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EXHIBIT 10.4
PLEDGE AGREEMENT
AGREEMENT, dated as of February 14, 1998 between EDUCATIONAL MEDICAL, INC.,
a Delaware corporation (the "Pledgor"), XXXXXX XXXXXX AND XXXXXX X. XXXXXX,
individuals residing within the State of Pennsylvania (the "Pledgees") and CHI
ACQUISITION CORP., a Delaware corporation (the "Issuer").
PRELIMINARY STATEMENT
The Pledgor is the owner of all of the issued and outstanding common stock,
par value $.01 per share (the "Pledged Securities"), of the Issuer.
The Issuer and the Pledgor have jointly and severally executed and
delivered to Pledgees their Second Payment Promissory Note in the amount of
$3,000,000 and Purchase Money Promissory Note in the amount of $5,750,000
(collectively, the "Promissory Notes"), copies of which are attached hereto as
COMPOSITE EXHIBIT 1 to this Pledge Agreement. The Pledgor's obligations with
respect to the payment of the Promissory Notes (the "Secured Obligations") are
to be secured by the Pledged Collateral, as defined in Section 1.
In consideration of the premises and of the mutual covenants herein
contained, the receipt and adequacy of which are hereby acknowledged, the
parties agree as follows:
1. Pledge. As security for the due and punctual payment and performance of
the payment of the Secured Obligations, and this Agreement, the Pledgor hereby
pledges, hypothecates, assigns, transfers, sets over and delivers unto the
Pledgees, and hereby grants to the Pledgees a security interest in, the
following:
(a) the Pledged Securities and the certificates representing the
Pledged Securities, and all cash, proceeds, securities, dividends and other
property at any time and from time to time received, receivable or otherwise
distributed in respect of or in exchange for any or all of the Pledged
Securities; and
(b) all securities hereafter delivered or issued in substitution for or
in addition to any of the foregoing, all certificates and instruments
representing or evidencing such securities, together with the interest coupons
(if any) attached thereto, and all cash, proceeds, securities, interest,
dividends and other property at any time and from time to time received or
otherwise distributed in respect of or in exchange for any or all thereof (all
such Pledged Securities, certificates, interest coupons, cash, proceeds,
securities, interest, dividends and other property being herein collectively
called the "Pledged Collateral");
TO HAVE AND TO HOLD the Pledged Collateral, together with all rights,
titles, interests, privileges and preferences appertaining or incidental
thereto, unto the
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Pledgees, its successors and assigns, forever, subject, however to the terms,
covenants and conditions hereinafter set forth.
2. Transfer to Escrow Agent. The original certificates representing all
Pledged Collateral shall be held on behalf of Pledgees by England & Young, P.C.
(the "Escrow Agent"). The Pledgor shall deliver to the Escrow Agent all original
certificates (the "Original Certificates") representing the Pledged Collateral
issued in the name of the Pledgor, endorsed or assigned in blank in favor of the
Pledgees, and subject only to customary restrictions on transferability provided
for in the Securities Act of 1933 and applicable related state laws and
regulations. All of the Pledged Securities represented by such certificate(s)
are validly issued, duly paid and non-assessable. The Pledgees may, upon request
to the Escrow Agent and delivery by the Escrow Agent of the appropriate Pledged
Collateral to the Issuer, exchange the certificates representing the Pledged
Collateral for certificates of smaller or larger denominations for any purpose
consistent with the terms of this Pledge Agreement.
3. Voting Rights; Dividends. So long as there is no failure to make due and
punctual payment to the Pledgees in accordance with the terms of the Secured
Obligations nor any other continuing event which would constitute an event of
default under this Agreement (an "Event of Default"):
(a) The Pledgor shall be entitled to exercise any and all voting and/or
consensual rights and powers relating or pertaining to the Pledged Collateral or
any part thereof.
