Execution Copy
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SECURITIES PURCHASE AGREEMENT
DATED APRIL 28, 1999
BY AND AMONG
CALIFORNIA CULINARY ACADEMY, INC.
as the Company
AND
XXXXXX, XXXXXXX STRATEGIC PARTNERS FUND, L.P.,
and
STRATEGIC ASSOCIATES, L.P.
as the Purchasers
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TABLE OF CONTENTS
Page
Definitions....................................................................1
Defined Terms.........................................................1
Other Defined Terms...................................................5
Other Definitional Provisions.........................................7
Authorization and Sale of the Company's Securities.............................7
Authorization and Certain Terms of the Convertible Notes..............7
Authorization and Certain Terms of the Warrants.......................7
Authorization of the Preferred Stock..................................7
Sale and Purchase of the Convertible Notes............................7
Sale and Purchase of the Warrants.....................................7
Sale and Purchase of the Series B Preferred Stock.....................8
Closing Date; Delivery.........................................................8
Closing Date..........................................................8
Delivery..............................................................8
Representations and Warranties of the Company..................................8
Organization, Good Standing and Qualification.........................8
Capitalization........................................................9
Subsidiaries.........................................................10
Partnerships, Joint Ventures.........................................10
Authorization........................................................10
Governmental Consents................................................10
Conformity with Law; Absence of Litigation...........................11
Insurance............................................................11
Patents and Trademarks...............................................11
Compliance with Other Instruments and Legal Requirements.............11
Material Agreements; Action..........................................12
Registration Rights..................................................13
Corporate Documents..................................................13
Real Property........................................................13
Tangible Personal Property...........................................14
Environmental Matters................................................14
Company SEC Reports and Financial Statements.........................15
Accreditation and State Licensure/Approval...........................16
U.S. Department of Educational Certification and Eligibility.........17
Changes..............................................................18
Employee Benefit Plans...............................................19
Taxes................................................................22
Qualified Small Business.............................................22
Labor and Employment Matters.........................................22
No Pending Transactions..............................................23
Litigation...........................................................23
Indebtedness.........................................................23
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Year 2000............................................................23
Disclosure...........................................................24
Minute Books.........................................................24
Brokers' Fees........................................................24
Not an Investment Company............................................24
Real Property Holding Company........................................24
SECTION 5 Representations and Warranties of the Purchasers...................24
Accredited Investor; Experience; Risk................................24
Authorization........................................................26
Governmental Consents................................................26
Compliance with Other Instruments and Legal Requirements.............26
Conditions to Closing of Purchasers...........................................26
Representations and Warranties.......................................27
Covenants............................................................27
No Material Adverse Change...........................................27
Securities Laws......................................................27
Shareholders' Approval...............................................27
Issuance of Convertible Notes, Warrants and Preferred Stock..........27
New Orleans Project..................................................27
Registration Rights Agreement........................................28
Appointment of Directors.............................................28
Acknowledgment.......................................................28
Lead-based Paint.....................................................28
No Event of Default..................................................28
Purchaser Rights Agreement...........................................28
Shareholders Agreement...............................................28
Opinion of Company's Counsel.........................................28
Officer's Certificate................................................28
Company Required Consents............................................28
Corporate Documents..................................................28
Xxxxx Xxxxx Employment Contract......................................29
U.S. Department of Education Assurance...............................29
Conditions to Closing of the Company..........................................29
Representations and Warranties.......................................29
Covenants............................................................30
Certificate..........................................................30
Other Agreements.....................................................30
State Securities Laws................................................30
Shareholder Approval.................................................30
Company Required Consents............................................30
Receipt of Purchase Price............................................30
Covenants of the Company and the Purchasers...................................30
Regulatory Matters...................................................30
Notice to Purchasers Upon an Event of Default........................31
Issuance of Warrant Shares...........................................31
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Restrictive Covenants................................................31
Events of Default.............................................................31
Events of Default....................................................31
Annulment of Defaults................................................33
Company Put Option............................................................33
Company Put Option...................................................33
Exercise of Company Put Option.......................................34
Company Put Option Closing...........................................34
Termination and Abandonment...................................................37
Termination..........................................................37
Procedure and Effect of Termination..................................37
Miscellaneous.................................................................38
California Corporate Securities Law..................................38
Amendment; Waiver....................................................38
Notices..............................................................38
Legend...............................................................39
Severability.........................................................39
Successors and Assigns...............................................39
Survival of Representations, Warranties and Covenants................40
Entire Agreement.....................................................40
Choice of Law........................................................40
Counterparts.........................................................40
Costs and Expenses...................................................40
No Third-Party Beneficiaries.........................................40
Indemnification......................................................40
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CALIFORNIA CULINARY ACADEMY, INC.
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT dated April 28, 1999 (this "Agreement"), is
entered into by and among CALIFORNIA CULINARY ACADEMY, INC., a California
corporation (the "Company"), and the entities or persons listed in Exhibit A
hereto (each a "Purchaser" and collectively the "Purchasers").
