set forth opposite such Purchaser's name on
Exhibit A hereto. Each Note shall (i) be dated the Closing Date, and (ii) be
substantially in the form of Exhibit B hereto with the blanks appropriately
filled in conformity herewith.
2.2 Warrants. The Company agrees to sell to each Purchaser, on the
Closing Date, Warrants to purchase the percentage of the Company's Fully-Diluted
Common Stock set forth opposite such Purchaser's name on Exhibit A hereto. The
Warrants issued pursuant hereto in connection with the Notes shall be
exercisable for an aggregate of not less than thirteen and four-tenths percent
(13.4%) of the Company's Fully-Diluted Common Stock, subject to the adjustments
described in the Warrant Agreement, which shall be in the form of Exhibit C
hereto. Each Warrant shall be substantially in the form of Exhibit A to the
Warrant Agreement, with the blanks appropriately filled in conformity herewith,
and shall be dated the Closing Date.
2.3 Payment of Purchase Price. The purchase price for the Notes and
Warrants shall be payable on the Closing Date in cash by wire transfer of
immediately available funds pursuant to the Company's written instructions.
2.4 Tax Reporting. The Company and the Purchasers, having adverse
interests and as a result of arms-length bargaining, agree that (i) neither the
Purchasers nor any of their officers, directors, representatives, partners,
members or employees has rendered or has agreed to render any services to the
Company in connection with this Agreement or the issuance of the Notes and
Warrants; (ii) the Warrants are not being issued as compensation; and (iii) for
the purposes and within the meaning of Section 1273(c)(2) of the Code the issue
price of the Notes is $7,500,000 and the issue price of the Warrants is $134.00.
The Company and the Purchasers recognize that this Agreement determines the
original issue discount to be taken into account by the Company and the
Purchasers for federal income tax purposes on the Notes and they agree to use
reasonable efforts to adhere to this Agreement for such purposes. For federal,
state and local tax purposes, the Company and the Purchasers agree to take
reporting and other positions with respect to the Notes and Warrants which are
consistent with the purchase price of the Notes and Warrants set forth herein
and to use their reasonable efforts to ensure compliance with this Section.
2.5 Intentionally omitted.
2.6 Manner of Payment. All payments and prepayments of principal of,
premium, if any, and interest on the Notes, and any other fees or payments due
hereunder, shall be made without setoff or counterclaim to the applicable
Purchasers by wire transfer or other transfer or delivery of funds, in
accordance with each Purchaser's instructions from time to time, so that such
funds are received by and available to the Purchasers on or before the due date
of each such payment. Any principal, interest or other amount payable hereunder
that becomes due on a day that is not a Business Day shall be payable on the
next succeeding
Business Day and such extension shall be included in computing interest and fees
in connection with such payment.
SECTION 3. TERMS OF THE NOTES AND USE OF PROCEEDS.
3.1 Terms of the Notes.
(a) Optional Prepayments. The Company shall have the right at any time
and from time to time, upon at least three (3) Business Days' prior written
notice to the holders of the Notes, to prepay the Notes in whole or in part, in
an amount specified in such notice, by payment of the principal amount of the
Notes (or portion thereof) to be prepaid, together with accrued interest thereon
to the date of such prepayment and all Principal Increases (attributable to the
portion of the Notes being prepaid) incurred to the date of the prepayment, plus
(i) any amounts payable pursuant to Section 3.1(h), and (ii) a premium equal to
the applicable percentage of the principal amount to be prepaid, determined as
follows:
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If Prepaid During 12 Month Period Ending On: Applicable Percentage
----------------------------------------------------------------------------
the first anniversary of the Closing Date 7%
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the second anniversary of the Closing Date 6%
----------------------------------------------------------------------------
the third anniversary of the Closing Date 5%
----------------------------------------------------------------------------
the fourth anniversary of the Closing Date 3%
----------------------------------------------------------------------------
Thereafter 0%
----------------------------------------------------------------------------
Any optional partial prepayment of the Notes shall be in the aggregate principal
amount of not less than $250,000, or any greater amount which is a multiple of
$50,000. Partial prepayments of the Notes made as provided in this Section
3.1(a) shall, to the extent thereof, be applied as set forth in Section 3.1(f).
Notwithstanding the provisions hereof, in the event that the Company elects to
make a prepayment within three (3) Business Days of the sale of all or any
substantial portion of the assets or stock of the Company's Western Schools or
AHI businesses, then the aggregate amount of the premium to be applied to the
portion of one or more such prepayments in an amount equal to the net proceeds
from such sale or sales shall be limited to an aggregate of One Hundred and
Fifty Thousand Dollars ($150,000), less the amount of any premium previously
paid on account of a prepayment made pursuant to Section 3.1(b)(ii).
(b) Mandatory Prepayments.
(i) Unless consented to by Purchasers holding a majority or more
of the then outstanding principal amount of the Notes, if there shall occur
a Change of Control of the Company or any of its Subsidiaries (other than a
transaction described in (ii) which is not a Change of Control of the
Company), then the Company shall, upon the occurrence of such Change of
Control, be required to prepay the Notes in full, together with accrued
interest thereon to the date of such prepayment (including the amount of all
Principal Increases), together with the applicable premium set forth in the
table in Section 3.1(a).
(ii) Unless consented to by Purchasers holding a majority or more
of the then outstanding principal amount of the Notes, if there shall occur
a sale of 25% or more of the aggregate assets of the Company and its
Subsidiaries, or a merger, consolidation or other transaction which
effectively accomplishes such a sale but is not a Change of Control of the
Company within (i) above, then the Company shall, on the closing date of
such transaction, prepay the Notes in full, together with accrued interest
thereon to the date of such prepayment (including the amount of all
Principal Increases), together with the applicable premium set forth in the
table in Section 3.1(a); provided, however, that any such premium for the
events described in this subsection (ii) shall not exceed, in the aggregate,
One Hundred and Fifty Thousand Dollars ($150,000), less any premiums paid
pursuant to the last sentence of Section 3.1(a) above; and provided further
that this subsection (ii) shall not apply to (A) a transaction involving any
Subsidiary which does not conduct a material amount of business or own a
material amount of assets, (B) a transaction involving the sale of all or
any substantial portion of the assets or stock of the Company's Western
Schools or AHI businesses, provided that such sale is an arm's length, good
faith transaction with an unaffiliated third party or (C) a merger of a
Subsidiary with the Company or with a Subsidiary which is wholly owned by
the Company or any of its Subsidiaries.
(iii) Within 90 days after the end of each fiscal year, commencing
with the fiscal year ending December 31, 2001, the Company shall prepay the
Notes in an amount equal to the greater of (a) one-half of 25% of the
Consolidated Excess Cash Flow for each such fiscal year, or (b) 25% of such
Excess Cash Flow less such amount as may be required to be paid to the
Senior Lender under Section 4.1(d) of the Senior Loan Agreement (as such
Section is in effect on the date hereof); provided, however, that no premium
shall be payable in connection with prepayments made pursuant to this
subsection (iii).
(c) Interest. (i) Subject to Section 3.1(d) below, interest on the
Notes shall accrue quarterly at the rate of 14% per annum. The Company shall pay
accrued interest quarterly on the last day of March, June, September and
December of each year or, if any such date shall not be a Business Day, on the
next succeeding Business Day to occur after such date (each date upon which
interest shall be so payable, an "Interest Payment Date"), beginning on
September 30, 2001. Interest on the Notes shall be paid as follows: with respect
to each Interest Payment Date, (I) not less than the Applicable Cash Percentage
(as defined below) of the interest payment due and payable on such Interest
Payment Date shall be paid by wire transfer of immediately available funds to an
account designated by each holder of Notes, and (II) the outstanding principal
amount of each Note shall be increased pro rata based on the principal amount of
each outstanding Note on such Interest Payment Date by an amount (the "Principal
Increase") equal to the remaining balance of such interest payment due on such
Interest Payment Date. Interest on the Notes shall accrue quarterly from the
date of issuance until repayment of the principal and payment of all accrued
interest in full. Interest shall be computed on the basis of a 360-day year of
twelve 30-day months.
(ii) The "Applicable Cash Percentage" shall be equal to 89.2857%.
(iii) On any Interest Payment Date the Company may, at its option, pay
in cash more than the Applicable Cash Percentage of the interest payment due and
payable on such Interest Payment Date.
(iv) Notwithstanding anything to the contrary contained in subparagraph
(i) above, if the Notes shall remain outstanding after June 30, 2006 and the
aggregate amount of accrued and unpaid interest on the Notes on any Interest
Payment Date occurring after the fifth anniversary of the date of issuance
thereof shall exceed an amount equal to the first twelve months' yield accrued
after issuance thereof (where the "first twelve months' yield" on Notes equals
the product of such Notes' issue price (as defined in Code Sections 1273(b) and
1274(a)) and their yield to maturity) (the "Maximum Accrual"), all accrued and
unpaid interest on Notes in excess of an amount equal to the Maximum Accrual
shall be paid by the Company to the holders of Notes on each such Interest
Payment Date occurring after the fifth anniversary of the date of issuance
thereof. Any accrued interest which for any reason has not theretofore been paid
shall be paid in full on the date on which the final principal payment on a Note
is made.
(d) Default Rate of Interest. From and after the time that any
principal of or interest on the Notes is not paid when due or there exists any
other Default or Event of Default, the Notes shall bear interest at the rate of
18% per annum, accrued quarterly, until the Interest Payment Date next
following, as applicable, either the date on which such overdue principal or
interest is paid in full or the date on which such other Default or Event of
Default is cured.
(e) Maximum Legal Rate of Interest. Nothing in this Agreement or in the
Notes shall require the Company to pay interest at a rate in excess of the
maximum rate permitted by applicable law and the interest rate otherwise
applicable to the Notes (including any default rate of interest) shall be
reduced, if necessary, to conform to such maximum rate.
(f) Application of Payments. Subject to Section 3.1(c)(iii) above, all
cash payments received in respect of the Notes shall be applied (to the extent
thereof) as follows: (i) first, to all costs and expenses of the Purchasers that
are payable by the Company hereunder, (ii) second, to accrued and unpaid
interest on the Notes, (iii) third, to any prepayment premium due as a result of
such payment, and (iv) fourth, to the payment of the then outstanding principal
balance of the Notes; provided that the portion of cash payments that represents
prepayments of principal shall be applied to the installments of principal
remaining due under the Notes in inverse order of such installments' scheduled
maturity, as described in the first paragraph of the Note attached hereto as
Exhibit B. For purposes of this Section, all Principal Increases shall be deemed
due and payable on the date that the final installment of principal is due and
payable. Unless otherwise agreed among the holders of the Notes, and evidenced
in writing to the Company prior to the payment date, all payments applied
pursuant to clauses (i), (ii), (iii) or (iv) above shall be applied among the
Notes pro rata based on the principal amount of the Notes outstanding and held
by each holder thereof.
(g) Agreements Between Note Holders and Subordination Agreements. The
Company agrees to acknowledge and abide by the terms and conditions of any
allocation,
participation, sharing or subordination agreements now or hereafter entered into
between and among the holders of the Notes, or between the holders of the Notes
and any other creditor of the Company, and shall join in any such agreements at
the request of the holders of the Notes.
(h) Indemnity for Interrupted Funding. If the Company shall voluntarily
prepay the Notes pursuant to Section 3.1(a), the Company shall reimburse each
Purchaser for out-of-pocket expenses incurred by each Purchaser as a result of
such prepayment (including, without limitation, reasonable legal and accounting
expenses). Such expenses (which the Purchasers shall endeavor to minimize) shall
be specified in a written notice or certificate delivered to the Company by the
Purchasers and shall in any event not exceed $10,000 in the aggregate for all
the Purchasers on account of each event of prepayment.
3.2 Use of Proceeds. The Company will use the proceeds of the sale of
the Notes and Warrants solely in accordance with the statement of sources and
uses previously provided to the Purchasers and attached hereto as Schedule 5.12
[FINAL SCHEDULE TO MATCH LOI SCHEDULE].
SECTION 4. REPRESENTATIONS AND WARRANTIES.
In order to induce the Purchasers to enter into this Agreement and to
purchase the Notes and Warrants, the Company hereby represents and warrants to
the Purchasers that the representations and warranties set forth below shall be
true and correct as of the date hereof and effective on the Closing Date after
giving effect to the Transactions, including the consummation of the Merger and
the issuance and sale of the Notes and Warrants, and to the Company's best
knowledge (after due inquiry of the Company's Senior Management and advisors)
that the Company is not aware of any event which is scheduled to occur, or
reasonably foreseeable and likely to occur, which will render any representation
or warranty below to be untrue at any time after the Closing Date.
4.1 Corporate Existence; Capitalization.
(a) Each of the Corporations (i) is duly incorporated and in good
standing under the laws of its jurisdiction of incorporation, and (ii) is duly
qualified and in good standing as a foreign corporation under the laws of all
states where the nature and extent of the business to be transacted by it or
assets to be owned by it makes such qualification necessary, except those states
in which the failure to qualify or be in good standing is not reasonably likely
to have a Material Adverse Effect.
(b) Except as set forth on Schedule 4.1(b), on the Closing Date,
immediately after applying the proceeds of the issuance and sale of the Notes
and Warrants to pay the Merger Consideration, there will be no further amounts
owed to any holder of the Company's Capital Stock under any agreement or
obligation whatsoever, except for amounts that may be owed to stockholders of
SCC pursuant to appraisal rights exercised by stockholders of SCC and relating
to an amount of SCC common stock not exceeding five percent (5%) of total issued
and outstanding shares of SCC common stock as of the date hereof.
(c) Except as set forth on Schedule 4.1(c), on the Closing Date,
immediately after giving effect to the Transactions, including the issuance and
sale of the Notes and Warrants and the retirement or reduction of certain
Indebtedness of the Company as set forth in paragraph (b) above: (i) the Capital
Stock of the Company (including Common Stock, Warrants, stock options and other
derivative instruments) will consist of [_________] shares of Common Stock, all
of which will have been duly authorized and [_________] of which will be issued
and outstanding and owned of record and beneficially as set forth on Schedule
4.1(c) hereto, (ii) such issued and outstanding shares will be validly issued by
the Company and fully paid, non-assessable and free of preemptive rights (except
as provided in the Stockholders Agreement), and (iii) except as set forth on
Schedule 4.1(c) with respect to options to be issued under the Stock Option Plan
and options issued to GKN Securities Corp., there will be no options, warrants
or other rights to acquire Capital Stock from the Company, or agreements or
other rights binding upon the Company to issue or sell Capital Stock of the
Company, whether on conversion or exchange of convertible securities or
otherwise.
(d) Except as set forth on Schedule 4.1(d), all of the outstanding
Capital Stock of each of the Company's Subsidiaries is owned of record and
beneficially by the Company or Subsidiaries of the Company.
(e) The Company has taken all action required to reserve and keep
available, free from pre-emptive rights, for the purpose of enabling it to
satisfy any obligation to issue shares of Common Stock upon any exercise of the
Warrants, the number of shares of Common Stock issuable upon exercise of all
outstanding Warrants.
(f) Except as set forth on Schedule 4.1(f), there are no agreements or
other instruments of any kind to which the Company or, to the Company's best
knowledge (after due inquiry of the Company's Senior Management and advisors),
any other person, firm or corporation is, or immediately after the Closing will
be, a party, which relate to the voting of the Common Stock or the control of
the Company other than the Stockholders Agreement.
4.2 Authority. The Company has all power and authority necessary to
issue and sell the Notes and Warrants, and each of the Company and its
Subsidiaries has all power and authority necessary to execute, deliver and
perform the Transaction Documents to which it is a party. The Company has taken
all action required to authorize the issuance and sale of the Notes and
Warrants, and each of the Company and its Subsidiaries has taken all action
required to authorize the execution, delivery and performance of the Transaction
Documents to which it is a party.