(b) The Pledgor shall be entitled to receive and retain any and all
ordinary cash dividends and interest payable on the Pledged Collateral, but any
and all stock and/or liquidating dividends, distributions in property, returns
of capital or other distributions made on or in respect of the Pledged
Collateral, whether resulting from a subdivision, combination or
reclassification of the outstanding capital stock of an Issuer or received in
exchange for Pledged Collateral or any part thereof, or as a result of any
merger, consolidation, acquisition or other exchange of assets to which the
Issuer may be a party or otherwise, and any and all cash and other property
received in payment of the principal of or in redemption of or in exchange for
any Pledged Collateral (either at maturity, upon call for redemption or
otherwise), shall be and become part of the collateral pledged by the Pledgor
hereunder and, if received by the Pledgor, shall be received in trust for the
benefit of the Pledgees or its assigns or the holder of any subsequent perfected
lien as provided in the addendum to this Pledge Agreement and shall forthwith be
delivered to the Escrow Agent (accompanied by proper instruments of assignment
and/or stock and/or bond powers executed by the Pledgor in accordance with the
Pledgees' instructions) to be held as Pledged Collateral subject to the terms of
this Pledge Agreement.
(c) The Pledgees shall execute and deliver (or cause to be executed and
delivered) to the Pledgor all such proxies, powers of attorney, dividend orders,
interest coupons and other instruments as the Pledgor may request for the
purpose of
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enabling the Pledgor to exercise the voting and/or consensual rights and powers
which it is entitled to exercise pursuant to subparagraph (a) above and/or to
receive the dividends and/or interest payments which it is authorized to receive
and retain pursuant to subparagraph (b) above.
(d) Upon the occurrence and during the continuance of an Event of
Default, all rights of the Pledgor to exercise the voting and/or consensual
rights and powers which it is entitled to exercise pursuant to Section 3(a)
hereof and/or to receive the dividends and interest payments which it is
authorized to receive and retain pursuant to Section 3(b) hereof shall cease,
and all such rights shall thereupon become vested in the Pledgees who shall have
the sole and exclusive right and authority to exercise such voting and/or
consensual rights and powers and/or to receive and retain the dividends and/or
interest payments which the Pledgor would otherwise be authorized to retain
pursuant to Section 3(b) hereof. Any and all money and other property paid over
to or received by the Pledgees pursuant to the provisions of this paragraph (d)
or pursuant to the exercise by Pledgees of the voting and/or consensual rights
and powers shall be retained by the Pledgees as additional collateral hereunder
and be applied in accordance with the provisions of this Pledge Agreement.
4. Events of Default. The occurrence of any one or more of the following
shall constitute an Event of Default:
(a) if the Makers shall default in making any payment with respect to
the Secured Obligations; provided, however, that, in the event of a dispute as
to such payment, the relevant payment may be made into the escrow account of the
Escrow Agent subject to the resolution of such dispute or, at the discretion of
the Pledgor, into the registry of any court of competent jurisdiction and such
payment shall not constitute an Event of Default, or
(b) if Pledgor shall become bankrupt or insolvent, or file any petition
for reorganization or relief from creditors under any applicable law of any
jurisdiction, or make any general assignment for the benefit of creditors, and
in either event
(c) such default or event shall continue for 10 days after the giving
of written notice to the Pledgees.
5. Remedies upon Default. If any Event of Default shall have occurred and
be continuing, then, in addition to exercising any rights and remedies as a
secured party under the Uniform Commercial Code in effect in Pennsylvania, the
Pledgees may, at their option, do any one or more of the following without being
required to give any notice to the Pledgor:
(a) apply the cash (if any) then held by them as collateral hereunder,
first, to the payment of all costs of collection (including attorneys' fees)
incurred in enforcing Pledgees' rights under the Promissory Notes and this
Agreement; second to the payment of interest accrued and unpaid on the
Promissory Notes (first on the Second
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Payment Promissory Note and then on the Purchase Money Promissory Note (the
"Promissory Note Payment Order") to and including the date of such application,
third to the payment or prepayment of principal of the Promissory Notes in
accordance with the Promissory Note Payment Order, and fourth, to the payment of
all other amounts then owing to the Pledgees under the terms of the Promissory
Notes in accordance with the Promissory Note Payment Order and then otherwise
pursuant to this Pledge Agreement, and
(b) sell the Pledged Collateral, or any part thereof, at any public or
private sale or at any broker's board or in any securities exchange, for cash,
upon credit or for future delivery, as the Pledgees shall deem appropriate. The
Pledgees shall be authorized at any such sale (if they deem it advisable to do
so) to restrict the prospective bidders or purchasers to persons who will
represent and agree that they are purchasing the Pledged Collateral for their
own account for investment and not with a view to the distribution or sale
thereof, and upon consummation of any such sale the Pledgees shall have the
right to assign, transfer and deliver to the purchaser or purchasers thereof the
Pledged Collateral so sold, free and clear from any claims or rights of Pledgor.