W I T N E S S E T H:
WHEREAS, the Company has issued and outstanding the shares of capital
stock described in Section 4.2 hereof and the Company has reserved for issuance
additional shares of capital stock upon the exercise of the outstanding
convertible securities, including rights, options and warrants, identified in
Section 4.2; and
WHEREAS, the Company proposes to issue and sell, and the Purchasers desire
to purchase from the Company, severally and in the amounts set forth on Exhibit
A hereto, senior convertible notes, warrants and preferred stock of the Company,
all on the terms and conditions set forth herein; and
WHEREAS, as a condition precedent to closing under this Agreement and to
induce the Purchasers into entering into this Agreement, the Company and the
Purchasers shall have entered into (i) a registration rights agreement (the
"Registration Rights Agreement") in the form attached hereto as Exhibit B and
(ii) an investor rights agreement (the "Investor Rights Agreement") in the form
attached hereto as Exhibit C.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements set forth herein, the parties hereto agree as follows:
SECTION 1
Definitions
1.1. Defined Terms. The following terms are defined as follows:
"Affiliate" means, with respect to any Person, (i) any Person that holds
direct or indirect beneficial ownership (as defined in Rule 13d-3 under the
Exchange Act) of (x) voting securities or other voting interests representing at
least 30% of the outstanding voting power of such Person or (y) equity
securities or other equity interests representing at least 30% of the
outstanding equity securities or equity interests in such Person, (ii) any
brother, sister, parent, child or spouse of such Person or any Person described
in clause (i), and (iii) any Person that directly, or indirectly through one or
more intermediaries, controls, or is controlled by, or is under common control
with, such entity.
"Allowed Debt" means Unsecured Indebtedness not to exceed One Million
Dollars ($1,000,000) that shall rank pari passu with the Convertible Notes;
provided, however, that Allowed Debt shall exclude any Indebtedness incurred by
the Company pursuant to Section 10 of this Agreement.
"Benefit Arrangement" means any benefit arrangement, obligation, custom,
or practice, whether or not legally enforceable, to provide benefits, other than
salary, as compensation for services rendered, to present or former directors,
employees, agents, or independent contractors (other than any obligation,
arrangement, custom or practice that is an Employee Benefit Plan) including,
without limitation, employment agreements, severance agreements, executive
compensation arrangements, incentive programs or arrangements, sick leave,
vacation pay, severance pay policies, stay or retention bonuses or compensation,
plant closing benefits, salary continuation for disability, consulting, or other
compensation arrangements, workers' compensation, retirement, deferred
compensation, bonus, stock option or purchase, hospitalization, medical
insurance, life insurance, tuition reimbursement or scholarship programs,
employee discounts, meals, travel or vehicle allowances, any plans subject to
Section 125 of the Code, and any plans providing benefits or payments in the
event of a change of control or change of effective control, change in
ownership, or sale of a substantial portion (including all or substantially all)
of the assets of any business or portion thereof, in each case with respect to
any present or former employees, directors, or agents.
"Code" means the Internal Revenue Code of 1986 (or any successor thereto),
as amended from time to time.
"Colleges of Food" means the Colleges of Food in Xxxxxxx, San Diego and
San Francisco, California.
"Common Stock" means the Common Stock, no par value, of the Company.
"Company Benefit Arrangement" means any Benefit Arrangement sponsored or
maintained by the Company or with respect to which the Company has or may have
any liability (whether actual, contingent, with respect to any of its assets or
otherwise) as of the Closing Date, in each case with respect to any present or
former directors, employees, or agents of the Company.
"Company Plan" means any Employee Benefit Plan for which the Company is
the "plan sponsor" (as defined in Section 3(16)(B) of ERISA) or any Employee
Benefit Plan maintained by the Company or to which the Company is obligated to
make payments or has or may have any liability, in each case with respect to any
present or former employees of the Company.
"Consolidated Cash Interest Expense" means, for any period of
determination, the interest expense of the Company for such period determined in
accordance with GAAP, excluding any amounts not paid or not required (whether
during or after such period) to be paid in cash. For purposes of the foregoing,
interest expense shall be determined after giving effect to any net cash
payments made or received by the Company with respect to rate protection
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agreements entered into as a hedge against interest rate exposure. Interest
expense shall be calculated in accordance with GAAP as in effect and applied by
the Company on the date of this Agreement and, accordingly, shall exclude the
effects of any changes in GAAP or its application by the Company after the date
hereof.
"EBITDA" means, with respect to the Company for any period, the net income
of the Company for such period, computed in accordance with GAAP, plus, to the
extent deducted in computing such consolidated net income and without
duplication, the sum of (a) income tax expense, (b) interest expense, (c)
depreciation and amortization expense, and (d) extraordinary losses (including
restructuring provisions) during such period minus, to the extent added in
computing such consolidated net income and without duplication, extraordinary
gains during such period. EBITDA shall be calculated in accordance with GAAP as
in effect and applied by the Company on the date of this Agreement and,
accordingly, shall exclude the effects of any changes in GAAP or its application
by the Company after the date hereof.