4.3 Due Execution and Delivery; Binding Effect. Each of the Company and
its Subsidiaries has duly executed and delivered each of the Transaction
Documents to which it is a party. Each of the Transaction Documents is a legal,
valid and binding obligation of the Company or the applicable Subsidiary,
enforceable against the Company or such Subsidiary in accordance with its terms,
except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights
generally.
4.4 Consents; Governmental Approvals. No consent or approval of any
person, firm or corporation, and no consent, license, approval or authorization
of, or registration, filing or declaration with, any Governmental Authority is
required to be obtained or made by or on behalf of any Corporation in connection
with the issuance or sale of the Notes and Warrants or the execution, delivery
or performance of the Transaction Documents or the completion of the
transactions contemplated thereby, except for such consents, approvals,
licenses, authorizations, registrations, filings or declarations (a) as are
listed on Schedule 4.4 hereto, each of which shall have been obtained or made
prior to the Closing or (b) which are not known to the Company or as to which
the failure to obtain or make would not have a Material Adverse Effect.
4.5 Absence of Conflicts. The Company's issuance and sale of the Notes
and Warrants, and each Corporation's execution and delivery of the Transaction
Documents to which it is a party and performance of its obligations thereunder
do not and will not (a) conflict with or violate any provision of its charter
documents or by-laws, (b) conflict with or result in a violation, breach or
default by it under (i) any provision of any existing statute, law, rule or
regulation binding on it or any order, judgment, award, decree, license or
authorization of any court or Governmental Authority binding on it, or (ii) any
mortgage, indenture, lease or other contract, agreement, instrument or
undertaking to which it is a party or will be a party immediately after the
Closing, or by which or to which it or any of its Property or assets is now or
immediately after the Closing will be bound or subject, except as set forth on
Schedule 4.5 hereto or which conflict, violation, breach or default is not known
to the Company or would not have a Material Adverse Effect.
4.6 No Default. No Default or Event of Default has occurred and is
continuing or will have occurred and be continuing at the time of or immediately
after the Closing
4.7 Financial Data. (a) The Company has furnished to the Purchasers (i)
audited consolidated and consolidating financial statements of the Company and
its consolidated Subsidiaries for the fiscal years ended December 31, 1996
through December 30, 2000, certified by the Company's independent certified
public accountants, and (ii) unaudited interim financial statements of the
Company and its consolidated Subsidiaries for the period beginning December 31,
2000 and ending on the last day of the month immediately preceding the Closing
[STATEMENTS MAY BE FROM 2D PRECEDING MONTH IF THE CLOSING IS EARLY IN A CALENDAR
MONTH] (collectively referred to as the "Financial Statements"). All of the
Financial Statements have been prepared in accordance with GAAP, and fairly
present the financial condition of the Company and its consolidated Subsidiaries
at the dates thereof and the results of operations for the periods indicated.
Since the date of the latest audited Financial Statements, there has been no
event or condition which would constitute a Material Adverse Effect. (b)
Consolidated and consolidating projected financial statements for the Company
and its consolidated Subsidiaries for the period beginning on the date of the
latest Financial Statements and ending on December 31, 2005, including projected
balance sheets, projected funds flow statements, projected profit and loss
(collectively, the "Projections"), copies of which have been previously provided
to the Purchasers, are attached hereto as Schedule 4.7(b). The Projections have
been prepared to reasonably reflect the application of GAAP to such periods, and
the current anticipated course of business of the Company and its consolidated
Subsidiaries, in each case as determined in good faith by the Company in light
of the past business of the Company and its consolidated Subsidiaries. The
Company is not aware of any development or event which has occurred since the
date of the preparation of the Projections that would materially affect the
Projections.
(c) The Company has furnished to the Purchasers a consolidated and
consolidating pro forma balance sheet (the "Pro Forma Balance Sheet") reflecting
the financial condition of the Company and its consolidated Subsidiaries as at
the Closing Date or a recent date prior to the Closing Date, on the assumption
that the closing of the Transactions, including the issuance and sale of the
Notes and Warrants occurred on such date. Such balance sheet, a copy of which is
attached hereto as Schedule 4.7(c), was prepared in good faith and in accordance
with GAAP (excluding for this purpose any "push down" accounting that may be
required by GAAP), and fairly presents, on a pro forma basis, the financial
position of the Company and its consolidated Subsidiaries as at the date
thereof, assuming that the Transactions, including the issuance and sale of the
Notes and Warrants, had then been completed. Except as disclosed on Schedule
4.7(c), immediately after the Closing and the application of the proceeds of the
issuance and sale of the Notes and Warrants as contemplated by Section 3.2, the
Company will not have any Indebtedness or other material liabilities, contingent
or otherwise, which are not reflected in the Pro Forma Balance Sheet or the
Financial Statements. In addition:
(i) As of the Closing Date, all notes payable to the Company and
accounts receivable of the Company will be properly reflected on its books
and records and will be valid receivables subject to no setoffs or
counterclaims other than in the ordinary course of business consistent with
prior years, and such notes due and accounts receivable are not due from any
related party or Affiliate of any kind;
(ii) the accounts receivable reflected on the balance sheets
included in the Financial Statements and on the Pro Forma Balance Sheet or
thereafter acquired by the Company through the Closing Date, have been
collected, or are collectible, at the aggregate gross recorded amounts
thereof less the allowances for doubtful accounts reflected therein and such
accounts receivable are not due from any related party or Affiliate of any
kind; the Company has not employed any invoice dating procedures or other
special credit or delivery terms with any customer; and the Company has
administered its accounts receivable in the ordinary course in accordance
with past practice.
(iii) the inventories reflected on the balance sheets included in
the Financial Statements and on the Pro Forma Balance Sheet, or thereafter
acquired by the Company through the Closing Date, are in all material
respects of a quality and quantity usable or saleable in the normal course
of the business of the Company at values at least equal to the values at
which such items are carried on the Company's books subject to any reserves
disclosed in such balance sheet, and have not been acquired from any related
party or Affiliate of any kind. The values at which such inventories are
carried on the Financial Statements reflect the normal inventory valuation
policy of the Company, stating inventories at the lower of cost (on a
first-in-first-out basis) or
market; and such inventories are saleable at gross margins consistent with
historical results;
(iv) the Company has not delayed or postponed the payment of
accounts payable and other liabilities and in any event any such delay or
postponement does not now create, and is not reasonably likely to create,
any penalty, cost, reversal of pricing discounts, loss of beneficial supply
or similar rights, or any default with any other party which is not already
reflected or contemplated in the Financial Statements, the Pro Forma Balance
Sheet and the Projections, other than reasonable and customary late payment
charges or which are otherwise set forth on Schedule 4.7 (c)(iv) hereto; and
(v) the Company's working capital is at a level consistent with
the Company's customary practices, and there are no material past due
liabilities or obligations of the Company or its Subsidiaries.
4.8 Title to Property and Assets; Condition. Except as set forth on
Schedule 4.8, each Corporation has, and on the Closing Date will have, good and
marketable title to all Property owned by it, including all Property reflected
in the Pro Forma Balance Sheet, except as disposed of after the date thereof in
the ordinary course of business, subject in each case to no Lien other than
Permitted Liens. Except for Permitted Liens, there are no encumbrances on the
use, ownership or sale of such Property, and all such Property is sufficient and
maintained in appropriate condition to conduct business and operations in a
manner consistent with such Corporation's past practice and with achieving the
Projections.
4.9 Solvency. Immediately after giving effect to the Purchaser
Transactions (including the application of the proceeds of the issuance and sale
of the Notes and Warrants as contemplated hereby), each of the Company and its
Subsidiaries will be solvent, will be able to pay its debts as they become due,
will have capital sufficient to carry on its business and will own Property
having a value both at fair valuation and at present fair saleable value
(determined on a going concern basis) greater than the amount required to pay
its Indebtedness as it becomes due. None of the Company or any Subsidiary has
incurred obligations or made any transfer with actual intent to hinder, delay or
defraud present or future creditors (or as a result of the Purchaser
Transactions will incur any such obligation or make any such transfer). Upon
execution and delivery by it of a Subsidiary Guaranty or, at the discretion of
the Purchasers, an assignment and assumption agreement whereby a Subsidiary
becomes a co-maker of each of the Notes., no Subsidiary will have incurred
Indebtedness beyond its ability to pay the same when it matures or will be left
with unreasonably small capital, in each case after disregarding Indebtedness
consisting of its Subsidiary Guaranty or its obligations under the Notes, as
applicable.
4.10 Tax Liabilities. Except as set forth on Schedule 4.10, each of the
Company and each of its Subsidiaries has timely filed or caused to be timely
filed with the appropriate taxing authority all federal and state income tax
returns and all other material tax returns, domestic and foreign (the "Returns")
required to be filed by it or with respect to the income, properties or
operations of the Company and/or any of its Subsidiaries. Except as set forth on
Schedule 4.10, the Returns accurately reflect in all material respect all
liability for
taxes of the Company and its Subsidiaries taken as a whole for the periods
covered thereby. Except as set forth on Schedule 4.10, each of the Company and
each of its Subsidiaries has paid all material taxes and assessments payable by
it which have become due (including, without limitation, all estimated tax
payments and all employment taxes). As of the Closing Date and except as set
forth on Schedule 4.10, there is no action, suit, proceeding, investigation,
audit or claim now pending or threatened by any authority regarding any taxes
relating to the Company or any of its Subsidiaries, which, either individually
or in the aggregate, could reasonably be expected to have a Material Adverse
Effect or to result in a material liability to the Company or any of its
Subsidiaries. As of the Closing Date and except as set forth on Schedule 4.10,
neither the Company nor any of its Subsidiaries has entered into an agreement or
waiver or been requested to enter into an agreement or waiver extending any
statute of limitations relating to the payment or collection of taxes of the
Company or any of its Subsidiaries, nor will any of them incur any material
amount of tax liability in connection with the Transactions (it being understood
that the representation contained in this sentence does not cover any future tax
liabilities of the Company or any of its Subsidiaries arising as a result of the
operation of their businesses in the ordinary course of business).
4.11 Margin Securities. The Company does not own any margin securities,
and no portion of the proceeds of the sale of the Notes and Warrants will be
used for the purpose of purchasing or carrying any margin securities or for the
purpose of reducing or retiring any Indebtedness which was originally incurred
to purchase any margin securities or for any other purpose not permitted by
Regulation U of the Board of Governors of the Federal Reserve System.
4.12 Subsidiaries; Joint Ventures. On the Closing Date after giving
effect to the issuance and sale of the Notes and Warrants, the Company will not
(a) have any Subsidiaries other than as set forth on Schedule 4.12, or (b) be
engaged in any joint venture or partnership with, or have any equity investment
in, any other Person (other than the Company's equity investment in its
Subsidiaries listed on Schedule 4.12).
4.13 Litigation and Proceedings. Except as disclosed on Schedule 4.13,
no judgments involving amounts in excess of $100,000 in the aggregate or
injunctions are outstanding against any of the Corporations, nor is there now
pending or threatened, any litigation, contested claim, or proceeding by or
against any of the Corporations (a) requesting injunctive relief by or against
such Corporation, (b) involving an amount in controversy in excess of $100,000,
or (c) questioning the validity or the enforceability of, or otherwise seeking
to restrain the performance of, any of the Transaction Documents or any actions
taken or to be taken thereunder.
4.14 Defaults; Adverse Changes. None of the Corporations is, or
immediately after the Closing will be, in default under or in violation of (a)
its charter document, as amended, or by-laws, as amended, or (b) any agreement
or instrument to which such Corporation is a party or will be a party
immediately after the Closing, (ii) any statute, rule, writ, injunction,
judgment, decree, order or regulation of any Governmental Authority having
jurisdiction over it, (iii) any license, permit, certification or approval
requirement of any customer, supplier or other person (other than a Governmental
Authority), or (iv) any license,
permit, certification or approval requirement of any Governmental Authority,
except that this subsection (b) shall not apply to any item described on
Schedule 4.14 hereto, or which is not known to the Company (after due inquiry of
the Company's Senior Management and advisors) and which is a violation of or
default which would not have a Material Adverse Effect. To the Company's best
knowledge (after due inquiry of the Company's Senior Management and advisors),
no Material Adverse Effect could reasonably be expected to occur as a result of
any pending legislative or regulatory change or any revocation of any license or
right to do business or any casualty, labor trouble, condemnation, requisition
or embargo.
4.15 Insurance. Attached hereto as Schedule 4.15 is a list and
description of all insurance policies (including expiration dates) owned or
maintained by each Corporation. Each Corporation maintains insurance in amounts
and on terms reasonably adequate in relation to the nature of such Corporation's
business and assets (and covering such risks as are customarily insured against
by Persons of established reputation engaged in the same or a similar business
and similarly situated), under policies believed by the Company to be valid and
enforceable and issued by the insurers set forth on Schedule 4.15. None of the
Corporations is in default of any obligation under any such policy. To the
extent any insurance policy has a cash surrender, rebate or similar value, there
is no restriction, Lien or other encumbrance affecting the Corporation's receipt
or claim of such value, and no obligation or agreement to pay, directly or
indirectly, such value to any other party. Each insurance company issuing a
policy listed on Schedule 4.15 has an A.M. Best rating of not less than A.
4.16 Patents, Trademarks, Licenses, etc. Attached hereto as Schedule
4.16 is a list of all (i) patents, patent applications, registered and material
unregistered trademarks, service marks, trade names, brands and material
copyrights (collectively, "Intellectual Property") owned by each Corporation,
(ii) licenses pursuant to which each Corporation uses any Intellectual Property
and (iii) licenses pursuant to which each Corporation licenses its Intellectual
Property to others (the licenses referred to in subsections (ii) and (iii) are
referred to herein as the "Licenses"). Except as disclosed on Schedule 4.16
hereto, the applicable Corporation owns the entire unencumbered right, title and
interest in and to all such Intellectual Property and Licenses, and such
Intellectual Property and Licenses constitute all of the patents, patent
applications, trademarks, service marks, trade names, brands, copyrights,
licenses and other intellectual property rights, both domestic and foreign,
necessary for the conduct of its business as now conducted, without any known
conflict with the rights of others which, if determined adversely to such
Corporation, would result in a Material Adverse Effect. Except as disclosed on
Schedule 4.16, no stockholder, officer, director or any other Affiliate owns or
possesses any rights in any of the Intellectual Property or Licenses.
4.17 Environmental Matters. Except as disclosed on Schedule 4.17, and
except for items not known to the Company and which in the aggregate do not have
a Material Adverse Effect:
(a) none of the Corporations has Managed Hazardous Materials on or off
its property other than in compliance in all respects with Environmental
Laws;
(b) each of the Corporations has complied in all respects with all
applicable Environmental Laws;
(c) none of the Corporations has any contingent liability with respect
to the Management of any Hazardous Material; and
(d) none of the Corporations has received any Environmental Notice, and
the Company is not aware of any occurrence or state of facts which could
reasonably be expected to result in any such Environmental Notice.
4.18 Investment Bankers' Fees. The Company is not in any way obligated
to any Person in respect of any finder's or broker's fee or similar commission
in connection with the closing of the issuance and sale of the Notes and
Warrants or any part of the Transaction, other than as may be set forth on
Schedule 4.18 hereof. The Company agrees to indemnify the Purchasers and hold
the Purchasers harmless from any claims for any such fees or commissions from
any Persons.
4.19 Investment Company Act. None of the Corporations is an "investment
company" or a company "controlled" by an "investment company", within the
meaning of the Investment Company Act of 1940, as amended. None of the
Corporations is subject to regulation under any federal or state statute or
regulation which limits its ability to incur Indebtedness.