Further, it shall be deemed commercially reasonable for the Pledgees to impose
sufficient conditions on any such sale so as to preclude the necessity of
registration of the Pledged Collateral under the Securities Act of 1933, as
amended. Each such purchaser at any such sale shall hold the property sold
absolutely, free from any claim or right on the part of the Pledgor, and the
Pledgor hereby waives (to the extent permitted by law) all rights of redemption,
stay and/or appraisal which it now has or may at any time in the future have
under any rule of law or statute now existing or hereafter enacted. The Pledgees
shall give the Pledgor at least 30 days' written notice in the manner specified
for notices under this Agreement of the Pledgees' intention to make any such
public or private sale or sales at any broker's board or on any such securities
exchange, and the Pledgor agrees that such notice of sale will be commercially
reasonable notice to it. Such notice, in case of public sale, shall state the
time and place fixed for such sale, and, in the case of sale at a broker's board
or exchange at which such sale is to be made, the day on which the Pledged
Collateral, or portion thereof, will first be offered for sale at such board or
exchange. Any such public sale shall be held at such time or times within
ordinary business hours and at such place or places, as the Pledgees may fix in
the notice of such sale. At any such sale, the Pledged Collateral, or portion
thereof, to be sold may be sold in one lot as an entirety or in separate
parcels, as the Pledgees may (in its sole and absolute discretion) determine and
the Pledgees or other holder of the Secured Obligations may bid (which bid may
be in whole or in part, in the form of cancellation of indebtedness) for and
purchase for the account of the Pledgees or other holder of the any Secured
Obligation the whole or any part of the Pledged Collateral. If the proceeds of
the Pledged Collateral are insufficient to satisfy Pledgor's obligations under
the Promissory Notes and this Agreement, Pledgor shall remain liable for any
deficiency. The Pledgees shall not be obligated to make any sale of Pledged
Collateral if it shall determine not to do so, regardless of the fact that
notice of sale of Pledged Collateral may have been given. The Pledgees may,
without notice or publication, adjourn any public or private sale or cause the
same to be adjourned from time to time by announ-
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cement at the time and place fixed for sale, and such sale may, without further
notice, be made at the time and place to which the same was so adjourned. In
case sale of all or any part of the Pledged Collateral is made on credit or for
future delivery, the Pledged Collateral so sold may be retained by the Pledgees
until the sale price is paid by the purchaser or purchasers thereof, but neither
the Pledgees nor any other holder of the Secured Obligations or the assignee of
any of the Pledgees' rights, shall incur any liability in case any such
purchaser or purchasers shall fail to take up and pay for the Pledged Collateral
so sold and, in the case of such failure, such Pledged Collateral may be sold
again upon like notice. As an alternative to exercising the power of sale herein
conferred upon it, the Pledgees may proceed by a suit or suits at law or in
equity to foreclose this Pledge Agreement and to sell the Pledged Collateral, or
any portion thereof, pursuant to a judgment or decree of a court or courts of
competent jurisdiction; and
(c) purchase the Pledged Collateral or any part thereof at any public
or private sale.
6. Application of Proceeds of Sale. The proceeds of sale of Pledged
Collateral sold pursuant to Section 5 (c) hereof shall be applied by the
Pledgees as follows:
First: in the manner provided in paragraph (a) of Section 5 hereof; and
Second: the balance (if any) of such proceeds shall be paid to the
Pledgor, its successors or assigns in proportion to their ownership of the
Pledged Collateral, or as a court of competent jurisdiction may direct.