"EBITDA Coverage Ratio" means, on any date for the Company, the ratio of
(a) EBITDA for the four most recently completed fiscal quarters to (b)
Consolidated Cash Interest Expense for the four most recently completed fiscal
quarters.
"Employee Benefit Plan" has the meaning given in Section 3(3) of ERISA,
whether or not otherwise exempt from ERISA by that or another section.
"Environmental Law" means any applicable foreign, federal, state or local
statute, regulation, ordinance or rule of common law as now in effect in any way
relating to the protection of human health and the environment including,
without limitation, the Comprehensive Environmental Response, Compensation and
Liability Act (42 U.S.C. xx.xx. 9601 et seq.), the Hazardous Materials
Transportation Act (49 U.S.C. App. xx.xx. 1801 et seq.), the Resource
Conservation and Recovery Act (42 U.S.C. xx.xx. 6901 et seq.), the Clean Water
Act (33 U.S.C. xx.xx. 1251 et seq.), the Clean Air Act (42 U.S.C. xx.xx. 7401 et
seq.), the Toxic Substances Control Act (15 U.S.C. xx.xx. 2601 et seq.), the
Federal Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. xx.xx. 136 et
seq.), and the Occupational Safety and Health Act (29 U.S.C. xx.xx. 651 et
seq.), regulations promulgated pursuant to these statutes, and common law
principles of tort liability.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and any regulation or rule issued thereunder.
"ERISA Affiliate" means any Person that together with the Company, would
be or was at any time treated as a single employer under Section 414 of the Code
or Section 4001 of ERISA and any general partnership of which the Company is or
has been a general partner.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"GAAP" means generally accepted accounting principles.
"Hazardous Material" means any substance, material or waste that is
regulated by the United States, the foreign jurisdictions in which the Company
conducts business, or any
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applicable state or local governmental authority including, without limitation,
petroleum and its by-products, asbestos, and any material or substance that is
defined as a "hazardous waste," "hazardous substance," "hazardous material,"
"restricted hazardous waste," "industrial waste," "solid waste," "contaminant,"
"pollutant," "toxic waste" or "toxic substance" under any provision of
Environmental Law.
"Indebtedness" means, as to any Person, all items that would, in
conformity with generally accepted accounting principles, be classified as
liabilities or contingent liabilities of such Person, but in any event including
without limitation (a) all obligations under leases that have been, or under
generally accepted accounting principles are required to be, capitalized, (b)
all indebtedness endorsed (other than for collection or deposit in the ordinary
course of business) or discounted with recourse, and (c) all indebtedness in
effect guaranteed, directly or indirectly, by such Person.
"Knowledge" or derivations thereof means actual information known by the
executive officers of the Company, after due inquiry, and, with respect to
Sections 4.21 and 4.24, each person who conducts human resource and employee
benefits management functions for the Company, whether or not an executive
officer of the Company.
"Lease" means any lease of any property (whether real, personal or mixed)
which, in conformity with GAAP, is accounted for as a capital lease on a
consolidated balance sheet.
"Lien" means any lien, pledge, mortgage, deed of trust, security interest,
claim, lease, charge, option, right of first refusal, easement, servitude,
transfer restriction under any shareholder or similar agreement, encumbrance or
any other restriction or limitation whatsoever.
"Material Adverse Effect" means (a) a material adverse effect upon the
business, financial condition, property or results of operations of the Company
and (b) a matter that has prevented or would reasonably be expected to prevent
the consummation of the transactions contemplated by this Agreement by the
Company; provided, however, that the term Material Adverse Effect shall not
include general changes in (i) the educational services industry, (ii) economic
conditions or (iii) the securities markets.
"Multiemployer Plan" means any Employee Benefit Plan described in Section
3(37) of ERISA.
"Permits" means any approvals, authorizations, consents, licenses, permits
or certificates.
"Person" means an individual, partnership, limited liability company,
corporation, joint stock company, trust, unincorporated association, joint
venture or other entity, or a government or any political subdivision or agency
thereof.
"Qualified Plan" means any Employee Benefit Plan that meets, purports to
meet, or is intended to meet the requirements of Section 401(a) of the Code.
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"Release" means any release, spill, emission, leaking, pumping, injection,
deposit, disposal, discharge, dispersal or leaching into the indoor or outdoor
environment, or into or out of any property;
"Remedial Action" means all actions to (x) clean up, remove, treat or in
any other way address any Hazardous Material; (y) prevent the Release of any
Hazardous Material so it does not endanger or threaten to endanger public health
or welfare or the indoor or outdoor environment; or (z) perform pre-remedial
studies and investigations or post-remedial monitoring and care.
"School" means the California Culinary Academy located in San Francisco,
California.
"SEC" means the United States Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Series B Preferred Stock" means the Series B Preferred Stock, no par
value, of the Company.
"Subsidiaries" means each corporation in which the Company owns or
controls, directly or indirectly, capital stock or other equity interests
representing at least 50% of the outstanding voting stock or other equity
interests.
"Unsecured Indebtedness" means any unsecured indebtedness, contingent or
otherwise, that is for borrowed money, or evidenced by bonds, notes, debentures
or similar instruments or representing the balance deferred and unpaid of the
purchase price of any property (excluding any balances that constitute accounts
payable or trade payables and obligations under any Lease).