4.20 Disclosure. Except as corrected in writing prior to the date
hereof, all information presented in the Company's most recent Form 10K, 10Q,
8K, Schedule 13E-3 and the proxy statement used in connection with the Merger
(as the same have been filed with the Securities and Exchange Commission), and
all written information, certificates and other documents attached hereto or
otherwise delivered at the Closing and all statements made herein or therein,
are true and accurate in all material respects and do not omit any material fact
necessary to make the statements therein not misleading. There is no fact of
which the Company is aware that has not been disclosed to the Purchasers and
which would, or could reasonably be expected to, indicate the existence of a
Material Adverse Effect.
4.21 Pension Plans. Except as disclosed on Schedule 4.21, none of the
Corporations has any Plan on the date hereof. Each of the Corporations is in
compliance in all material respects with requirements of ERISA and the
regulations promulgated thereunder with respect to each Plan. No fact or
situation that could reasonably be expected to result in a Material Adverse
Effect exists in connection with any Plan. None of the Corporations has been
assessed any withdrawal liability in connection with a Multiemployer Plan.
4.22 Compensation and Benefits. The Company has delivered to the
Purchasers copies of all employment, management, consulting, retirement benefit
and compensation contracts and commitments now in effect with any employee,
officer, director or shareholder (or any Affiliate thereof) of any of the
Corporations, or with any other Person and each of such agreements or plans
(other than those with employees in which the agreement provides for annual
compensation of less than $100,000) is set forth on Schedule 4.22.
4.23 SCC Merger Documents. The representations and warranties of the
parties to the SCC Merger Documents (other than the Purchasers and their
Affiliates) were true and correct in all material respects as of the dates made.
4.24 Labor Relations. Neither the Company nor any of its Subsidiaries
is engaged in any unfair labor practice that could reasonably be expected,
either individually or in the aggregate, to have a Material Adverse Effect.
There is (a) no unfair labor practice complaint pending against the Company or
any of its Subsidiaries or threatened against any of them, before the National
Labor Relations Board, and no grievance or arbitration proceeding arising out of
or under any collective bargaining agreement is so pending against the Company
or any of its Subsidiaries or threatened against any of them, (b) no strike,
labor dispute, slowdown or stoppage pending against the Company or any of its
Subsidiaries, (c) no union representation question exists with respect to the
employees of the Company or any of its Subsidiaries, except (with respect to any
matter specified in clause (a), (b) or (c) above, either individually or in the
aggregate) such as could not reasonably be expected to have a Material Adverse
Effect, and (d) no notice, claim, formal or informal investigation or proceeding
or other matter existing or threatened under the Occupational Health and Safety
Act, or similar state statutes or regulations, regarding any matter of safety,
working conditions, worker eligibility or similar matter, and Schedule 4.24
describes any of such matters which have occurred or been threatened since
January 1, 1998, whether or not such matter was thereafter resolved or settled.
No senior executive of the Company or any of its Subsidiaries has indicated any
intention of terminating his or her employment, and none of such persons has
filed any claim for severance, change of control payments or similar
compensation as a result of the consummation of the Transactions, except as may
be set forth in Schedule 4.24 hereof.
4.25 Trade and Consumer Relations and Practices. There exists no actual
or, to the Company's best knowledge (after due inquiry of the Company's Senior
Management and advisors), threatened, termination, cancellation or limitation
of, or any adverse modification or change in, the business relationships of the
Company or any of its Subsidiaries or their respective businesses with any
customer or any group of customers whose purchases are individually or in the
aggregate material to the business of the Company and its Subsidiaries taken as
a whole, or with any material supplier, and there exists no present condition or
state of facts or circumstances that would have a Material Adverse Effect or
prevent the Company or any of its Subsidiaries from conducting its business
after the consummation of the Transactions, in substantially the same manner in
which such business has heretofore been conducted. There is no notice, claim,
formal or informal investigation or similar proceeding or other matter existing
or, to the Company's best knowledge (after due inquiry of the Company's Senior
Management and advisors), threatened by the Federal Trade Commission, or any
other federal or state agency or authority regarding any of the Corporation's
sales practices, advertisements or conduct of any kind regarding consumers or
customers, or which regards competition or relationship with competitors or any
other matter, and Schedule 4.25 describes any of such matters which have
occurred or been threatened since January 1, 1998, whether or not such matter
was thereafter resolved or settled.
4.26 Other Agreements. Except for the Transaction Documents or as set
forth on Schedule 4.26 attached hereto, none of the Company or any of its
Subsidiaries is a party to or otherwise bound or affected by any written or
oral:
(a) agreement, contract or commitment with any present or former
shareholder, director, officer, or with any other Affiliate;
(b) agreement, contract or commitment for the purchase of, or
payment for, supplies or products, or for the performance of services
by a third party, involving in any one case $50,000 or more, other than
purchase orders issued to vendors in the ordinary course of business
involving $500,000 or less;
(c) agreement, contract or commitment to sell or supply products
or to perform services, involving in any one case $50,000 or more,
other than purchase orders received from customers in the ordinary
course of business involving $1,000,000 or less;
(d) note, debenture, bond, conditional sale agreement, equipment
trust agreement, letter of credit agreement, loan agreement or other
agreement or contract, commitment or arrangement for the borrowing or
lending of money in an amount in excess of $50,000 (including without
limitation loans to or from officers, directors, any stockholder or any
member of any of their immediate families, but excluding the extension
of trade credit in the ordinary course of business consistent with past
practices and travel allowances made in the ordinary course of
business), agreement, contract, commitment or arrangement for a line of
credit or guarantee, pledge or undertaking in any manner whatsoever of
the Indebtedness of any other Person;
(e) agreement, contract or commitment for any capital expenditure
in excess of $50,000; or
(f) agreement, contract or commitment limiting or restraining it
from engaging or competing in any lines of business with any Person,
nor is any director, officer or employee of the Company or any of its
Subsidiaries subject to any such agreement except where such limitation
runs to the benefit of the Company or one of its Subsidiaries.
Except as set forth on Schedule 4.26, the Company and each of its Subsidiaries
and, to the best knowledge of the Company (after due inquiry of the Company's
Senior Management and advisors), each other party thereto have in all material
respects performed all the obligations required to be performed by them to date
under, have received no notice of default under and are not in default under any
lease, agreement or contract now in effect to which any of the Company or any of
its Subsidiaries is a party or by which any of the Company or any of its
Subsidiaries or its respective property may be bound, except where the same
would not have a Material Adverse Effect. None of the Company or any of its
Subsidiaries has any present expectation or intention of not fully performing
all its obligations under each such lease,
contract or other agreement, and the Company has no knowledge of any breach or
anticipated breach by any other party to any contract or commitment to which any
of the Company or any of its Subsidiaries is a party, except where the same
would not have a Material Adverse Effect.
SECTION 5. CONDITIONS PRECEDENT.
The obligation of each Purchaser to purchase Notes and Warrants shall
be subject to the satisfaction, and continuing existence, of each of the
following conditions precedent on to the Closing Date:
5.1 Excess Cash or Senior Credit Availability. On the Closing Date, and
after allowing for the payment of the Merger Consideration, the Corporations
shall have, on a consolidated basis, $2,000,000 of "excess cash or senior debt
availability", which for this purpose shall mean the sum of (a) the
Corporations' collected and available cash balances, plus (b) unused but
available credit under the revolving line of credit described in the Senior Loan
Agreement, minus (i) any accrued or incurred but unpaid costs related to the
Transactions, minus (ii) an amount equal to the product obtained by multiplying
$3.75 by the number of shares of SAC's or SCC's Capital Stock which are subject
to valid appraisal demands, minus (iii) any past due trade payables or other
liabilities, minus (iv) any other cash or cash equivalents the use of which by
the Corporations is restricted by contract, lien, agreement, escrow arrangements
or similar restrictions and minus (v) any checks or drafts issued by the
Corporations that are outstanding on the Closing Date. At the Closing, the
Company shall deliver to the Purchasers as Schedule 5.1 a written calculation of
excess cash or availability, with a description of the elements thereof.
5.2 Purchaser Documents. The Company shall have issued and delivered
the Notes and Warrants to the Purchasers; and each Purchaser shall have received
a counterpart of this Agreement and of each of the other Purchaser Documents,
duly executed by each party thereto.
5.3 Legal Opinions. The Purchasers shall have received the executed
legal opinion of Xxxx Xxxxxxx, P.C. or other counsel to the Company, dated the
Closing Date, in form and substance satisfactory to the Purchasers and their
counsel and covering such matters incident to the Purchaser Transactions and the
other Transactions as the Purchasers may reasonably require, including without
limitation the matters referred to in Sections 4.1-4.6, 4.13, 4.14 and 4.19
hereof, and the Purchasers shall have received all opinions of counsel to other
parties in respect of any aspect or consequence of the Purchaser Transactions
and the other Transactions as the Purchasers may reasonably request.
5.4 Other Documents. The Purchasers shall have received all closing
certificates, corporate documents, evidence of authorization, forms and
information required by the U.S. Small Business Administration, and other
agreements, instruments and documents in respect of any aspect or consequence of
the Purchaser Transactions as the Purchasers may reasonably request in writing,
including without limitation all documents listed on the List of Closing
Documents provided by the Purchasers to the Company on or prior to the Closing
Date, all of which shall be in form and substance reasonably satisfactory to the
Purchasers.
5.5 Representations and Warranties; No Default or Event of Default. The
representations and warranties made by each of the Company and each Subsidiary
in the Purchaser Documents to which it is a party shall be true and correct in
all respects as is required by Section 4 hereof as of the Closing Date, with the
same force and effect as though made again on such date at the time of, and
giving effect to, the issuance and sale of the Notes and Warrants. At the time
of, and giving effect to, the issuance and sale of the Notes and Warrants and
the consummation of the other Purchaser Transactions on the Closing Date, no
Default or Event of Default shall have occurred and be continuing.
5.6 Purchaser Transactions; Other Transactions.
(a) All consents necessary to the consummation of the Purchaser
Transactions shall have been obtained, and all conditions precedent to the
consummation of the Purchaser Transactions shall have been or shall be satisfied
or waived prior to or concurrently with the issuance and sale of the Notes and
Warrants. All Purchaser Transactions shall have been or shall be consummated
pursuant to the terms of the applicable Purchaser Documents prior to or
concurrently with the issuance and sale of the Notes and Warrants, and in
compliance with all applicable laws.
(b) True, correct and complete execution copies of all Transaction
Documents shall have been delivered to the Purchasers and their counsel, who
shall be satisfied with the form and substance thereof. The Purchasers shall be
satisfied with the terms of the subordination of the Notes and the liens and
rights granted to the Senior Lender pursuant to the Senior Debt and the Senior
Subordination Agreement and with the Purchasers' rights to enforce and exercise
Liens granted to Purchasers.
5.7 Funding Fee; Transaction Expenses. The Purchasers or their
designees shall have received their pro rata shares of (i) a funding fee of
$150,000, less any amounts paid by the Company as a commitment fee prior to
Closing, and (ii) Costs and Expenses incurred in connection with the
Transaction.
5.8 SCC Merger. The Purchasers shall be satisfied with the terms of the
SCC Merger Documents and with the legal structure and capitalization of the
Company and its Subsidiaries, and all documentation relating thereto; and
evidence of the equity ownership of each Corporation shall have been delivered
to the Purchasers and shall be satisfactory in form and substance to them. All
parties described in the SCC Merger Documents and related proxy statement as
intending to, or having the right to, exchange common stock interests of SCC for
interests in the Company in the Merger shall have consummated such exchange to
the fullest extent described therein or shall have waived such right in writing,
and the capitalization of SAC shall otherwise be completed as therein described
and contemplated.
5.9 Additional Matters. All corporate and other proceedings, and all
documents, instruments and other legal matters in connection with the Purchaser
Transactions shall be satisfactory in form and substance to the Purchasers, in
their discretion; the Purchasers and their counsel shall be satisfied that each
of the Company and its Subsidiaries is in
compliance with, or upon completion of the Transactions shall comply with, all
matters described in Section 4 and Section 5 of this Agreement, and the
Purchasers shall have received information, documentation and certifications
regarding any matter or question that may affect, or be related to, such
compliance, satisfactory to the Purchasers in their discretion.
5.10 Due Diligence; No Adverse Change or Events. The Purchasers shall
have completed their due diligence investigations of the Corporations and the
results thereof shall be satisfactory to the Purchasers in their discretion; and
there shall not exist in the Purchasers' judgment (i) any event or condition
that has had or would have a Material Adverse Effect, or (ii) any law or
regulation which, in the opinion of the Purchasers' counsel, prevents or
prohibits any Purchaser from funding its purchase of the Notes and Warrants or
maintaining its investment therein, or which would materially adversely affect
the economic benefits expected to be realized by the Purchasers in the
Transactions.
5.11 Minimum EBITDA. The Company shall have minimum EBITDA for the
twelve-month period ending on the date of the latest Financial Statements, of
not less than $5,810,000 (as adjusted, subject to documentation satisfactory to
the Purchasers, solely for up to $115,000 of non-recurring relocation and
recruitment costs associated with the employment of Xxxxxx Xxxxxxxxx but solely
to the extent that such costs were accounted for as an expense in the Financial
Statements during such twelve-month period). The chief financial officer of the
Company shall provide a certificate to the Purchasers at Closing, certifying (a)
as to the Company's EBITDA for the twelve-month period ending on the date of the
latest Financial Statements, (b) that such EBITDA was determined in accordance
with GAAP, and (c) that such officer reasonably believes that the Company's
EBITDA as of the end of the month during which the Closing occurs will not be
less than the minimum described in the first sentence of this Section.
5.12 Compliance With Sources and Uses. The Company shall have provided
the Purchasers with a statement of the sources and uses of funds in connection
with the transactions occurring pursuant to the Transaction Documents on the
Closing Date, which statement shall conform to that set forth on Schedule 5.12
hereto. Any variance from the sources and uses set forth in Schedule 5.12 shall
require the consent of the Purchasers, and the Company shall provide
documentation satisfactory to the Purchasers that the items listed on such
statement are true and accurate in all material respects. Any non-compliance
with or variance from the statement of sources and uses consented to by the
Purchasers shall be described on an attachment to Schedule 5.12.
5.13 Closing Certificates. On or prior to the Closing Date, the
Purchasers shall have received:
(i) a solvency certificate from the chief financial officer of the
Company certifying that: (a) the Corporations do not and will not have,
immediately following the closing of the Transactions, unreasonably small
capital to carry out their respective businesses as now conducted or as
proposed to be conducted; and (b) the Corporations do not intend to, and do
not believe that they will, incur Indebtedness beyond their ability to pay
such Indebtedness as it matures;
(ii) certificates of insurance complying with the requirements of
Section 6.5 for the business and properties of the Corporations, in form and
substance reasonably satisfactory to the Purchasers; and
(iii) a certificate of the chief executive officer of the Company
certifying that (a) all of the representations and warranties of the
Corporations set forth in the Transaction Documents are true, complete and
accurate in all respects as of the Closing Date, and (b) as of the Closing
Date, the Corporations have complied with and performed all of the covenants
and agreements, and satisfied all of the conditions, to be complied with,
performed or satisfied by the Corporations pursuant to the Transaction
Documents on or prior to the Closing Date.
5.14 Reservation of Common Stock. The Company shall have authorized,
and reserved and kept available, free of preemptive rights, the number of shares
of Common Stock necessary to accommodate the exercise of all outstanding
Warrants.
SECTION 6. AFFIRMATIVE COVENANTS.