7. Extension or Modification of the Promissory Notes. The Pledged
Collateral pledged hereunder secures the payment and performance of all of the
indebtedness of the Pledgor with respect to the Secured Obligations and the
Pledgor agrees that the Promissory Notes may be extended or otherwise modified
in accordance with its terms without affecting this Pledge Agreement or the
obligations of Pledgor hereunder, which shall continue in full force and effect
until the Secured Obligations shall have been fully paid and performed.
8. Authority of Pledgees. The Pledgees shall have and be entitled to
exercise all such powers hereunder as are specifically delegated to the Pledgees
by the terms hereof, together with such powers as are reasonably incidental
thereto. The Pledgees may execute any of its duties hereunder by or through
agents or employees and shall be entitled to retain counsel and to act in
reliance upon the advice of such counsel (whether written or oral) concerning
all matters pertaining to its duties hereunder. Neither the Pledgees, nor any
director, officer or employee of the Pledgees, shall be liable for any action
taken or omitted to be taken by it or them hereunder in connection herewith,
except for its or their own gross negligence or willful misconduct. The Pledgor
hereby agrees to reimburse the Pledgees, on demand, for all expenses incurred by
the Pledgees in connection with the administration and enforcement of this
Pledge Agreement (including expenses incurred by the Escrow Agent or any
subagent
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employed by the Pledgees) and agrees to indemnify and hold harmless the Pledgees
and/or any such subagent against any and all liability incurred by the Pledgees
(or such subagent hereunder or in connection herewith), unless such liability
shall be due to willful misconduct or gross negligence on the part of the
Pledgees or such subagent.
9. Pledgees Appointed Attorney in Fact. The Pledgor hereby appoints the
Pledgees the Pledgor's attorney-in-fact (any proxy with full power of
substitution to vote and otherwise act following an Event of Default) for the
purpose of carrying out the provisions of this Pledge Agreement and, upon the
occurrence of any Event of Default, taking any action and executing any
instrument which the Pledgees may deem necessary or advisable to accomplish the
purposes hereof, which appointment is irrevocable and coupled with an interest.
Without limiting the generality of the foregoing, upon an Event of Default, the
Pledgees shall have the right and power to receive, endorse and collect all
checks and other orders for the payment of money made payable to the Pledgor
representing any dividend, interest payment or other distribution payable or
distributable in respect of the Pledged Collateral or any part thereof and to
settle or compromise any claims relating thereto and to give full discharge for
the same.
10. Representations, Warranties and Agreements of Pledgor. To induce
Pledgees to accept the Promissory Notes, Pledgor represents and warrants to, and
agrees with, Pledgees, that:
(a) it owns the Pledged Securities and by the execution and delivery of
this Agreement and delivery of the Pledged Collateral it has created is a first
priority lien granted in favor of the Pledgees with respect to such Pledged
Collateral; and
(b) this Agreement is the valid and binding obligation of Pledgor,
enforceable in accordance with its terms; and
(c) so long as this Agreement is in effect, not to sell substantially
of its assets without the prior written consent of Pledgees.
11. No Waiver; Cumulative Remedies. No failure on the part of the Pledgees
to exercise, and no delay in exercising any right, power, privilege or remedy
hereunder, shall operate as a waiver thereof, nor shall any single or partial
exercise of any such right, power, privilege or remedy of the Pledgees preclude
any other or further exercise thereof or the exercise of any other right, power,
privilege or remedy. All remedies hereunder are cumulative and are not exclusive
of any other remedies provided herein or by law.
12. Termination. This Pledge Agreement shall terminate when all
indebtedness secured hereby has been fully paid and performed, at which time the
Pledgees shall reassign and redeliver (or cause to be reassigned and
redelivered) to the Pledgor, or to such person or persons as the Pledgor shall
designate, such of the Pledged Collateral (if any) as shall not have been sold
or otherwise applied by the Pledgees pursuant to
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the terms hereof and shall still be held hereunder, together with appropriate
instruments of reassignment and release. Any such reassignment shall be without
recourse against or express or implied representation or warranty by the
Pledgees and at the expense of the Pledgor.