"Warrant Shares" means the shares of Common Stock issued or issuable upon
exercise of the Warrants.
"Welfare Plan" means any Employee Benefit Plan described in Section 3(1)
of ERISA.
1.2. Other Defined Terms. The following terms shall have the meanings
assigned to them in the identified Sections of this Agreement.
"Agreement" as defined in the recitals to this Agreement.
"Balance Sheet Date" as defined in Section 4.17.
"Change of Control" as defined in Section 11.1(g).
"Closing" as defined in Section 3.1.
"Closing Date" as defined in Section 3.1.
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"Company" as defined in the recitals to this Agreement.
"Company Property" as defined in Section 3.14.
"Company Put Option" as defined in Section 10.1.
"Company SEC Reports" as defined in Section 4.17.
"Convertible Notes" as defined in Section 2.1(a).
"Event of Default" as defined in Section 11.1.
"Indemnified Party" as defined in Section 12.13(a).
"Indemnifying Party" as defined in Section 12.13(c).
"Intellectual Property" as defined in Section 4.9.
"IRS" as defined in Section 4.21(b)(i).
"Leased Properties" as defined in Section 4.14.
"Loss" as defined in Section 12.13(a).
"New Orleans Project" as defined in Section 6.7.
"Owned Properties" as defined in Section 4.14.
"Personal Property Leases" as defined in Section 4.15.
"Preferred Stock" as defined in Section 4.2.
"Purchaser Rights Agreement" as defined in the recitals to this Agreement.
"Purchasers" as defined in the recitals to this Agreement.
"Real Property Leases" as defined in Section 4.14.
"Registration Rights Agreement" as defined in the recitals to this
Agreement.
"Transaction Documents" as defined in Section 4.5.
"Warrants" as defined in Section 2.2.
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1.3. Other Definitional Provisions. Any additional capitalized terms shall
have the meanings assigned to them in the text of this Agreement. Terms defined
in the singular shall have a comparable meaning when used in the plural and vice
versa.
SECTION 2
Authorization and Sale of the Company's Securities
2.1. Authorization and Certain Terms of the Convertible Notes At Closing,
the Company will have authorized the issuance and sale to the Purchasers of
convertible notes substantially in the form attached hereto as Exhibit D (the
"Convertible Notes") in the aggregate original principal amount of Seven Million
Dollars ($7,000,000). The terms of the Convertible Notes shall be as set forth
in the form of Convertible Note attached hereto as Exhibit D and shall be
repayable at the times and under the terms and conditions specified herein and
therein.
2.2. Authorization and Certain Terms of the Warrants At Closing, the
Company will have authorized the issuance and sale to the Purchasers of
warrants, substantially in the form of Exhibit E hereto (the "Warrants"), which
in the aggregate entitle the Purchasers to acquire Two Hundred Fifty Thousand
(250,000) shares of the Company's Common Stock. The Company has reserved a
sufficient number of shares of Common Stock for issuance upon exercise of the
Warrants. The Warrants shall have the rights, preferences, privileges and
restrictions set forth in the Warrant Certificate attached hereto as Exhibit E.
2.3. Authorization of the Preferred Stock. At Closing, the Company will
have authorized the issuance and sale to Xxxxxx Xxxxxxx Strategic Partners Fund,
L.P., a Delaware limited Partnership ("Xxxxxx Xxxxxxx"), of one share of
preferred stock, without par value ("Series B Preferred Stock"), which has the
rights, privileges and preferences as set forth in the Certificate of
Determination attached hereto as Exhibit F.
2.4. Sale and Purchase of the Convertible Notes. In reliance on the
representations and warranties of the Company and the Purchasers contained
herein and subject to the terms and conditions hereof, at the Closing, the
Purchasers agree to purchase from the Company, severally and not jointly, in the
amounts set forth opposite each Purchaser's name on Exhibit A hereto, and the
Company agrees to sell to the Purchasers, Convertible Notes with an aggregate
original principal amount of Seven Million Dollars ($7,000,000). The aggregate
purchase price for the Convertible Notes shall be Seven Million Dollars
($7,000,000), which shall be paid at the Closing by wire transfer to an account
designated in writing by the Company against delivery of Convertible Notes
registered in the names of the Purchasers or their respective nominees.
2.5. Sale and Purchase of the Warrants. As additional consideration for
purchasing the Convertible Notes, the Company agrees to issue to each Purchaser
at the Closing a Warrant to purchase the number of shares of Common Stock set
forth on Exhibit A hereto, which in the aggregate entitle the Purchasers to
acquire Two Hundred Fifty Thousand (250,000) shares of the Company's Common
Stock.
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2.6. Sale and Purchase of the Series B Preferred Stock. In reliance on the
representations and warranties of the Company and the Purchasers contained
herein and subject to the terms and conditions hereof, at the Closing, Xxxxxx
Xxxxxxx agrees to purchase from the Company, and the Company agrees to sell to
Xxxxxx Xxxxxxx one share of Series B Preferred Stock in consideration of the
payment of One Dollar ($1.00) by Xxxxxx Xxxxxxx to the Company.