The Company hereby agrees that until each and all of the Notes are paid
in full, including any accrued and unpaid interest, premiums, Principal
Increases and Costs and Expenses payable with respect thereto, so long as this
Agreement is in effect (and thereafter in accordance with Section 13):
6.1 Financial and Other Information. The Company will keep, and will
cause its Subsidiaries to keep, proper books of record and account in which full
and true entries will be made of all dealings or transactions relating to their
business and affairs, and the Company shall cause to be furnished to each
Purchaser:
(a) as soon as practicable and in any event within thirty (30) days
after the end of each month and each fiscal quarter, as the case may be, and
within forty-five (45) days after the end of December, (i) unaudited
consolidated and consolidating statements of income, retained earnings and
cash flows of the Company and its consolidated Subsidiaries for such month
and the year-to-date period and, if applicable, the fiscal quarter, and
unaudited consolidated and consolidating balance sheets of the Company and
its consolidated Subsidiaries as of the end of such month, all of which
shall be prepared in accordance with GAAP, subject to changes resulting from
normal year-end adjustment, and (ii) in comparative form, figures for the
actual results for the corresponding month and year-to-date periods and, if
applicable, the fiscal quarter in the immediately preceding fiscal year and
amounts projected for such month, year-to-date period and quarter pursuant
to Section 6.1(e), together with a written report providing explanations of
any material variances;
(b) intentionally deleted;
(c) as soon as practicable and in any event within ninety (90) days
after the end of each fiscal year, (i) consolidated and consolidating
statements of income, retained
earnings and cash flows of the Company and its consolidated Subsidiaries for
such year, and consolidated balance sheets of the Company and its
consolidated Subsidiaries as of the end of such year, setting forth in each
case, in comparative form, corresponding figures for the period covered by
the preceding annual audit and as of the end of the preceding fiscal year,
all of which statements and balance sheets shall be in reasonable detail and
satisfactory in scope to the Purchasers and prepared by Deloitte & Touche or
another respected national firm of independent certified public accountants
selected by the Company and reasonably satisfactory to the Purchasers, whose
opinion shall be unqualified and shall be prepared in accordance with GAAP
and generally accepted auditing standards, provided, that each Purchaser
hereby agrees that such Purchaser will consider satisfactory any Big 5
accounting firm retained by the Company, (ii) any accountants' comment
letter on the Company's and its consolidated Subsidiaries' internal
financial or accounting systems or controls which shall be issued as well as
copies of all other reports submitted by the Company's accountants;
(d) intentionally deleted;
(e) as soon as practicable and in any event before the end of each
fiscal year, an operating budget and projected financial statements for each
month of the next succeeding fiscal year (including a statement of
underlying assumptions), in the same format as the financial statements
provided pursuant to Sections 6.1(a) and (c); provided, that the Company
shall deliver such operating budget and projected financial statements for
the fiscal year ending December 31, 2001 prior to the Closing Date;
(f) (i) as soon as practicable, and in any event at the same time as
any notice is given to the Senior Lender (but in no event later than five
(5) Business Days after any officer of the Company obtains knowledge of the
occurrence of an event or the existence of a circumstance giving rise to a
Default or an Event of Default), notice of any default under the Senior Debt
or of any Defaults or Events of Default hereunder, and (ii) any other
notice, certificate, or other document or information given to or received
from the Senior Lender not later than these (3) Business Days after the date
thereof;
(g) with reasonable promptness, such other information reasonably
available to the Company as the Purchasers may from time to time reasonably
request respecting the business, properties, prospects, condition or
operations, financial or otherwise, of the Company and its Subsidiaries,
including without limitation, all forms and information requested or
required by the U.S. Small Business Administration as a result of any
Purchaser being a small business investment company;
(h) if the Company shall provide its Board of Directors with any
financial information not otherwise provided for herein, it shall also
furnish the same to the Purchasers in addition to the financial statements
and other information for the Company and its Subsidiaries required to be
furnished pursuant to the foregoing provisions of this Section 6.1;
(i) Each Purchaser shall keep confidential all information concerning
the Corporations furnished by the Company pursuant to this Section 6.1, as
well as all other information concerning the Corporations acquired by the
Purchasers by virtue of their status as Purchasers under the Purchaser
Documents or as a result of their (or their representatives') attendance as
directors or non-voting observers at meetings of the Board of Directors of
any of the Corporations (including information acquired as a result of any
inspection conducted in accordance with Section 6.2 below); provided, that a
Purchaser may communicate such information to such Purchaser's officers,
employees, professional advisors, creditors and owners, subject to the same
confidentiality provisions applicable to such Purchaser. A Purchaser may
also disclose such information to any Governmental Authority having
jurisdiction over such Purchaser, to the extent required by such
Governmental Authority, provided that (except in the case of disclosures to
the U.S. Small Business Administration by a Purchaser which is a Small
Business Investment Company) such Purchaser shall use reasonable effort to
notify the Company prior to such disclosure so that the Company will have a
reasonable amount of time to contest such disclosure if the Company wishes
to do so. A Purchaser may also disclose such information to any other Person
in connection with such Purchaser's sale of any participations in, or
assignments of, the Notes, Warrants or Warrant Shares, provided that such
Person shall execute a confidentiality agreement requiring the recipient to
maintain the confidentiality of the information to the same extent as
required hereunder for the Purchaser. Following any Default or Event of
Default or as may be reasonably necessary to effect the exercise of rights
hereunder, a Purchaser may disclose information to others in connection with
the exercise of such Purchaser's rights hereunder or under any of the other
Purchaser Documents and as may be required by applicable law;
(j) If requested by Purchasers, together with each delivery of
financial statements required by Section 6.1(c), a certificate of the
accountants who performed the audit in connection with such statements (i)
stating that they have reviewed this Agreement and that, in making the audit
necessary to the issuance of a report on such financial statements, they
have obtained no knowledge of any Default or Event of Default or, if such
accountants have obtained knowledge of a Default or Event of Default,
specifying the nature and period of existence thereof and (ii) setting forth
the calculations necessary to establish whether or not the Company was in
compliance with the covenants contained in Section 7.19 as of the date of
such statements. The Company authorizes the Purchasers to discuss the
financial condition of the Company with the Company's independent certified
public accountant and agrees that such discussion or communication shall be
without liability to either Purchasers or the Company's independent
certified public accountants. The Company shall deliver a letter addressed
to such accountants authorizing them to comply with the provisions of this
Section 6.1(j); in any event, such accountants are irrevocably authorized to
rely upon a copy of this Agreement as authority for such discussions and
communications; and
(k) Together with each delivery of financial statements required by
Sections 6.1(a), (i) a detailed report, certified as true, complete and
accurate by the chief
financial officer of the Company, that provides a discussion of the
operations and financial condition of the Company and its Subsidiaries for
the period covered by such financial statements and a summary and discussion
of catalog performance measures. Such report shall be in form reasonably
satisfactory to the Purchasers in their discretion, provided that the format
of reports previously provided to the Purchasers shall be deemed reasonably
satisfactory, and (ii) if the financial statements are for a fiscal quarter,
a certificate of the Company's president or chief financial officer (A)
stating that, based on an examination sufficient to enable an informed
statement, no Default or Event of Default exists or, if such is not the
case, specifying such Default or Event of Default and its nature, when it
occurred, whether it is continuing and the steps being taken by the Company
with respect to such Default or Event of Default, and (B) setting forth the
calculations necessary to establish whether or not the Company was in
compliance with the covenants contained in Section 7.19 as of the date of
such statements and for the periods then ended, as the case may be.
6.2 Inspection. Any Purchaser, or any Person designated by a Purchaser
in writing, shall have the right, from time to time hereafter, to call at the
place or places of business of any Corporation during ordinary business hours
(a) to inspect, audit and check any of its books, records, journals, orders,
receipts and any correspondence and other data relating to its business or to
any transactions among the parties to the Transaction Documents, and (b) to
discuss its affairs, finances and business with any of its Senior Management or
directors.
6.3 Conduct of Business. Except as contemplated in connection with the
sale of the Company's Western Schools or the AHI businesses, the Company shall,
and shall cause each Subsidiary to, (a) maintain its corporate existence, (b)
maintain in full force and effect all bonds, franchises, patents and trademarks,
and all governmental licenses, permits and authorizations, in each case which
are material to the conduct of its business, (c) maintain in full force and
effect all leases, contracts and other rights, and all non-governmental
licenses, permits and authorizations, in each case the loss of which would have
a Material Adverse Effect, (d) engage only in (i) the businesses in which they
are currently engaged as of the Closing Date and (ii) businesses reasonably
related to the businesses in which they are currently engaged as of the Closing
Date; provided, however, that (A) such reasonably related businesses do not
involve direct retail operations and do not require significant expenditures or
commitments, and (B) the addition of such reasonably related businesses does not
materially change the nature of the business of the Company or its Subsidiaries,
(e) comply with all applicable laws, orders, regulations and ordinances of all
Governmental Authorities, except for such laws, orders, regulations and
ordinances the violation of which would not be reasonably likely to have a
Material Adverse Effect, (f) maintain its Property in good working order, and
(g) continue to own or lease such Property as is sufficient, and continue to
maintain such Property in appropriate condition, to conduct business and
operations in a manner consistent with its past practice and with achieving the
Projections.
6.4 Taxes. The Company shall pay, and cause its Subsidiaries to pay,
all of their respective (i) license fees, bonding premiums and related taxes and
charges, (ii) real and personal property taxes, assessments and charges, (iii)
franchise, income, unemployment, use, excise, old age benefit, withholding,
sales and other taxes and (iv) other governmental charges
assessed against any of them, or payable by any of them, in each case at such
times and in such manner as to prevent any penalty from accruing or any Lien
from attaching to any of their property, provided that the applicable
Corporation shall have the right to contest in good faith, by an appropriate
proceeding promptly initiated and diligently conducted, the validity, amount or
imposition of any such tax, assessment or charge, and upon such good faith
contest to delay or refuse payment thereof, if it establishes adequate reserves
to cover such contested taxes, assessments or charges.
6.5 Property, Liability and Business Interruption Insurance. The
Company shall, and shall cause each of its Subsidiaries to, maintain insurance
to such extent and covering such risks as shall be required by law or by any
agreement to which any of such Corporations is a party, and, in any event, keep
and maintain their properties and businesses insured against such risks as are
ordinarily insured against (and in such amounts, and subject to such deductibles
as are ordinarily obtained) by prudent Persons engaged in similar businesses
similarly situated with nationally recognized and financially sound insurers.
The Company shall maintain, and cause each of its Subsidiaries to maintain, at
the Company's or such Subsidiary's expense, such public liability insurance,
third party property damage insurance and business interruption insurance, in
such amounts and with such deductibles, as is reasonably acceptable to the
Purchasers and as is customary for similar businesses similarly situated. All
such policies of insurance shall be issued by insurers having A.M. Best ratings
no less than A, and if any such insurer shall cease to have such rating, then
the Company shall replace such policy with one or more issued by an insurer or
insurers with such rating within 120 days. Upon request, the Company shall
deliver to each Purchaser a certified copy of each such policy of insurance and
evidence of payment of all premiums therefor.
6.6 Pension Plans. The Company shall (i) deliver to the Purchasers
promptly, and in any event within 30 days, any notice, letter or communication
received by any Corporation from the PBGC, the IRS or any other Governmental
Authority with respect to any Plan, if such notice could result in any material
liability to any Corporation, (ii) upon Purchaser's request, provide the
Purchasers with copies of any annual report filed by any Corporation with the
PBGC in connection with any Plan, promptly after the request therefor, and (iii)
notify the Purchasers prior to terminating any Plan if such termination could
result in any material liability to any Corporation.
6.7 Notice of Suits, Adverse Changes in Business and Defaults. The
Company shall, as soon as possible, and in any event within five (5) Business
Days after it learns of any of the following, give written notice to the
Purchasers of:
(a) any proceeding(s) being instituted or threatened to be instituted
by or against any Corporation in any federal, state, local or foreign court
or before any Governmental Authority in which the amount in controversy
exceeds $200,000 (unless the same is covered by insurance and arises in the
ordinary course of business in accordance with such Corporation's historical
experience) or in which injunctive relief is requested, and any litigation,
proceeding, investigation or claim that relates in any material way to (i)
any of the Transaction Documents, or (ii) the Certificate of Incorporation,
as amended, or By-laws, as amended, of any Corporation;
(b) any change in the business, assets or condition, financial or
otherwise, of any Corporation which can reasonably be expected to have a
Material Adverse Effect;
(c) any failure by any party to perform any material term or provision
of any of the SCC Merger Documents;
(d) the occurrence of any "Default" or "Event of Default" as defined in
any of the Senior Debt Documents;
(e) the occurrence of any material default under any other material
lease, contract or other agreement to which the Company is a party; and
(f) the occurrence or existence of any event or condition which could
reasonably be expected to cause a Default or Event of Default.
6.8 Environmental Laws. (a) The Company shall promptly notify and
furnish the Purchasers with a copy of any and all Environmental Notices which
are received by any Corporation on or after the date hereof which can reasonably
be expected to have a Material Adverse Effect. The Company shall, and shall
cause its Subsidiaries to, take prompt and appropriate action in response to any
and all such Environmental Notices, and shall promptly furnish the Purchasers
with a description of the applicable Corporation's Response thereto. The Company
shall promptly notify the Purchasers of any event or state of facts which could
reasonably be expected to result in any such Environmental Notice.
(b) The Company shall, and cause each of its Subsidiaries to, (i)
comply in all material respects with all Environmental Laws, (ii) obtain, comply
with and maintain any and all licenses, approvals, registrations or permits
required by Environmental Laws, (iii) conduct and complete all investigations,
studies, sampling and testing, and all remedial, removal and other actions
required under Environmental Laws, and (iv) promptly comply in all material
respects with all lawful orders and directives of all Governmental Authorities
respecting Environmental Laws (and provide copies of all such orders and
directives to the Purchasers), except, in each case, to the extent that the same
are being contested in good faith by appropriate proceedings and the pendency of
such proceedings could not be reasonably expected to have a Material Adverse
Effect.
(c) The Company shall defend, indemnify and hold harmless each of the
Purchasers and their respective employees, agents, officers and directors, from
and against any claims, demands, penalties, fines, liabilities, settlements,
damages, costs and expenses of whatever kind or nature known or unknown,
contingent or otherwise (including without limitation attorneys' and
consultants' fees, investigation and laboratory fees, court costs and litigation
expenses), arising out of, or in any way relating to (i) any Environmental Laws
applicable to any of the Corporations, any of their operations, or any real
property owned or operated by any of them, (ii) any orders, requirements or
demands of any Governmental Authority or any private party related to any
Environmental Laws or to Hazardous Materials, or (iii) the actual or alleged
presence of Hazardous Materials on any property previously, now or
hereafter owned, leased or otherwise held by any of the Corporations. The
indemnity set forth in this paragraph (c) shall survive any termination of this
Agreement.
6.9 Notices Relating to Transactions. The Company shall promptly
provide the Purchasers with copies of all amendments, consent letters, waivers
or modifications to, and any material notices or reports provided by any Person
to any Corporation pursuant to the terms of or in connection with, any
Transaction Document, or any Corporation's charter or bylaws, or by any
Corporation to any such Person; without limiting the foregoing, the Company
agrees to notify the Purchasers of the effective date and amount of any
prepayment pursuant to the Senior Loan Agreement.