13. Assignability. The Pledgees may assign, in whole or in part, any or all
of its rights, title and interests provided for in this Pledge Agreement, to any
holder of the Secured Obligations or portion thereof.
14. Terms Relating to Escrow Agent.
(a) England & Young, P.C. shall initially act as Escrow Agent under
this Agreement. The Escrow Agent shall acknowledge its receipt of the original
certificate(s) representing the Pledged Securities by executing this Agreement.
Pledgor shall also deliver to the Escrow Agent any and all original
certificates, funds or documents as may hereafter become part of the Pledged
Collateral. The possession of the original certificates and other documents
relating to the Pledged Collateral shall be deemed to constitute the Pledgees'
possession thereof in order to perfect Pledgees' security interest in the
Pledged Collateral.
(b) The Escrow Agent shall hold all certificates, funds and documents
representing the Pledged Collateral (collectively, the "Instruments") subject to
the following terms and conditions:
(i) If the Pledgees at any time instructs the Escrow Agent to
exchange any certificates representing any securities included in the
Pledged Collateral to change the denominations of such certificates,
the Escrow Agent shall comply with such request promptly by so
exchanging certificates directly with the Issuer. The Escrow Agent
shall give Pledgor and the holder of any subsequent perfected lien as
provided in the addendum to this Pledge Agreement notice of any such
action within 10 days after it is completed.
(ii) Either Pledgor or Pledgees may give the Escrow Agent a notice
requesting the Escrow Agent to make any delivery or take any action
with respect to any Instruments that is proposed to be taken pursuant
to this Agreement. If the notice describing any such request is
executed by both the Pledgor and the Pledgees, the Escrow Agent shall
promptly comply with the request.
If the notice is given by Pledgor or Pledgees, and is not signed by
both, the Escrow Agent shall promptly forward by hand or overnight delivery a
copy of such notice to the party that did not sign it. Thereafter, the Escrow
Agent shall refrain from taking any action with respect to such request for at
least 5 business days, or until the other party authorizes the Escrow Agent in
writing to comply with such request. If the other party fails to deliver written
notice of objection to the Escrow Agent within such 5-day period, the Escrow
Agent shall be fully protected in complying with such request.
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(c) In order to induce the Escrow Agent to act under this Agreement,
the Pledgor and the Pledgees jointly and severally agree as follows:
(i) The Escrow Agent shall not in any way be bound or affected
by any notice or modification or cancellation of this Agreement unless
in writing, signed by all parties hereto, nor shall the Escrow Agent be
bound by any modification hereof unless the same shall be satisfactory
to the Escrow Agent. The Escrow Agent shall be entitled to rely upon
any judgment, certification, demand or other writing (including but not
limited to any instructions given to it under (b), above) without being
required to determine the authenticity or the correctness of any fact
stated therein, the propriety of validity of the service thereof, or
the jurisdiction of the court issuing such judgment or order.
(ii) The Escrow Agent may act in reliance upon any document,
instrument or signature believed by it to be genuine, and the Escrow
Agent may assume that any person purporting to give any notice or
instructions in accordance with the provisions hereof has been duly
authorized to do so.
(iii) The Escrow Agent may act relative hereto in reliance
upon advice of counsel in reference to any matter(s) connection
herewith, and shall not be liable for any mistake of fact or error of
judgment, or for any acts or omissions of any kind, unless caused by
the Escrow Agent's willful misconduct or gross negligence. The Escrow
Agent shall be entitled to consult with its counsel, which shall
include any attorney employed by it, and the Escrow Agent shall not be
liable for any action taken, suffered or omitted by it in accordance
with the advice (whether written or oral) of such counsel.
(iv) This Agreement sets forth exclusively the Escrow Agent's
duties with respect to any and all matters pertinent hereto. The Escrow
Agent shall not refer to, and shall not be bound by, the provisions of
any other agreement.