SECTION 3
Closing Date; Delivery
3.1. Closing Date. The closing of the purchase and sale of the Convertible
Notes, Warrants and Preferred Stock (the "Closing") shall be held at the
Company's offices, or such other place as the Purchasers and the Company shall
mutually agree, upon satisfaction of the conditions to closing set forth in
Sections 6 and 7, and shall occur on or before the third (3rd) business day
following satisfaction of the conditions to Closing set forth in Sections 6 and
7, but in no event shall Closing occur later than June 30, 1999 (the date of the
Closing being referred to herein as the "Closing Date").
3.2. Delivery. At the Closing, the Company shall deliver to each Purchaser
certificates evidencing the Convertible Notes and Warrants being purchased by it
registered in such Purchaser's name against delivery to the Company of payment
in an amount equal to the aggregate principal amount of the Convertible Notes
and Warrants being purchased by such Purchaser in U.S. dollars by wire transfer
to an account designated by the Company. The Company shall deliver to Xxxxxx
Xxxxxxx a certificate evidencing the Preferred Stock against delivery to the
Company of payments in an amount equal to the purchase price of $1.00. The
parties shall also deliver the other documents, certificates and instruments
required under this Agreement.
SECTION 4
Representations and Warranties of the Company
The Company hereby represents and warrants to the Purchasers as follows:
4.1. Organization, Good Standing and Qualification. The Company (i) is an
entity duly organized, validly existing and in good standing under the laws of
the jurisdiction of its organization, (ii) has all requisite power and authority
to carry on its business, (iii) is duly qualified to transact business and is in
good standing in all jurisdictions where its ownership, lease or operation of
property or the conduct of its business requires such qualification. The Company
has the corporate power and authority and is in possession of all material
franchises, grants, authorizations, licenses, permits, easements, consents,
certificates, approvals and orders to (i) own, lease and operate its properties
and to carry on its business as now being conducted,
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and (ii) execute and deliver this Agreement and the documents and instruments
contemplated hereby and to consummate the transactions contemplated hereby,
except where the failure to be so qualified or licensed is not reasonably likely
to have a Material Adverse Effect.
4.2. Capitalization.
(1) The authorized capital stock of the Company consists of
25,000,000 shares, of which 20,000,000 shares are common stock, without par
value ("Common Stock"). As of the date hereof, there are 3,815,431 shares of
Common Stock issued and outstanding. As of the date hereof, no shares of Common
Stock are held in treasury. As of the date hereof, there are, or at Closing
there will be, authorized 5,000,000 shares of Preferred Stock, without par value
(the "Preferred Stock"), of which (a) 700,000 shares are designated as Series A
Preferred Stock, 0 shares of which are issued and outstanding and (b) 1 share is
designated as Series B Preferred Stock. Except as set forth above, there are no
shares of capital stock of the Company authorized or, as of the date hereof,
issued or outstanding. The issued and outstanding shares of capital stock of the
Company are duly authorized, validly issued, fully paid and non-assessable
(specifically including shares issued for promissory notes), and have been
issued in compliance with the registration requirements (or applicable
exemptions therefrom) of all applicable state and federal laws concerning the
issuance of securities.
(2) Except as listed on Schedule 4.2, there are outstanding (a) no
securities of the Company convertible into or exchangeable for shares of capital
stock or voting securities of the Company, (b) no options, warrants or other
rights to acquire from the Company (including any rights issuable or issued
under any shareholder rights plan or similar arrangement), and no obligations,
contingent or otherwise, of the Company to issue any capital stock, voting
securities or securities convertible into or exchangeable for capital stock or
voting securities of the Company, (c) no equity equivalent in the earnings or
ownership of the Company or any similar rights to share earnings or ownership
and (d) no outstanding obligations of the Company to repurchase, redeem or
otherwise acquire any of its securities or to make any investment (by loan,
capital contribution or otherwise) in any entity or Person. Except as set forth
on Schedule 4.2, the Company has no employee stock purchase plans, stock option
plans or other form of company benefit plan which provides for the issuance,
exchange or distribution of capital stock. All outstanding options, rights and
warrants have been duly and validly issued and are in full force and effect. All
shares of capital stock subject to issuance upon exercise of any options, rights
or warrants or otherwise, upon issuance pursuant to the instruments under which
they are issuable, shall be duly authorized, validly issued, fully paid and
non-assessable and free of all preemptive rights. No outstanding options,
warrants or other securities exercisable for or convertible into shares of
capital stock of the Company require anti-dilution adjustments by reason of the
consummation of the transactions contemplated hereby.
(3) The Company has reserved for issuance up to 1,166,667 shares of
Common Stock upon conversion of the Convertible Notes and 250,000 shares of
Common Stock upon exercise of the Warrants.
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(4) The Company has reserved for issuance to Xxxx Xxxxx Xxxx Xxxxxx,
Inc. up to 150,000 shares of Common Stock issuable upon exercise of warrants to
be issued to such firm by the Company.