6.10 Boards of Directors. The Company shall allow two representatives
of the Purchasers to attend and observe all meetings of the Boards of Directors
of each of the Company and its Subsidiaries and all committees thereof, and at
all times during which the Purchasers shall hold, in the aggregate, at least 1%
of the Company's Common Stock, after either (a) the repayment in full of the
Notes, or (b) upon and after the occurrence of an Event of Default and until the
end of the second calendar quarter following the date on which such Event of
Default is cured, shall cause the Purchasers to have the right to designate one
member of the Board of Directors of the Company (such representatives and any
director are referred to herein as the "Purchaser Representatives"). The Company
shall (i) give the Purchaser Representatives notice of all such meetings, at the
same time as furnished to the directors of the applicable Corporation, and cause
all such meetings to be held in New York, New York or the Boston, Massachusetts
metropolitan area, (ii) pay the reasonable out-of-pocket costs and expenses of
the Purchaser Representatives and otherwise compensate a Purchaser
Representative at the same level as the most highly compensated non-employee
member of the Board of Directors of each of the Company and its Subsidiaries,
and indemnify each of the Purchaser Representatives to the fullest extent
permitted by law in connection therewith, (iii) provide to such Purchaser
Representatives all notices, documents and information furnished to the
directors of the applicable Corporation whether at or in anticipation of a
meeting, an action by written consents or otherwise, at the same time furnished
to such directors, (iv) notify such Purchaser Representatives of, and permit
such Purchaser Representatives to participate by telephone in, emergency
meetings of such Boards of Directors and all committees thereof, (v) provide
such Purchaser Representatives copies of the minutes of all such meetings at the
time such minutes are furnished to the directors of the applicable Corporation,
(vi) cause regularly-scheduled meetings of the Boards of Directors of SAC
quarterly, and each other Corporation to be held no less frequently than
annually, and (vii) upon the request of any of the Purchasers, obtain and
maintain in force directors' and officers' liability insurance in an amount
reasonably acceptable to Purchasers, (viii) cause the creation on SAC's Board of
an audit committee composed solely of non-employee directors, the responsibility
of which shall be to fulfill all functions recommended by the Auditing Standards
Board of the AICPA as well as monitoring and reviewing all major accounting
policies and auditor relationships of such Corporation, and (ix) cause the
creation on SAC's Board of a compensation committee composed solely of
non-employee directors, the responsibility of which shall be to monitor and
review compensation plans, the Stock Option Plan, other Plans, annual
performance objectives for senior executives, and the achievement of these
performance objectives.
6.11 Subsidiary Mergers. The Company shall not cause any merger of
Subsidiaries of the Company, unless, in the reasonable opinion of counsel for
and/or the independent certified public accountants of the Company, such merger
would not result in material adverse tax consequences to the Company and to the
Purchasers.
6.12 Intentionally omitted.
6.13 Intentionally omitted.
6.14 Notice of Amendment of Senior Loan Agreement. The Company (i)
shall not enter into any amendment of the Senior Loan Agreement without
providing the Purchasers with advance written notice of the proposed terms of
such amendment not less than five (5) Business Days prior to the making of such
amendment, and (ii) without the prior written consent of the Purchasers, shall
not enter into any amendment of the Senior Loan Agreement, or in any other
manner modify or supplement or alter by agreement or waiver, the Senior Loan
Agreement, the purpose of which is (a) a voluntary permanent reduction of any
revolving credit facility provided under the Senior Loan Agreement (unless after
such reduction, there shall remain no less than $2,000,000 of unused but
available credit under the revolving line of credit described in the Senior Loan
Agreement) or (b) violative of Section 7.15 hereof.
6.15 Exercise of Rights. The Company will, and will cause each of its
Subsidiaries to, enforce all of the Company's and its Subsidiaries' material
rights under the SCC Merger Documents, including, without limitation all
material indemnification rights thereunder, and pursue all material remedies
available to the Company and its Subsidiaries with diligence and in good faith
in connection with the enforcement of any such rights.
6.16 Use of Proceeds. The Company shall use the proceeds of the sale of
the Notes solely as described in the statement of sources and uses referenced in
Section 5.12.
6.17 New Subsidiaries. The Company shall cause all Subsidiaries whose
formation is permitted hereunder to execute, at the discretion of the
Purchasers, either a Subsidiary Guaranty in the form attached as Exhibit F or an
assignment and assumption agreement whereby each such Subsidiary becomes a
co-maker of each of the Notes.
6.18 Reservation of Common Stock. The Company shall maintain
authorized, reserved and kept available, free of preemptive rights, the number
of shares of Common Stock necessary to accommodate the exercise of all
outstanding Warrants.
SECTION 7. NEGATIVE COVENANTS.
The Company hereby agrees that until each and all of the Notes are paid
in full, including any accrued and unpaid interest, premiums, Principal
Increases and Costs and Expenses payable with respect thereto, so long as this
Agreement is in effect (and thereafter in accordance with Section 13):
7.1 Liens or Encumbrances. The Company will not create or suffer to
exist, or permit any Subsidiary to create or suffer to exist, any Lien upon any
of its Property, income or profits, whether now owned or hereafter acquired, and
will not enter into or suffer to exist, or permit any Subsidiary to enter into
or suffer to exist, any agreement that would be inconsistent with the
Purchasers' exercise of exclusive rights to Liens on the Corporations Property
excepting the rights of the Senior Lender and the following:
(i) Liens at any time granted in favor of the Purchasers, and Liens
granted to the Senior Lender pursuant to the Senior Debt Documents as in
effect on the date hereof;
(ii) (A) Liens for taxes (excluding any Lien imposed pursuant to any of
the provisions of ERISA) not yet due or that are being actively and
diligently contested in good faith; (B) statutory Liens arising in the
ordinary course of the Company's business by operation of law or regulation,
but only if payment in respect of any such Lien is not at the time required
or such Liens are being actively and diligently contested in good faith; and
(C) Liens (other than judgments and awards) created by or resulting from any
litigation or legal proceeding, provided that execution or other enforcement
thereof is effectively stayed and the claims secured thereby are being
actively and diligently contested in good faith;
(iii) Purchase Money Liens securing Purchase Money Indebtedness
permitted pursuant to Section 7.2(f) below;
(iv) Liens securing Indebtedness of one of the Company's Subsidiaries
to the Company or another such Subsidiary;
(v) reservations, exceptions, easements, rights-of-way, zoning
restrictions and other similar encumbrances affecting the real Property of
the Company and its Subsidiaries that do not interfere with the ordinary
conduct of the business of the Company and its Subsidiaries;
(vi) Liens arising by operation of law to secure landlords, lessors or
renters under leases or rental agreements made in the ordinary course of
business and confined to the premises or property rented;
(vii) deposits or pledges made in connection with, or to secure payment
of, workmen's compensation, unemployment insurance, old age pensions or
other social security;
(viii) Liens arising by operation of law in the nature of workmen's
liens securing claims for labor, or related materials or supplies, provided
that execution or other enforcement thereof is effectively stayed and the
claims secured thereby are being actively and diligently contested in good
faith;
(ix) such other Liens existing on the Closing Date which are set forth
on Schedule 7.1; and
(x) such other Liens as the Purchasers may hereafter approve in
writing.
7.2 Indebtedness. The Company will not incur, create, assume, become or
be liable in any manner with respect to any Indebtedness, or permit any
Subsidiary to do so, except (a) the Indebtedness evidenced by the Notes and
other obligations of the Corporations under this Agreement and the other
Purchaser Documents, (b) Senior Debt provided by the original Senior Lender, or
any refinancing thereof permitted pursuant to Section 7.15 (in the event of any
such permitted refinancing, all references herein to "Senior Debt", "Senior Debt
Documents", "Senior Lender" and "Senior Loan Agreement" shall be appropriately
adjusted to apply to the refinancing, (c) Indebtedness of the Corporations which
is subordinated to the Notes on terms reasonably acceptable to the Purchasers,
(d) the Merger Consideration, which is to be paid off with the proceeds of the
issuance and sale of the Notes and Warrants, (e) other Indebtedness of the
Corporations which is to continue after the Closing Date and is identified on
Schedule 7.2, (f) Indebtedness of the Corporations secured by Purchase Money
Liens and Indebtedness of the Corporations under Capital Leases not to exceed
$600,000 in the aggregate, provided, however, that the Company may incur up to
$1,000,000 of Indebtedness under long-term Capital Leases in order to replace
its Renaissance MIS System (which such Capital Leases shall be secured solely by
the assets leased or financed thereunder), (g) Indebtedness incurred to finance
the payment of the aggregate consideration payable pursuant to one or more
exercises of the Put Option (as defined in the Warrant Agreement), (h)
Indebtedness with respect to the exercise of appraisal rights of SCC
shareholders in connection with the Merger, (i) the SC Licensing Note; (j)
Indebtedness consisting of interest rate protection agreements entered into with
the Senior Lender; (k) Indebtedness consisting of trade accounts payable
incurred in the ordinary course of business and not yet payable in accordance
with their terms; and (l) Indebtedness consisting of (i) taxes, assessments,
governmental charges or levies and claims for labor, materials and supplies to
the extent that the Company and its Subsidiaries are otherwise in compliance
with Sections 6.4 and 7.1 hereof, (ii) judgments or awards (not to exceed, in
the aggregate, $275,000) which have been in force for less than the applicable
appeal period so long as execution is not levied thereunder or in respect of
which the Company or any Subsidiary shall at the time in good faith be
prosecuting an appeal or proceedings for review in a manner reasonably
satisfactory to the Purchasers and in respect of which a stay of execution shall
have been obtained pending such appeal or review and for which adequate reserves
have been established in accordance with GAAP, and (iii) endorsements made in
connection with the deposit of items for credit or collection in the ordinary
course of business.
7.3 Consolidations, Mergers or Acquisitions. Unless the transaction
either (a) constitutes an arm's length, good faith transaction with an
unaffiliated third party and concerns the acquisition of, or a merger with, a
business or entity in the same or substantially similar line of business as the
Company, and does not result in a Default, an Event of Default or a Change in
Control, or (b) requires payment in full of all Notes, including any accrued and
unpaid interest, premiums, Principal Increases and Costs and Expenses payable
with respect thereto, and other obligations, if any, to the Purchasers under the
Purchaser Documents (in accordance with the terms thereof) upon consummation of
the transaction, the Company will not, and will not permit any Subsidiary to,
recapitalize or consolidate with, merge with, acquire the Capital Stock of, or
otherwise acquire all or any substantial part of the assets or Properties of any
other
Person except that (i) a wholly-owned Subsidiary of the Company may merge
into another wholly-owned Subsidiary of the Company, and (ii) a Subsidiary of
the Company may merge into the Company (including as contemplated by Section
6.11).
7.4 Investments or Loans. The Company shall not, and shall not permit
any Subsidiary to, acquire any Property in exchange for cash or other Property,
whether in the form of an acquisition of securities or other Indebtedness or
obligations, or the purchase or acquisition by the Company or any of its
Subsidiaries of any other Property, or a loan, advance, capital contribution or
subscription, except acquisitions of the following:
(i) investments in one or more Subsidiaries of the Company to the
extent existing on the Closing Date or in Subsidiaries formed or acquired
after the Closing Date but solely to the extent that (a) such Subsidiaries
are, or become as a result of the acquisition or investment, wholly-owned by
the Company or a wholly-owned Subsidiary of the Company and (b) prior to the
date of formation or acquisition such Subsidiary has executed and delivered,
at the discretion of the Purchasers, either a Subsidiary Guaranty or an
assignment and assumption agreement whereby such Subsidiary becomes a
co-maker of each of the Notes;
(ii) fixed assets to be used in the business of the Company and its
Subsidiaries so long as the acquisition costs thereunder constitute Capital
Expenditures permitted hereunder;
(iii) goods held for sale or lease or to be used in the manufacture of
goods or the rendition of services by the Company or any of its Subsidiaries
in the ordinary course of business;
(iv) investments having a maturity of less than one year from the date
thereof consisting of (a) debt obligations of the Senior Lender meeting the
standards set out in (d) below, (b) obligations of the United States of
America or any agency or instrumentality thereof, (c) repurchase agreements
with the Senior Lender involving securities described in clauses (a) and
(b), and (d) commercial paper which is rated not less than prime-one or A-1
or their equivalents by Xxxxx'x Investors Service, Inc. or Standard & Poor's
Corporation, respectively, or their successors;
(v) loans to employees not in excess of an aggregate of $55,000 at any
one time outstanding, except for the existing loan in the principal amount
not to exceed $150,000 made by the Company to Xxxxxx XxXxxx;
(vi) accounts receivable arising from transactions in the ordinary
course of business; contingent liabilities represented by endorsements of
negotiable instruments for collection or deposit in the ordinary course of
business; advances, deposits, down payments and prepayments on account of
firm purchase orders made in the ordinary course of business;
(vii) investments consisting of interest rate protection agreements
entered into with the Senior Lender; and
(viii) investment by SC Corporation in SC Licensing Corp., as evidenced
by the SC Licensing Note.
7.5 Subsidiaries. The Company will not create or have (or permit any
Subsidiary to create or have) any Subsidiaries other than the Subsidiaries in
existence on the date hereof without the prior written consent of the
Purchasers, which consent shall not be unreasonably withheld with respect to
Subsidiaries that are wholly-owned by the Company or any of its Subsidiaries. In
addition, (i) the Company shall cause each Subsidiary to comply with all the
covenants and provisions of this Agreement (including, without limitation, the
covenants set forth in Section 6.17 hereof), and (ii) the financial covenants
contained herein shall apply to the Company and its Subsidiaries on a
consolidated basis.
7.6 Disposal of Property. Except as set forth on Schedule 7.6,
and except for a sale of all or any substantial portion of the stock or assets
of the Company's Western Schools or AHI businesses (but only to the extent that
such sale is an arm's length, good faith transaction with an unaffiliated third
party), the Company will not sell, lease, transfer or otherwise dispose of any
of its Properties, assets (including Capital Stock) or rights, or permit any
Subsidiary to do so, except (i) sales of inventory in the ordinary course of
business, (ii) sales or other dispositions in the ordinary course of business of
equipment which is obsolete, uneconomical or no longer useful in its business or
which is being replaced with other equipment of substantially equal or greater
utility, (iii) dispositions of obsolete inventory, and (iv) other sales or other
dispositions of Property where such sale or disposition (a) is an arm's length,
good faith transaction in which at least 75% of the consideration received by
the Company is in cash, (b) the sale price is at least the fair market value of
the Property sold, and (c) the proceeds of the sale or disposition is applied to
payment of Indebtedness for money borrowed, the aggregate fair market value of
which, together with all such other Property so sold or disposed of in any
12-month period, shall not exceed 5% of the Company's tangible assets as at the
beginning of such 12-month period.
7.7 Capital Expenditure Limitations. Intentionally omitted.
7.8 Compensation; Management or Consulting Fees; Certain Other
Payments.
(a) Except as provided in subsection (b) of this Section 7.8, the
Company will not, and will not permit any Subsidiary to, pay any salaries,
bonuses or management, consulting, advisory or similar fees to its stockholders
or their Affiliates, for services rendered to such Corporation or otherwise.
(b) Notwithstanding anything to the contrary contained in subsection
(a) of this Section 7.8, the Company may: (i) pay regular salaried compensation
to stockholders who are full-time executive officers of the Company at levels
consistent with past practice, and may pay bonuses and make salary increases
approved by the Board of Directors in the ordinary course of business, so long
as (A) the bonuses and increases in compensation of any senior
manager are consistent with past practice during the twelve months immediately
preceding the Closing, or consistent with the compensation levels for like
positions in similar companies as specifically considered and determined by the
Board of Directors, and (B) any increases in such compensation are consistent
with increases granted to employees holding like positions in similar companies
as determined by the Board of Directors; (ii) pay compensation of $[________] to
its directors and pay their reasonable expenses in connection with meetings and
other activities of the Board of Directors or committees thereof; and (iii) pay
success-based investment banking fees (but not retainer, periodic advisory or
similar installment or ongoing fees) in amounts which are approved by a
committee of directors, each member of which is not an affiliate of the person
or entity which is to receive such fee, which is consistent with custom and
practice in the industry on an arm's length basis for transactions of comparable
size and nature, and which are incurred in connection with merger and
acquisition services actually rendered in respect of a strategic business
acquisition or sale. The Purchasers acknowledge that the salaries and bonuses
payable under the employment agreements to be entered into at the Closing
between the Company and Xxxxxx Xxxxxxxxx and Xxxxxx XxXxxx will not violate this
Section 7.8.