(v) The Escrow Agent may at any time resign hereunder by
giving written notice of its resignation to all parties hereto at least
thirty (30) days prior to the date specified for such resignation to
take effect, and upon the effective date of such resignation, all cash,
documents and all other property then held by the Escrow Agent
hereunder shall be delivered by it to such persons as may be designated
in writing by all parties hereto, whereupon all its prospective
obligations as Escrow Agent hereunder shall cease and terminate. The
Escrow Agent's sole responsibility thereafter shall be to keep safely
all property then held by it and to deliver same to a person designated
by all parties hereto or in accordance with the directions of a final
order or judgment of a court of competent jurisdiction. In addition,
the Escrow Agent shall be discharged of its prospective duties and
obligations hereunder upon its interpleading in a court of competent
jurisdiction all of the funds and property then held by it hereunder.
All parties hereto hereby submit to the personal jurisdiction of said
court (but
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solely for the purpose of implementing this Agreement) and waive all
rights to contest said jurisdiction. However, the Escrow Agent's
resignation and/or interpleading of the Property shall not in any
manner affect or impair any of its obligations under this Agreement.
(vi) Pledgor and Pledgees shall be jointly and severally
obligated to reimburse the Escrow Agent for all its fees, costs and
expenses in connection herewith, including reasonable counsel fees, and
to indemnify it and hold it harmless against any claim asserted against
it or any liability, loss or damage incurred by it in connection
herewith.
(vii) Nothing herein contained shall be deemed to obligate the
Escrow Agent to deliver any securities, cash, instruments, documents or
any other property referred to herein, unless the same shall have first
been received by the Escrow Agent pursuant to this Agreement.
(viii) Pledgor acknowledges that the Escrow Agent is counsel
for the Pledgees, and agrees that no action taken by the Escrow Agent
under this Agreement shall affect or impair the right of the Escrow
Agent to represent the Pledgees in any matter, including an
interpleader action pursuant to this Agreement.
15. Miscellaneous. This Agreement shall be binding on and inure to the
benefit of the respective parties hereto and their successors and assigns. This
Agreement may be executed simultaneously in counterparts, each of which shall be
deemed an original, but both of which together shall constitute one and the same
instrument. This Agreement represents the entire understanding of the parties
hereto, and supersedes any and all other prior agreements between the parties.
The terms and provisions of this Agreement cannot be terminated or modified or
amended except in writing and signed by the party against whom enforcement is
sought. The provisions of this Agreement are severable, and any invalidity,
unenforceability or illegality in any provision or provisions hereof shall not
affect the remaining provisions of this Agreement. In any suit, action or
proceeding arising out of or in connection with this Agreement, the prevailing
party shall be entitled to an award of the amount of costs and reasonable
attorneys' fees, including costs fees on one or more appeals and in bankruptcy
proceedings.
All notices required or allowed hereunder shall be in writing and shall
be deemed given as provided for in the Stock Purchase Agreement dated of even
date herewith (the "Stock Purchase Agreement") pursuant to which the Promissory
Notes have been issued, at the address written in the first paragraph hereof if
not otherwise provided for in the Stock Purchase Agreement, or such other
address as is most recently noticed for such party as aforesaid.
This Agreement shall be governed by and construed in accordance with
the laws of the State of Pennsylvania, exclusive of its choice of law
provisions.
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IN WITNESS WHEREOF, the Pledgees has caused this Pledge Agreement to be
duly executed and delivered by its officer thereunto duly authorized, and the
Pledgor has duly executed and delivered this Agreement, as of the date first
above written.
In the Presence of: EDUCATIONAL MEDICAL, INC.,
Delaware corporation
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------------------------------ By:
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Authorized Signatory
CHI ACQUISITION CORP., a Delaware
corporation
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------------------------------ By:
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Authorized Signatory
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Xxxxxx Xxxxxx
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Xxxxxx X. Xxxxxx
ACCEPTANCE OF ESCROW AGENT
England & Young, P.C. acknowledges receipt of the foregoing Agreement and
the Original Certificates, and agrees to act as Escrow Agent under its terms.
By:
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Authorized Signatory
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COMPOSITE EXHIBIT 1
The Promissory Notes
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