4.3. Subsidiaries. Except as set forth on Schedule 4.3, the Company
neither has nor has ever had any Subsidiary.
4.4. Partnerships, Joint Ventures. Schedule 4.4 sets forth a complete and
accurate list of all partnerships, limited partnerships, limited liability
companies or joint ventures of any kind in which the Company holds any
interests, showing the date of such entity's incorporation. organization or
formation, as the case may be, the jurisdiction of its incorporation,
organization or formation, as the case may be, the number of shares of its
authorized capital stock or other equity interests, the number and class of
shares or other equity interests thereof duly issued and outstanding, the names
of all shareholders (or other equity interest holders) of such entity and the
number and percentage of the outstanding shares or interests of each such class
owned, directly or indirectly, by all such shareholders, including the Company.
Such capital stock of, or other ownership interests in, each entity as set forth
in Schedule 4.4 is owned by the Company, directly or indirectly, free and clear
of any Lien or any other limitation or restriction (including restrictions on
the right to vote).
4.5. Authorization. The Company has all requisite corporate power and
authority to execute and deliver this Agreement and each agreement, document or
instrument adopted, entered into or delivered by it as contemplated herewith
(the "Transaction Documents") and to perform its obligations hereunder and
thereunder. The execution, delivery and performance of the Agreement and the
transactions contemplated hereby have been duly authorized by all necessary
corporate, including shareholder (if required), action on the part of the
Company. Each Transaction Document to which the Company is a party has been duly
and validly executed and delivered by the Company and constitutes the legal,
valid and binding obligation of the Company, enforceable against it in
accordance with its terms, subject to applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and similar laws affecting
creditors' rights and remedies generally, and subject, as to enforceability, to
general principles of equity, including principles of commercial reasonableness,
good faith and fair dealing (regardless of whether enforcement is sought in a
proceeding at law or in equity).
4.6. Governmental Consents. No consent, approval, order or authorization
of, or registration, qualification, designation, declaration or filing with, any
federal, state, or local governmental authority on the part of the Company is
required in connection with the valid execution and delivery by the Company of
the Transaction Documents to which it is a party, or the consummation by the
Company of the transactions contemplated by the Transaction Documents to which
it is a party, except for (i) filings pursuant to federal or state securities
laws, (ii) the filing of registration statements with the SEC and any applicable
state securities commission, (iii) any filings required pursuant to the
Xxxx-Xxxxx-Xxxxxx Antitrust Act upon exercise of the Warrants and (iii) those
which, if not obtained, would not reasonably be expected to have a Material
Adverse Effect.
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4.7. Conformity with Law; Absence of Litigation. The Company has not
violated any law or regulation or any order of any court or federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality having jurisdiction over it which would be reasonably likely to
have a Material Adverse Effect. Except as set forth on Schedule 4.7, there are
no claims, actions, suits, proceedings or investigations pending or, to the
Knowledge of the Company, threatened against the Company, or any properties or
rights of the Company, before any court, arbitrator or administrative,
governmental or regulatory authority or body, domestic or foreign, other than
those which would not reasonably be expected to have a Material Adverse Effect.
4.8. Insurance. Schedule 4.8 sets forth a complete and accurate list of
all material policies of insurance covering the Company, and any of its
respective employees, properties or assets, including, without limitation,
policies of life, disability, fire, theft, workers compensation, employee
fidelity and other casualty and liability insurance. All such policies are in
full force and effect and are of a nature and provide such coverage as is
sufficient and as is customarily carried by companies of the size and character
of the Company. The Company is not in default in any respect of any policies of
insurance other than those which would not reasonably be expected to have a
Material Adverse Effect. To the Company's Knowledge, the Company has not been
refused insurance or had any policy of insurance terminated (other than at its
request).
4.9. Patents and Trademarks. The Company has sufficient title and
ownership of (or rights under license agreements to use) all patents,
trademarks, service marks, trade names, copyrights, trade secrets, proprietary
rights and processes ("Intellectual Property") necessary for its business.
Except as set forth on Schedule 4.9, there are no outstanding options, licenses
or agreements of any kind relating to the Intellectual Property, nor is the
Company bound by or a party to any options, licenses or agreements of any kind
with respect to the Intellectual Property of any other Person. A list of all
material patents, patent applications, registered trademarks, trademark
applications, registered copyrights and copyright applications owned by the
Company is set forth on Schedule 4.9. Within the past five years, the Company
has not received any communications alleging that the Company has violated or,
by conducting its business as proposed, would violate any of the patents,
trademarks, service marks, trade names, copyrights, trade secrets, proprietary
rights and processes of any other Person, nor does the Company have Knowledge of
any such violations.
4.10. Compliance with Other Instruments and Legal Requirements
(1) The Company is not in violation or default of any provisions of
its articles of incorporation, by-laws, or comparable organizational documents.