7.9 Dividends, Stock Redemptions, Etc. While any Note is outstanding,
the Company will not (a) declare or pay, or set apart any funds for the payment
of, any dividends in any fiscal year on any shares of its Capital Stock, or (b)
apply any of its funds, Property or assets to, or set apart any funds, Property
or assets for, the purchase, redemption or retirement of, or make any
Distribution, by reduction of capital or otherwise, in respect of any of its
shares of Capital Stock, whether now or hereafter outstanding (other than in
connection with exercises of the Put Option, as defined in the Warrant
Agreement); provided, however, that so long as no Default or Event of Default
shall have occurred and be continuing, the Company may repurchase, at "Market
Price" (as defined in the Warrant Agreement attached hereto), Common Stock
purchased by any employee who is not a party to the Stockholders Agreement as of
the date of this Agreement if such Common Stock was acquired by such employees
upon exercise of options, but only in connection with the termination of such
employees' employment with the Company.
7.10 Issuance of Additional Capital Stock by Subsidiaries. None of the
Subsidiaries will issue any additional Capital Stock or equity interests of any
kind or character, other than to the Company or a wholly-owned Subsidiary of the
Company.
7.11 Operating Leases. The Company will not, and will not permit any
Subsidiary to, enter into any leases other than Capital Leases which would cause
the annual payment obligations of the Company and its Subsidiaries under all
such leases to exceed Eight Hundred Eighty Thousand Dollars ($880,000) in the
aggregate.
7.12 Intentionally omitted.
7.13 Transactions with Affiliates. Except as expressly permitted under
Section 7.8, the Company will not, and will not permit any Subsidiary to,
transfer any cash or Property to any officer, director, employee or Affiliate,
enter into any contract or transaction with any such Person, or modify any
outstanding contract or transaction with any such Person, including
without limitation the purchase, lease, sale or exchange of Property or the
rendering of any service to any such Person.
7.14 ERISA. The Company will not, and will not permit any Subsidiary or
ERISA Affiliate to:
(a) engage in any transaction in connection with which such Corporation
or ERISA Affiliate could be subject to either a material civil penalty
assessed pursuant to the provisions of Section 502 of ERISA or a material
tax imposed under the provisions of Section 4975 of the Code;
(b) terminate any Pension Plan in a "distress termination" under
Section 4041 of ERISA;
(c) fail to make payment when due of all amounts which, under the
provisions of any Plan, such Corporation or ERISA Affiliate is required to
pay as contributions thereto, or, with respect to any Pension Plan, permit
to exist any material "accumulated funding deficiency" (within the meaning
of Section 302 of ERISA and Section 412 of the Code), whether or not waived,
with respect thereto; or
(d) adopt an amendment to any Pension Plan requiring the provision of
security under Section 307 of ERISA or Section 401(a)(29) of the Code.
7.15 Certain Amendments of Senior Debt Documents and Other Transaction
Documents; Refinancing of Senior Debt. [TO BE CONFORMED TO CORRESPONDING
PROVISION IN THE SENIOR SUBORDINATION AGREEMENT] The Company will not amend,
modify or alter, or permit to be amended, modified or altered, (a) any of the
Senior Debt Documents or the Senior Debt (in a refinancing thereof or
otherwise), if the effect would be (i) that the amount of Indebtedness under the
Senior Debt Documents or constituting the Senior Debt thereunder, as so amended,
modified or altered, would exceed the sum of the "Maximum Revolving Credit
Amount" plus the outstanding principal balance of the "Term Loan" (as those
terms are defined in the Senior Loan Agreement as of the date of Closing), or
which would change the borrowing availability under the Senior Loan Agreement
from that which exists as of the date of Closing, (ii) to cause any applicable
interest rate margin under the Senior Loan Agreement as in effect on the date of
Closing to be increased by more than three percent (3%) per annum, or to impose
an interest rate margin where none presently exists greater than three percent
(3%) per annum, (iii) to extend the final maturity of the Senior Debt beyond the
maturity date set forth in the Senior Loan Agreement as of the date of Closing
or accelerate the scheduled amortization thereof as set forth in the Senior Loan
Agreement as of the date of the Closing, (iv) to add or change any "Default" or
"Event of Default" (as defined in the Senior Loan Agreement on the date of the
Closing) or any covenant (as set forth in the Senior Loan Agreement on the date
of Closing), if such addition or change would make such Default or Event of
Default or covenant more restrictive or burdensome on the Company, or would
adversely affect the payment or other rights of the Purchasers hereunder, or (v)
add any financial test or ratios to the Senior Loan Agreement which are more
restrictive than those included therein as of the date of Closing, or (b) any of
the other Transaction Documents (including, without limitation, the SCC
Merger Documents), in any way which would adversely affect the Purchasers. The
Company will not, and will not permit any of its Subsidiaries to, enter into any
refinancing of the Senior Debt Documents which would change the terms of the
Senior Debt in any respect which would not be permitted in the case of an
amendment, modification or alteration pursuant to the foregoing provisions of
this Section 7.15.
7.16 Other Amendments. The Company will not, and will not permit any of
its Subsidiaries to amend, modify or change its certificate or articles of
incorporation or other charter documents (including, without limitation, by the
filing or modification of any certificate of designation), certificate of
formation, limited liability company agreement or by-laws (or the equivalent
organizational documents), as applicable, or amend or modify any agreement
entered into by it with respect to its Capital Stock or other equity interests
(including any stockholders' agreement), or enter into any new agreement with
respect to its Capital Stock or other equity interests, unless such amendment,
modification, change or other action contemplated by this Section could not
reasonably be expected to be adverse to the interests of the Purchasers in any
material respect. The Purchasers acknowledge that such amendment, modification,
change or action made or taken (a) to enable the Company to comply with Section
5.14 and 6.18 hereof, or (b) in connection with the sale and/or issuance of
Common Stock, will not violate this Section.
7.17 Accounting Methods. The Company shall not, and shall not suffer or
permit any Subsidiary to, make any significant change in accounting treatment or
reporting practices, except (a) as required by GAAP, (b) a change in the
depreciation method employed thereby to straight line depreciation or (c) a
change in a Subsidiary's accounting treatment or reporting practices to conform
the accounting practices or reporting practices of newly acquired Subsidiaries
to the methods used by the Company, unless such significant change is required
by the Company's independent certified public accountants and provided, however,
that upon such change, the Purchasers shall be entitled to modify the financial
and other covenants set forth herein in such manner as the Purchasers shall
determine, in their sole discretion, exercised in good faith, to require
compliance in a manner most nearly equivalent to the effect or requirements of
such provisions prior to such change in accounting treatment or accounting
practice.
7.18 Payments on Subordinated Debt. The Company will not make, or
permit any Subsidiary to make, any principal payment of or interest payment on,
or purchase or acquire, or prepay, any Indebtedness which is subordinate to the
Notes except in accordance with the provisions of the subordination thereof; or
permit any notes or agreements evidencing Indebtedness which is subordinate to
the Notes, or any subordination agreement executed in connection therewith, to
be modified or amended or any agreement or consent to be given thereunder
whereby (i) any provisions thereof relating to the subordination thereof to the
Notes are waived, modified or discharged, or (ii) there is any acceleration of
the maturities therein provided.
7.19 Financial Covenants. On and after the date hereof, until the Notes
and all other obligations of the Corporations to the Purchasers hereunder have
been unconditionally and irrevocably paid in full (including, without
limitation, the obligations pursuant to Section
15.5 hereof), the Company shall observe, and shall cause its Subsidiaries to
observe, the covenants set forth on Exhibit G attached hereto. The Company shall
give notice to the Purchasers immediately upon any change in the financial
covenants set forth in the Senior Loan Agreement from those set forth therein on
the Closing Date. The Company acknowledges that upon receipt of any such notice,
the Purchasers (in their discretion) may, by written notice given within ten
(10) business days of receipt of such notice from the Company, notify the
Company of their intent to amend Exhibit G to conform the covenants set forth
therein to such change (which amendment will include, with respect to each such
covenant, the same relative "cushion" between such covenant and the
corresponding covenant in the Senior Loan Agreement that exists on the date
hereof), and Exhibit G shall be so amended automatically (with no further notice
from the Purchasers) on the date that the change to the Senior Loan Agreement
financial covenants becomes effective.
7.20 Limitation on Certain Restrictions on Subsidiaries. The Company
will not, and will not permit any of its Subsidiaries to, directly or
indirectly, create or otherwise cause or suffer to exist or become effective any
encumbrance or restriction on the ability of any such Subsidiary to (a) pay
dividends or make any other distributions on its Capital Stock or any other
interest or participation in its profits owned by the Company or any of its
Subsidiaries, or pay any Indebtedness owed to the Company or any of its
Subsidiaries, (b) make loans or advances to the Company or any of its
Subsidiaries or (c) transfer any of its properties or assets to the Company or
any of its Subsidiaries, except for such encumbrances or restrictions existing
under or by reason of (i) applicable law, (ii) this Agreement and the other
Purchaser Documents, (iii) the Senior Debt Documents, (iv) customary provisions
restricting subletting or assignment of any lease governing any leasehold
interest of the Company or any of its Subsidiaries, (v) customary provisions
restricting assignment of any licensing agreement (in which the Company or any
of its Subsidiaries is the licensee) or other contract entered into by the
Company or any of its Subsidiaries in the ordinary course of business, (vi)
restrictions on the transfer of any asset pending the close of the sale of such
asset, and (vii) restrictions on the transfer of any asset subject to a Lien
permitted by Section 7.1 hereof.
SECTION 8. SUBORDINATION
The Purchasers covenant and agree that the Indebtedness evidenced by
the Notes shall be subordinate and junior in right of payment to the Senior Debt
and the liens securing the Senior Debt, in the manner and to the extent set
forth in the Senior Subordination Agreement. The Company will not make (or give
any notice in respect of), and will not permit any of its Subsidiaries to make
(or give any notice in respect of), any voluntary, optional or mandatory payment
or prepayment on or redemption or acquisition for value of (including, in each
case, without limitation, by way of depositing with any Person money or
securities before due for the purposes of paying when due), any Senior Debt or
make any other payment in respect thereof (whether for principal, interest or
other amounts) except as otherwise expressly permitted by the Senior Loan
Agreement and the Senior Subordination Agreement.
SECTION 9. EVENTS OF DEFAULT.
9.1 Events of Default. The occurrence of any of the following events
shall constitute an "Event of Default" hereunder:
(a) all or any portion of the principal of and/or premium, if any,
interest or other amounts payable on the Notes is not paid when due, and
such failure continues for more than five (5) calendar days; or
(b) a breach by the Company or any of its Subsidiaries of any of the
covenants, conditions, promises or agreements contained in Sections 6 or
Section 7; or
(c) a breach by the Company or any of its Subsidiaries of any of the
covenants, conditions, promises or agreements contained in any Purchaser
Document (other than those specified in Sections 9.1(a) or (b) above), and
such breach continues for a period of fifteen (15) days after a Corporation
first knows or reasonably should have known of the occurrence of the acts or
omissions that constitute such breach; or
(d) any warranty or representation heretofore, now or hereafter made by
the Company or any of its Subsidiaries in or pursuant to any of the
Purchaser Documents is determined by the Purchasers (as set forth in a
written notice given at any time by the Purchasers) to be, or have been,
untrue or incorrect in any material respect as of the date as of which made;
or any schedule, certificate, statement, report, financial data, notice or
other writing furnished at any time by the Company or any of its
Subsidiaries to the Purchasers under or pursuant to the Purchaser Documents
is untrue or incorrect in any material respect on the date as of which made;
or
(e) a judgment or order requiring payment in excess of insurance
coverage by more than $275,000 shall be rendered against the Company or any
of its Subsidiaries and such judgment or order shall remain unsatisfied or
undischarged or unbonded and in effect for thirty (30) consecutive days
without a stay of enforcement or execution; or
(f) a notice of Lien, levy or assessment (other than a Permitted Lien)
is filed or recorded with respect to any material portion of the assets of
the Company or any of its Subsidiaries by any party, or action is taken or
commenced by any Governmental Authority on account of any taxes or debts
owing at any time or times hereafter which results in a Lien (other than a
Permitted Lien) upon any material portion of the assets of the Company or
any of its Subsidiaries; or
(g) any material portion of the assets of the Company or any of its
Subsidiaries is attached, seized, subjected to a writ or distress warrant,
or is levied upon, or comes within the possession of any receiver, trustee,
custodian or assignee for the benefit of creditors; or
(h) a proceeding under 11 U.S.C. ss.ss.101 et seq., as amended, and any
similar or successor Federal statute, and the rules and regulations
thereunder (collectively, the
"Bankruptcy Code"), seeking an order for relief or under any other
bankruptcy, reorganization, arrangement of debt, insolvency, readjustment of
debt or receivership law or statute is filed against the Company or any of
its Subsidiaries and such proceeding is not dismissed within sixty (60) days
of the date of its filing, or a proceeding under the Bankruptcy Code seeking
an order for relief or under any bankruptcy, reorganization, arrangement of
debt, insolvency, readjustment of debt or receivership law or statute is
filed by the Company or any of its Subsidiaries, or the Company or any of
its Subsidiaries makes an assignment for the benefit of creditors, or the
Company or any of its Subsidiaries takes any corporate action to authorize
any of the foregoing; or
(i) the Company or any of its Subsidiaries voluntarily or involuntarily
dissolves or is dissolved, or its existence terminates or is terminated
without the consent of the Purchasers (other than pursuant to a Subsidiary
merger permitted hereunder); or
(j) the Company or any of its Subsidiaries becomes insolvent or fails
generally to pay its debts as they become due (except any Subsidiary which
does not conduct any material amount of business or own a material amount of
assets); or
(k) the Company or any of its Subsidiaries fails to pay any principal
of or interest on any Indebtedness having an outstanding principal amount of
$110,000 or more ("Material Indebtedness") (including without limitation any
such Indebtedness assumed or guaranteed) for a period longer than the grace
period, if any, provided for such payment; or any default under any
instrument or agreement evidencing, creating, securing or otherwise relating
to Material Indebtedness (including without limitation any guaranty or
assumption agreement relating to such Material Indebtedness) or other event
occurs and continues beyond any applicable grace period, and the effect of
such default or other event is to cause, or to permit the holder or holders
of such Material Indebtedness (or their representative) to cause, such
Material Indebtedness (or the obligations under any such guaranty or
assumption agreement) to become due and payable prior to the stated maturity
thereof; or
(l) a Change of Control shall occur or Xxxxxx Xxxxxxxxx shall cease to
serve as the chief executive officer of the Company and its SC Direct and SC
Publishing Subsidiaries, whether by reason of death, disability,
resignation, action by the applicable board of directors, or otherwise, and
one hundred and twenty (120) days shall have passed without express written
waiver by the Purchasers of the Event of Default caused by Xx. Xxxxxxxxx'x
failure to so serve; or
(m) a Reportable Event shall occur which a majority in interest of the
Purchasers, in their discretion, shall determine in good faith constitutes
grounds for the termination by the PBGC of any Plan or for the appointment
by the appropriate United States district court of a trustee for any Plan,
or if any Plan shall be terminated or any such trustee shall be requested or
appointed, or if the Company or any of its Subsidiaries is in "default" (as
defined in Section 4219(c)(5) of ERISA) with respect to
payments to a Multiemployer Plan resulting from such Corporation's complete
or partial withdrawal from such Plan; or
(n) any Subsidiary Guaranty shall cease to be in full force and effect
(other than as a result of a Subsidiary merger permitted hereunder), or any
Subsidiary shall so assert; or any Subsidiary shall fail, after request of
the Purchasers, to execute and deliver a Subsidiary Guaranty or an
assignment and assumption agreement whereby such Subsidiary becomes a
co-maker of each of the Notes; or
(o) intentionally omitted; or
(p) there shall occur any material damage to, or loss, theft or
destruction of, any material assets of any of the Company and of its
Subsidiaries, or any strike, lockout, labor dispute, embargo, condemnation,
act of God or public enemy, or other casualty, which in any such case
causes, for more than ten (10) consecutive days, the cessation or
substantial curtailment of revenue producing activities at any facility of
any of the Company or any of its Subsidiaries if such event or circumstance
is not covered by business interruption insurance and would have a Material
Adverse Effect; or
(q) intentionally omitted; or
(r) any of the Company or any of its Subsidiaries shall be convicted
for a state or federal felony or misdemeanor where such conviction would
have a Material Adverse Effect; or
(s) if, prior to the twentieth day before the maturity of the "Term
Loan" (as defined in the Senior Loan Agreement), the Senior Lender shall not
continue to make available to the Corporations, or a financial institution
or lender other than the Senior Lender has not made available to the
Corporations, a committed revolving line of credit upon terms comparable to
those applicable to the line of credit described in the Senior Loan
Agreement; or
(t) the acceleration of the Senior Debt for any reason whatsoever; or
(u) any other default by any Corporation in any of its payment
obligations, covenants or agreements under the Transaction Document not
otherwise specifically set forth in this Section 9, if such default would or
could reasonably be expected to have a Material Adverse Effect; or
(v) the default by any Corporation in any of its payment obligations,
covenants or agreements under any other lease, contract or agreement to
which such Corporation is a party and with respect to which such default
would or could reasonably be expected to have a Material Adverse Effect.
If an Event of Default under paragraphs (h), (i) or (j) of this Section 9, or on
account of a breach of the obligations set forth in Section 6.1(f)(i) shall
occur, the Notes and all other
amounts owing under this Agreement shall automatically become due and payable.
Upon the occurrence of any other Event of Default, and at any time thereafter,
if such Event of Default shall then be continuing, subject to the provisions of
Section 10, the holders of a majority in outstanding principal amount of the
Notes may, by written notice to the Company, declare due and payable the
principal of, premium, if any, and interest on, the Notes and all other amounts
owing under this Agreement, whereupon the same shall be immediately due and
payable on the fifteenth (15th) day following the date of such notice, unless
the Event of Default is of the type described in paragraphs (b), (f), (k), (l),
(m), (n), (o), (q), (r), (s), (u) or (v) of this Section 9 and the Company shall
cure such Event of Default prior to the expiration of such fifteen (15) day
period. In the event that the Notes become or are declared due and payable prior
to their stated maturity, the same shall become due and payable without
presentment, demand, protest or other notice of any kind, all of which are
hereby expressly waived.
9.2 Intentionally omitted.
9.3 Consultants. Upon the occurrence of a Default or Event of Default,
the Company shall retain at the Purchasers' request and the Company's expense,
consultants and accountants to evaluate the Corporations' financial condition,
business, operations and prospects. Such Persons shall, in all cases, be
acceptable to the Purchasers. The Company shall cooperate fully with such
evaluation and in connection therewith shall make available such senior
executives and other members of management and all information, books and
records requested by such Persons. The Company shall cause such Persons to share
all results, reports and other data generated as a result of such evaluation
with the Purchasers.
9.4 Other Costs and Expenses. The Company shall be obligated to pay,
upon demand, all costs and expenses paid or incurred by the Purchasers (a) in
enforcing its rights and remedies under this Agreement or any of the other
Purchaser Documents, or (b) in connection with the prosecution or defense of any
claim in any way arising out of, related to or connected with this Agreement or
any of the other Purchaser Documents, all of which such costs and expenses shall
include the reasonable fees and disbursements of counsel and of experts and
other consultants retained by the Purchasers. The foregoing shall not be
construed to limit any other provision of this Agreement or the other Purchaser
Documents regarding costs and expenses to be paid by the Company.
SECTION 10. CONSENTS.
Any provision in this Agreement to the contrary notwithstanding, with
the written consents of Purchasers holding a majority or more of the then
outstanding aggregate principal amount of the Notes, the Company may be relieved
from the effect of any Event of Default or from compliance with any covenant,
agreement or undertaking contained herein or in any instrument executed and
delivered as herein provided, except that such consent shall not affect the
terms of the Warrants, the provisions for the payment or prepayment of the Notes
or the continued effect of Section 13 hereof.
SECTION 11. SECURITIES LAW MATTERS.
11.1 Securities Act. Each Purchaser acknowledges (a) that the Notes and
Warrants being acquired by such Purchaser are not being registered under the
Securities Act on the ground that the issuance thereof is exempt from
registration under Section 4(2) of the Securities Act as not involving any
public offering, (b) that it is acquiring the Notes and Warrants for its own
account and will not sell, transfer, or otherwise dispose of any of the Notes
and Warrants or any interest therein, without registration under the Securities
Act and applicable state "blue sky" laws, except in a transaction which in the
opinion of counsel reasonably acceptable to the Company is exempt therefrom, (c)
that it is an "accredited investor" as that term is defined in rules promulgated
under the Securities Act, (d) that it has such knowledge and experience in
financial and business matters as to be capable of evaluating the merits and
risk of an investment in the Notes and Warrants and has obtained, in its
judgment, sufficient information from the Company to evaluate the merits and
risks of an investment in the Notes and Warrants, (e) that it has been provided
the opportunity to obtain information and documents concerning the Company and
its investment in the Notes and Warrants, and has been given the opportunity to
ask questions of, and receive answers from, the directors and officers of the
Company concerning the Company, its investment in the Notes and Warrants, and
other matters pertaining to this investment, and (f) that the offer of the Notes
and Warrants will not be reviewed by any governmental agency and is being sold
to the Purchasers in reliance upon exemption from the Securities Act. Except as
provided in Xxxxxxx 00, xxxx of the Purchasers is aware of any particular
occasion, event or circumstance upon the occurrence or happening of which it
intends to dispose of its Notes and Warrants.
11.2 Resales.
(a) None of the Purchasers or Investors (as defined in Section 12.2)
will sell or transfer all or any part of its Notes, Warrants or Warrant Shares
except:
(i) pursuant to Rule 144 under the Securities Act;
(ii) pursuant to any other exemption from, or otherwise in a
transaction not subject to, the registration requirements of the Securities
Act (as confirmed in an opinion delivered by transferor counsel , to the
effect that the proposed transfer may be effected without registration under
the Securities Act);
(iii) in a transfer by a Purchaser to any Affiliate or wholly-owned
Subsidiary of the Purchaser; or by a Purchaser to Investors as contemplated
by Section 12.2; or
(iv) pursuant to an effective registration statement under the
Securities Act.
(b) The restrictions set forth in Section 11.2(a) shall terminate and
cease to be effective with respect to any Notes, Warrants or Warrant Shares
registered under the Securities Act or transferred pursuant to Rule 144, or if
the Company receives an opinion of counsel reasonably satisfactory to the
Company to the effect that the securities represented thereby need no longer be
subject to such restrictions in order to ensure compliance with the Securities
Act.
Whenever such restrictions shall so terminate the holder or transferee of
such Notes, Warrants or Warrant Shares shall be entitled to receive from the
Company, without expense (other than transfer taxes, if any), certificates for
such Notes, Warrants or Warrant Shares not bearing the first legend set forth in
Section 11.3 at which time the Company will terminate or rescind any transfer
restrictions relating thereto. In addition, the Company will issue certificates
for the Notes, Warrants or Warrant Shares without all or part of the second
legend whenever this Agreement, the Warrant Agreement and the Stockholders
Agreement cease to restrict the transfer of the securities evidenced by such
certificate.
11.3 Legends. Each Warrant and each certificate for Warrant Shares
issued to the Purchasers or to a subsequent transferee or holder shall bear
legends in substantially the following form:
[THIS WARRANT AND THE UNDERLYING SHARES] [THE SHARES] REPRESENTED BY THIS
CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND
MAY NOT BE SOLD OR TRANSFERRED EXCEPT PURSUANT TO AN EXEMPTION FROM, OR
OTHERWISE IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF
SUCH ACT.
IN ADDITION, THIS WARRANT AND THE UNDERLYING SHARES MAY BE TRANSFERRED ONLY
IN COMPLIANCE WITH THE CONDITIONS SPECIFIED IN THE NOTE AND WARRANT PURCHASE
AGREEMENT AND THE WARRANT AGREEMENT, EACH DATED _____, 2001, BETWEEN THE
COMPANY AND THE INITIAL HOLDERS OF THE WARRANTS NAMED THEREIN, AND THE
STOCKHOLDERS AGREEMENT DATED MAY 4, 2001, BETWEEN THE COMPANY AND THE
STOCKHOLDERS NAMED THEREIN, COMPLETE AND CORRECT COPIES OF WHICH ARE
AVAILABLE FOR INSPECTION AT THE PRINCIPAL OFFICE OF THE COMPANY AND WILL BE
FURNISHED TO THE HOLDER HEREOF UPON WRITTEN REQUEST AND WITHOUT CHARGE.
SECTION 12. TRANSFERS.
12.1 Transfers. Subject only to compliance with the requirements of
Section 11.2 and the Stockholders Agreement (if applicable), each Purchaser
shall be entitled to assign and transfer all or any part of its Notes, Warrants
and Warrant Shares, or any interest or participation therein, and its related
rights under this Agreement and, if applicable, the Warrant Agreement and the
Stockholders Agreement; provided, however, that such transfers shall not result
in the Notes being held by greater than ten (10) holders unless such transfers
are the result of the winding up of the transferee and the distribution in kind
of the Notes to the owners of the transferee or at such owners' directions. Upon
the assignment or transfer by such Purchaser of all or any part of its Notes,
Warrants or Warrant Shares or its interest therein (except in public offering
registered under the Securities Act, or a sale pursuant to Rule 144 thereunder),
the term "Purchaser" as used herein shall thereafter include, to the extent of
the interest so assigned or transferred, the assignee or transferee of such
interest.
12.2 Participations. A Purchaser may wish to grant participations in
the Notes, Warrants or Warrant Shares to other accredited investors
("Investors") pursuant to a participation agreement; provided, however, that at
the time any such participation is granted by the grantor it will so inform the
Company and furnish it the representation of each participating Investor (in
form and substance reasonably acceptable to the Company) that such Investor is
acquiring his, her or its participation with no present intention of reselling
or distributing the same; and provided, further, that such participation
agreement shall provide that the Purchaser selling or granting the participation
shall retain the sole right to take or refrain from taking any action under the
Transaction Documents, except that such participation agreement may provide that
such Purchaser shall not, without the consent of the participant, agree to any
amendment or waiver that would have the effect of (i) extending the maturity
date of the Notes or (ii) reducing any amount payable under the Notes, to the
extent that the participant would be affected thereby. If at any time a
Purchaser wishes to assign and transfer of record into the name of an Investor
its participation and related rights and obligations arising under this
Agreement, the Company and the other Purchasers will execute and deliver such
agreements and instruments as the Purchaser may reasonably request (including
without limitation new Notes and certificates for Warrants, Shares and Warrant
Shares in such amounts as the Purchaser may request) to effect the assignment
and transfer to such Investor (in its own name) of such participation, or such
part thereof as may be so assigned and transferred.
12.3 Issuance of New Notes. The Company will at any time, at its
expense, at the request of a holder of a Note, and upon surrender of such Note
for such purpose, issue a new Note or Notes in exchange therefor, payable to the
order of the holder or (subject to Section 11.2) such person or persons as may
be designated by such holder, dated the last date to which interest has been
paid on the surrendered Note, or, if such exchange shall take place prior to the
due date of the first interest payment, the Closing Date, in such denominations
as may be requested, in an aggregate principal amount equal to the unpaid
principal amount of the Note so surrendered and substantially in the form of
such Note with appropriate revisions. Upon such exchange the term "Note" as used
herein shall include such new Note or Notes.
SECTION 13. CONTINUED EFFECTIVENESS OF AGREEMENT.
The covenants and all terms contained in this Agreement shall continue
in full force and effect for the benefit of the Purchasers (including Purchasers
who hold Warrants or Warrant Shares) after the Notes and all other Indebtedness
(including , but not limited to, all accrued but unpaid interest, premiums,
Principal Increases and Costs and Expenses) outstanding under this Agreement in
respect of the Notes are paid in full, except that the following provisions
shall terminate and be of no further force and effect on and after such
repayment: Sections 3.1, 3.2, 6.3, 6.4 through 6.6, 6.8(a) and (b), 6.11, 6.14,
6.16, 6.17, 7.1 through 7.11, 7.14, 7.15, 7.17 through 7.20 and 9.1 through 9.3,
and Articles 4, 5 and 8. No termination of any covenant, representation,
warranty or other provision of the Agreement or any other Purchaser Document,
whether after repayment of the Notes or otherwise, shall in any way suspend,
eliminate or nullify the right of any Purchaser or holder of Warrants, as the
case may be, to pursue rights and remedies arising out of a breach or default
which occurred prior to the date of termination, whether known or unknown as of
such date.
SECTION 14. JUDICIAL PROCEEDINGS.
(a) The Company irrevocably submits to the non-exclusive jurisdiction
of any state or federal court sitting in the City of New York over any suit,
action or proceeding arising out of or relating to this Agreement or any of the
other Purchaser Documents. To the fullest extent it may effectively do so under
applicable law, the Company irrevocably waives and agrees not to assert, by way
of motion, as a defense or otherwise, any claim that it is not subject to the
jurisdiction of any such court, any objection that it may now or hereafter have
to the laying of the venue of any such suit, action or proceeding brought in any
such court and any claim that any such suit, action or proceeding brought in any
such court has been brought in an inconvenient forum.
(b) The Company agrees, to the fullest extent it may effectively do so
under applicable law, that a judgment in any suit, action or proceeding of the
nature referred to in paragraph (a) above brought in any such court shall,
subject to such rights of appeal on issues other than jurisdiction as may be
available, be conclusive and binding upon it and may be enforced in the courts
of the United States of America or the State of New York (or any other courts to
the jurisdiction of which it is or may be subject) by a suit upon such judgment.
(c) The Company consents to service of process in any suit, action or
proceeding of the nature referred to in paragraph (a) above by mailing a copy
thereof by registered or certified mail, postage prepaid, return receipt
requested, to its address specified in or designated pursuant to Section 15.1.
Such service (i) shall be deemed in every respect effective service of process
upon the Company in any such suit, action or proceeding and (ii) shall, to the
fullest extent permitted by law, be taken and held to be valid personal service
upon and personal delivery to the Company.
(d) Nothing in this Section 14 shall affect the right of any of the
Purchasers to serve process in any manner permitted by law, or limit any right
that any of the Purchasers may have to bring proceedings against the Company in
the courts of any jurisdiction or to enforce in any lawful manner a judgment
obtained in one (1) jurisdiction in any other jurisdiction.
(e) Upon breach or default by any Corporation with respect to any
obligation hereunder or under any of the other Purchaser Documents, the
Purchasers (or their agents) shall be entitled to protect and enforce their
rights at law, or in equity or by other appropriate proceedings for specific
performance of such obligation, or for an injunction against such breach or
default, or in aid of the exercise of any power or remedy granted hereby or
thereby or by law.
SECTION 15. MISCELLANEOUS.
15.1 Notices. All notices, requests, demands or other communications to
or upon the respective parties hereto shall be in writing and shall be deemed to
have been given or made, and all financial statements, information and the like
required to be delivered hereunder shall be deemed to have been delivered,
either (a) three (3) Business Days after deposited in the
United States certified mail, return receipt requested, with postage prepaid, or
(b) one (1) Business Day after delivery to a nationally recognized courier,
designated for overnight delivery with all fees prepaid, in either case
addressed to the Company at 00 Xxxxxxx Xxxxx, Xxxxx Xxxxxx, Xxxxxxxxxxxxx 00000,
Attn: Chief Executive Officer, and to the Purchasers at their respective
addresses set forth on Exhibit A hereto, or to such other address as any of them
shall specify in writing to the others. The Company shall maintain registers of
the holders of the Notes, Warrants and Warrant Shares which shall contain the
last address specified as provided in the preceding sentence. Upon reasonable
request of any Purchaser, the Company will deliver to such Purchaser, at the
Company's expense, additional copies of all financial statements, information
and the like required to be provided to the Purchasers hereunder, subject to the
confidentiality provisions of Section 6.1.