The Company is not in violation or default in any respect under any provision,
instrument, judgment, order, writ, decree, contract or agreement to which it is
a party or by which it is bound or of any provision of any federal, state or
local statute, rule or regulation applicable to it (including, without
limitation, any law, rule or regulation relating to protection of the
environment and the maintenance of safe and sanitary premises) in any such case
that would reasonably be expected to have a Material Adverse Effect. Subject to
approval by the shareholders of the Company of the issuance of the Convertible
Notes, Warrants and Series B Preferred Stock as required by NASDAQ and except
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as set forth on Schedule 4.10 (the "Company Required Consents"), the execution,
delivery and performance by the Company of each Transaction Document and the
consummation of the transactions contemplated hereby and thereby will not result
in any such violation or be in conflict with or constitute, with or without the
passage of time or giving of notice, either a default under or give rise to any
obligations under, the articles of incorporation or by-laws of the Company, or
any note, bond, mortgage, indenture, lease, license, permit, contract, agreement
or other instrument or obligation, decree or order to which the Company is a
party or by which the Company or its properties or assets is or may be bound, or
to the Knowledge of the Company violate any law, order, rule or regulation
applicable to the Company, and does not require any consent, waiver or approval
thereunder, or constitute an event that results in the creation of any Lien upon
any assets of the Company, except where such violation, conflict or default
would not reasonably be expected to have a Material Adverse Effect.
(2) The Company has all Permits of all governmental entities
required to conduct its business as currently conducted, except where failure to
have such Permits would not reasonably be expected to have a Material Adverse
Effect.
(3) The transactions contemplated by this Agreement and the
Transaction Documents will not constitute a change of control under any Employee
Benefit Plan, rights plan, contract or agreement to which it is a party.
4.11. Material Agreements; Action. Except as set forth on Schedule 4.11,
there are no material contracts, agreements, commitments, understandings or
proposed transactions, whether written or oral, to which the Company is a party
or by which it is bound that involve or relate to: (i) any of its respective
officers, directors, shareholders (or other equity interest holder) or partners
or any Affiliate thereof; (ii) the sale of any of the assets of the Company
other than in the ordinary course of business; (iii) covenants of the Company
not to compete in any line of business or with any Person in any geographical
area or covenants of any other Person not to compete with the Company in any
line of business or in any geographical area; (iv) the acquisition by the
Company of any operating business or the capital stock of any other Person; (v)
the borrowing of money of more than $100,000 in the aggregate; (vi) the
expenditure of more than $100,000 in the aggregate or the performance by the
Company extending for a period more of than one year from the date hereof, other
than in the ordinary course of business, or (vii) the license of any
Intellectual Property or other material proprietary right to or from the
Company. There have been made available to the Purchasers and its
representatives true and complete copies of all such agreements. To the
Company's Knowledge, all such agreements are in full force and effect and are
the legal, valid and binding obligation of the Company, enforceable against it
in accordance with their terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws affecting creditors' rights and
remedies generally and subject, as to enforceability, to general principles of
equity (regardless of whether enforcement is sought in a proceeding at law or in
equity). The Company is not in default under any such agreements nor, to the
Knowledge of the Company, is any other party to any such agreements in default
thereunder in any material respect.
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4.12. Registration Rights. Except as set forth in the Registration Rights
Agreement and except as set forth on Schedule 4.12, the Company has not granted
or agreed to grant any registration rights, including piggyback registration
rights, to any Person.
4.13. Corporate Documents. True and correct copies of the articles of
incorporation and the by-laws of the Company, as amended and as are currently in
effect, have been made available to the Purchasers.
4.14. Real Property.
(1) Schedule 4.14(a) sets forth a complete list of all real property
and interests in real property owned (the "Owned Properties") or leased (the
"Leased Properties") by the Company as lessee or lessor (the Leased Properties
together with the Owned Properties, being referred to herein individually as a
"Company Property" and collectively as the "Company Properties"). The Company
Properties constitute all interests in real property currently used or currently
held for use in connection with the businesses of the Company and which are
necessary for the continued operation of the businesses of the Company as such
businesses are currently conducted. To the Company's Knowledge, the Company has
a valid and enforceable leasehold interest under each of the leases for Leased
Property (the "Real Property Leases"), and the Company has not received any
written notice of any default or event which, with notice or lapse of time, or
both, would constitute a default by the Company under any of the Real Property
Leases, other than those which would not reasonably be expected to have a
Material Adverse Effect. To the Company's Knowledge, all of the Company
Properties, including any material buildings, fixtures and improvements thereon,
are in good operating condition and repair (subject to normal wear and tear).
The Company has delivered or otherwise made available to the Purchasers true,
correct and complete copies of the Real Property Leases, together with all
amendments, modifications or supplements, if any, thereto.
(2) Except as set forth in Schedule 4.14(b), the Company has all
certificates of occupancy and Permits of any governmental body necessary or
useful for the current use and operation of each Company Property, and the
Company has fully complied with all conditions of the Permits applicable to
them. No default or violation, or event which, with the lapse of time or giving
of notice or both would become a default or violation, has occurred in the due
observance of any such Permit, other than those which would not reasonably be
expected to have a Material Adverse Effect.