15.2 Cumulative Remedies, Etc. No failure or delay on the part of any
of the Purchasers in exercising any right, power or privilege hereunder, and no
course of dealing between any Corporation and the Purchasers, or any of them,
shall operate as a waiver thereof, nor shall any single or partial exercise of
any right, power or privilege hereunder preclude the simultaneous or later
exercise of any other right, power or privilege. The rights and remedies herein
expressly provided are cumulative and not exclusive of any rights or remedies
which the Purchasers, or any of them, would otherwise have. No notice to or
demand on any Corporation in any case shall entitle such Corporation to any
other or further notice or demand in similar or other circumstances or
constitute a waiver of the rights of the Purchasers, or any of them, to take any
other or further action in any circumstances without notice or demand.
15.3 No Oral Changes; Assignment; Survival of Representations. This
Agreement may not be changed or terminated orally. This Agreement shall be
binding upon the Company and the Purchasers and their successors and assigns.
The Company shall not make any assignment of its rights under this Agreement or
subject this Agreement or its rights hereunder to any Lien; and any such Lien
shall be absolutely void and unenforceable as against the Purchasers. All
agreements, representations and warranties made herein or in writing otherwise
in connection herewith shall survive the issuance of the Notes and Warrants.
15.4 Several Obligations. The Purchasers shall not be jointly obligated
hereunder; their obligations are several. The sales of the Notes and Warrants to
the Purchasers shall be deemed separate sales to each Purchaser. Notwithstanding
any provision of this Agreement, the Company shall not be obligated to sell less
than all of the Notes and Warrants, and no Purchaser shall be obligated to
purchase any of the Notes and Warrants unless all of the Notes and Warrants are
sold.
15.5 Costs and Expenses The Corporations shall pay on demand all fees,
costs and expenses of the Purchasers incurred in connection with, or otherwise
payable by the Corporations with respect to: (a) the preparation, negotiation,
execution, delivery, administration, default, collection, waiver or amendment of
any terms of this Agreement and the other Purchaser Documents (including,
without limitation, any environmental and other "due diligence" investigations);
(b) the preparation, negotiation, execution and delivery of the letter of intent
dated as of May 3, 2001 between the Purchasers and the Company (including,
without limitation, the commitment fee described in the term sheet attached
thereto); (c) the
Purchasers' exercise, preservation or enforcement of any of their rights,
remedies or options hereunder (including, without limitation, pursuant to
Sections 9.3 and 9.4 hereof); (d) the granting, perfecting and protecting of
liens upon and security interests in any collateral now or hereafter securing
the Corporations' obligations under this Agreement and the other Purchaser
Documents; and (e) the prosecution or defense of any claim in any way arising
out of, related to or connected with this Agreement or any of the other
Purchaser Documents; including in each case, without limitation, (i) fees and
expenses of outside legal counsel or the allocated costs of in-house legal
counsel, (ii) accounting, consulting, brokerage or other similar professional
fees or expenses, (iii) any fees and expenses associated with travel or other
costs relating to any appraisals or examinations conducted in connection with
the Corporations' obligations under this Agreement and the other Purchaser
Documents, (iv) all filing fees and other taxes and fees payable or determined
to be payable in connection therewith, including, without limitation,
documentary, stamp and similar taxes and assessments and all recording and
filing fees charged by any Governmental Authority; and (v) all other costs and
expenses incurred by the Purchasers as are payable by the Corporations pursuant
to Sections 9.3, 9.4 and 15.8 hereof or pursuant to any other provision of this
Agreement or any of the other Purchaser Documents. All of the foregoing fees,
costs and expenses are referred to herein collectively as the "Costs and
Expenses". The Costs and Expenses shall bear interest at the default rate
described in Section 3.1(d) hereof from the date demand therefor and reasonable
documentation thereof is made until the same are paid. SAC and SCC hereby
acknowledge that their obligations under this Section (I) are joint and several,
(II) are secured by any and all collateral now or hereafter securing the
Corporations' obligations under this Agreement and the other Purchaser Documents
(including, without limitation, the Subsidiary Guaranties), (III) shall survive
any termination of this Agreement and (IV) are absolute and unconditional
regardless of whether or not the Transactions are consummated.
15.6 Loss or Destruction of Note. Upon receipt by the Company of notice
of the loss, theft, destruction or mutilation of any Note, and (in the case of
loss, theft or destruction) of indemnity satisfactory to the Company (the
Purchasers' undertaking shall be satisfactory indemnity in the case of loss,
theft or destruction of any Note owned by the Purchaser), and upon reimbursement
to the Company of all reasonable expenses incidental thereto, and upon surrender
or cancellation of such Note, if mutilated, the Company shall make and deliver a
new Note of like tenor in lieu of the lost, stolen, destroyed or mutilated Note.
15.7 Allocation of Payments among Purchasers. The Purchasers of Notes
agree among themselves that, with respect to all sums received by such
Purchasers applicable to the payment of principal of, premium, if any, or
interest on the Notes, equitable adjustment will be made among such Purchasers
so that, in effect, all such sums shall be shared ratably by all of such
Purchasers holding Notes whether received by voluntary payment, by realization
upon security, by the exercise of the right of setoff, by counter-claim or
cross-action or by the enforcement of any or all of the Notes. If any Purchaser
receives any payment on its Notes in excess of its pro rata portion, then such
Purchaser receiving such excess payment shall purchase for cash from the other
Purchasers holding Notes shares in their Notes in such amounts as shall result
in a ratable participation by all of the Purchasers holding Notes in the
aggregate unpaid amount of Notes then outstanding. In addition to the provisions
set forth in this Section 15.7, two or more of the Purchasers may enter into
agreements among themselves
for the allocation of proceeds, and if requested, the Company hereby agrees to
abide by such agreements.
15.8 Indemnification Generally. The Company agrees to indemnify and
hold harmless each Purchaser, its Subsidiaries, and any subsequent holder of the
Notes or the Warrants, and their respective directors, officers, employees,
stockholders, partners and Affiliates, to the maximum extent permitted by law,
from and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, reasonable costs, reasonable expenses and
disbursements of any kind or nature whatsoever with respect to, or arising out
of, the Merger, the Transactions, the Transaction Documents, any operations or
activities of the Company or any Subsidiary, execution, delivery, enforcement,
performance and administration of the Purchaser Documents and the use of the
proceeds of the issuance and sale of the Notes and Warrants, or any other
matter, claim or event related to, or arising out of the Transactions, the
Transaction Documents or the matters contemplated therein (all the foregoing,
collectively, the "indemnified liabilities"); provided, that the Company shall
have no obligation hereunder to any indemnified party with respect to
indemnified liabilities arising from the gross negligence or willful misconduct
of such indemnified party. The obligations of the Company under this Section
15.8 shall survive and continue to be in full force and effect notwithstanding
the termination of this Agreement.
15.9 Governing Law. This Agreement, the other Purchaser Documents and
the other agreements and instruments executed as provided herein and therein,
and the rights and obligations of the parties hereunder and thereunder, shall be
construed and interpreted in accordance with and governed by the internal laws
of the State of New York.
15.10 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
15.11 Captions; Gender. The descriptive headings of the Sections of
this Agreement are inserted for convenience only and shall not affect the
meaning, construction or interpretation of any of the provisions hereof. The use
of the neuter form of a pronoun shall be deemed, where appropriate, to include
the masculine and feminine forms of such pronoun.
15.12 Survival; Right to Indemnification. All representations,
warranties, covenants, and obligations in this Agreement, the certificates
delivered pursuant to Section 5 hereof, and any other certificate or document
delivered pursuant to this Agreement will survive the Closing. The right to
indemnification, payment of damages or other remedy based on such
representations, warranties, covenants, and obligations will not be affected by
any investigation conducted with respect to, or any knowledge acquired (or
capable of being acquired) at any time, whether before or after the execution
and delivery of this Agreement or the Closing Date, with respect to the accuracy
or inaccuracy of or compliance with, any such representation, warranty,
covenant, or obligation. The waiver of any condition based on the accuracy of
any representation or warranty, or on the performance of or compliance with any
covenant or obligation, will not affect the right to indemnification, payment or
damages, or other remedy based on such representations, warranties, covenants,
and obligations.
15.13 Purchasers May Perform; Power of Attorney. If the Company or any
of its Subsidiaries fails to perform any agreement contained herein or in the
other Purchaser Documents, the Purchasers may, but shall not be obligated to,
perform or cause the performance of such agreement, and the costs and expenses
incurred by the Purchasers in connection therewith shall constitute Costs and
Expenses hereunder.
15.14. Integration. This Agreement (including all Exhibits and
Schedules attached hereto and all certificates and other documents executed and
delivered in connection herewith or pursuant hereto) constitutes the entire
understanding and agreement of the parties hereto with respect to the subject
matter hereof, and supersedes all prior agreements and understandings, written
and oral, among the parties with respect to the subject matter hereof,
including, without limitation, that certain letter of intent dated as of May 3,
2001.
15.15 Severability. An term of provision of this Agreement or of any of
the other Purchaser Documents which is invalid or unenforceable in any
jurisdiction shall, as to that jurisdiction, be ineffective to the extent of
such invalidity or unenforceability without rendering invalid or unenforceable
the remaining terms and conditions of this Agreement or of any of the other
Purchaser Documents or affecting the validity or unenforceability of any of the
terms or provisions of this Agreement in any other jurisdiction. If any
provision of this Agreement or of any of the other Purchaser Documents is so
broad as to be unenforceable, the provision that be interpreted to be only so
broad as is enforceable.
15.16 Purchaser Representations; No Waiver. None of the representations
or warranties made by the Purchasers or their Affiliates in any filings made
with the Securities and Exchange Commission in connection with the Merger shall
constitute or be construed to (a) be a waiver of the Corporations' compliance
with any of the terms and conditions of the Purchaser Documents, or (b) render
any of the Corporations' obligations under the Purchaser Documents void or
voidable or otherwise reduce of affect such obligations in any manner.
15.17 Waiver of Jury Trial and Damages . THE COMPANY AND THE PURCHASERS
MUTUALLY HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT TO
TRIAL BY JURY IN ANY JURISDICTION, COURT AND PROCEEDING WITH RESPECT TO, IN
CONNECTION WITH, OR ARISING OUT OF THIS AGREEMENT, THE OTHER PURCHASER
DOCUMENTS, THE OTHER TRANSACTION DOCUMENTS, OR ANY INSTRUMENT OR DOCUMENT
DELIVERED PURSUANT HERETO OR THERETO OR ANY COURSE OF CONDUCT, COURSE OF
DEALINGS, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY,
INCLUDING, WITHOUT LIMITATION, ANY COURSE OF CONDUCT, COURSE OF DEALINGS,
STATEMENTS OR ACTIONS OF CREDITOR RELATING TO THE ADMINISTRATION OR ENFORCEMENT
OF THIS AGREEMENT, THE OTHER PURCHASER DOCUMENTS OR THE OTHER TRANSACTION
DOCUMENTS, AND AGREE THAT NEITHER PARTY WILL SEEK TO CONSOLIDATE ANY SUCH ACTION
WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED.
EXCEPT AS PROHIBITED BY LAW, THE COMPANY WAIVES ANY RIGHT WHICH IT MAY HAVE TO
CLAIM OR RECOVER IN
ANY PROCEEDING REFERRED TO IN THE PRECEDING SENTENCE ANY SPECIAL, EXEMPLARY,
PUNITIVE OR CONSEQUENTIAL OR OTHER TYPE OF DAMAGES OTHER THAN ACTUAL DAMAGES.
THE COMPANY HEREBY CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF THE
PURCHASERS HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT THE PURCHASERS WOULD
NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS. THE
COMPANY ACKNOWLEDGES THAT THE FOREGOING WAIVERS CONSTITUTE A MATERIAL INDUCEMENT
FOR THE PURCHASERS TO ENTER INTO THIS AGREEMENT AND PURCHASE THE NOTES. BY
EXECUTING AND DELIVERING THIS AGREEMENT, THE COMPANY CONFIRMS THAT THE FOREGOING
WAIVERS ARE INFORMED AND FREELY MADE.
[Remainder of page intentionally left blank; signature pages follow]
If you are in agreement with the foregoing Note and Warrant Purchase
Agreement, please sign in the space provided below.
Company: SPECIALTY ACQUISITION CORP.
By: _____________________________________
Printed Name:____________________________
Printed Title:___________________________
SPECIALTY CATALOG CORP.
By: _____________________________________
Printed Name:____________________________
Printed Title:___________________________
SC CORPORATION (d/b/a SC DIRECT)
By: _____________________________________
Printed Name:____________________________
Printed Title:___________________________
SC PUBLISHING, INC.
By: _____________________________________
Printed Name:____________________________
Printed Title:___________________________
DAXBOURNE INTERNATIONAL LIMITED
By: _____________________________________
Printed Name:____________________________
Printed Title:___________________________
SC LICENSING CORP.
By: _____________________________________
Printed Name:____________________________
Printed Title:___________________________
(Signatures continue on next page)
Company (cont.): ROYAL ADVERTISING & MARKETING, INC.
By: _____________________________________
Printed Name:____________________________
Printed Title:___________________________
The foregoing is hereby accepted and agreed to as of the date first above
written.
Purchasers:
LEG PARTNERS III SBIC, L.P.
by Xxxxx XX-XX, LLC, its general partner
By: _____________________________________
Xxxxxxxx X. Xxxxx, Managing Member
LEG PARTNERS DEBENTURE SBIC, L.P.
by Xxxxx Debenture GP, LLC, its general partner
By: _____________________________________
Xxxxxxxx X. Xxxxx, Managing Member
EXHIBIT G TO
NOTE AND WARRANT PURCHASE AGREEMENT
Financial Covenants
1. Ratio of Total Funded Debt to EBITDA. The Company and its
Subsidiaries shall not permit the ratio of Funded Debt on any date to EBITDA for
the most recent four quarter period for which financial statements have been
delivered pursuant to Sections 6.1(a) and 6.1(c) to be greater than [TO BE
INSERTED].
2. Ratio of Senior Funded Debt to EBITDA. The Company and its
Subsidiaries shall not permit the ratio of Senior Funded Debt on any date to
EBITDA for the most recent four quarter period for which financial statements
have been delivered pursuant to Sections 6.1(a) and 6.1(c) to be greater than
[TO BE INSERTED].
3. Ratio of Operating Cash Flow to Total Debt Service. The Company and
its Subsidiaries shall not permit for any period of four consecutive fiscal
quarters, commencing with the period ending September, 2001, the ratio of (a)
Operating Cash Flow to (b) Total Debt Service, to be less than [TO BE INSERTED].
4. Minimum EBITDA. The Company and its Subsidiaries shall earn EBITDA
for each period of four consecutive fiscal quarters, commencing with the period
ending September, 2001, of not less than $[TO BE INSERTED].
5. Capital Expenditures. The Company and its Subsidiaries shall not
make or incur any Capital Expenditures if, after giving effect thereto, the
aggregate of all Capital Expenditures made by the Company and its Subsidiaries
would exceed (a) $[TO BE INSERTED] in fiscal year 2001 and in any fiscal year
thereafter (except as otherwise provided in paragraph (b)) and (b) $[TO BE
INSERTED] in fiscal year 2002, provided that the Company and its Subsidiaries
shall have earned EBITDA in excess of $[TO BE INSERTED] for fiscal year 2001,
and provided further, that not less than $1,000,000 of such Capital Expenditures
during fiscal year 2002 shall be made to purchase and install a management
information system approved by the Purchasers.
6. Definitions Applicable to Financial Covenants. Capitalized terms
used but not otherwise defined on this Exhibit shall have the meanings given to
them in the Note and Warrant Purchase Agreement to which this Exhibit is
attached.