(3) There does not exist any actual, or to the Knowledge of the
Company, threatened or contemplated, condemnation or eminent domain proceedings
that affect any material Company Property, and the Company has not received any
notice, oral or written, of the intention of any governmental body or other
Person to take or use all or any part thereof, other than those which would not
reasonably be expected to have a Material Adverse Effect.
(4) The Company has not received any written notice from any
insurance company that has issued a policy with respect to any Company Property
requiring performance of any structural or other repairs or alterations to such
Company Property.
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(5) Except as set forth in Schedule 4.14(e), the Company does not
own or hold, and is not obligated under or a party to, any option, right of
first refusal or other contractual right to purchase, acquire, sell, assign or
dispose of any real estate or any portion thereof or interest therein.
4.15. Tangible Personal Property.
(1) Schedule 4.15(a) sets forth all leases of tangible personal
property ("Personal Property Leases") involving annual payments in excess of
$50,000 relating to tangible personal property used in the business of the
Company or to which the Company is a party or by which the properties or assets
of the Company is bound. The Company has delivered or otherwise made available
to the Purchasers true, correct and complete copies of the Personal Property
Leases, together with all amendments, modifications or supplements, if any,
thereto.
(2) To the Company's Knowledge, the Company has a valid leasehold
interest under each of the Personal Property Leases under which it is a lessee,
and there is no default under any Personal Property Lease by the Company, by any
other party thereto, and no event has occurred which, with the lapse of time or
the giving of notice or both would constitute a default thereunder, other than
those which would not reasonably be expected to have a Material Adverse Effect.
(3) Except as set forth on Schedule 4.15(c), the Company has good
and marketable title to all of the items of tangible personal property reflected
in the balance sheets for the fiscal year ended June 30, 1998, which are
contained in the Company SEC Reports referred to in Section 4.17, (except as
sold or disposed of subsequent to the date thereof in the ordinary course of
business consistent with past practice), free and clear of any and all Liens.
All such items of tangible personal property that, individually or in the
aggregate, are material to the operation of the business of the Company are in
good condition and in a state of good maintenance and repair (ordinary wear and
tear excepted) and are suitable for the purposes currently used.
(4) All of the items of tangible personal property used by the
Company under the Personal Property Leases are in good condition and repair
(ordinary wear and tear excepted) and are suitable for the purposes currently
used.
4.16. Environmental Matters.
Except as set forth on Schedule 4.16:
(1) The operations of the Company are in material compliance with
all applicable Environmental Laws and all Permits issued pursuant to
Environmental Laws or otherwise, except where failure to comply would not
reasonably be expected to have a Material Adverse Effect;
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(2) To its Knowledge, the Company has obtained all Permits required
under all applicable Environmental Laws necessary to operate its business,
except where failure to comply would not reasonably be expected to have a
Material Adverse Effect;
(3) To its Knowledge, the Company is not the subject of any
outstanding written order, agreement or arrangement with any governmental
authority or Person respecting (i) Environmental Laws, (ii) Remedial Action or
(iii) any Release or threatened Release of a Hazardous Material;
(4) The Company has not received any written communication alleging
that the Company may be in violation of any Environmental Law, or any Permit
issued pursuant to Environmental Law, or may have any liability under any
Environmental Law;
(5) At Closing, the Company does not have any current contingent
liability in connection with any Release of any Hazardous Materials into the
indoor or outdoor environment (whether on-site or off-site) and has no reason to
believe that such contingent liability exists, except where such contingent
liability would not reasonably be expected to have a Material Adverse Effect;
(6) The Company has no Knowledge of any investigations of the
business, operations, or currently or previously owned, operated or leased
property of the Company pending or, to its Knowledge, threatened which would
reasonably be expected to have a Material Adverse Effect;
(7) There is not located at any of the Owned Properties, or to the
Knowledge of the Company, at any of the Leased Properties any (i) underground
storage tanks, (ii) asbestos-containing material, (iii) equipment containing
polychlorinated biphenyls, (iv) Hazardous Materials located at any Company
Property (other than for Hazardous Materials used or stored by the Company in
the ordinary course of business and in material compliance with applicable
Environmental Laws and Permits); and
(8) The Company has provided to the Purchasers all environmentally
related audits, studies, reports, analyses and results of investigations, if
any, that have, to the Company's Knowledge, been performed within the past five
years with respect to the currently or previously owned, leased or operated
properties of the Company.
4.17. Company SEC Reports and Financial Statements.
(1) The Company has made available to Purchasers true and complete
copies of all periodic reports, statements and other documents that the Company
has filed with the SEC since January 1, 1996 (collectively, the "Company SEC
Reports"), each in the form (including exhibits and any amendments thereto)
required to be filed with the SEC. As of their respective dates, each of the
Company's SEC Reports (i) complied in all respects with all applicable
requirements of the Securities Act and the Exchange Act, and the rules and
regulations promulgated thereunder, respectively, (ii) were filed in a timely
manner, and (iii) did not contain
-15-
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
(2) The audited consolidated financial statements of the Company
(including any related notes and schedules thereto) included in its Annual
Report on Form 10-KSB for the fiscal year ended June 30, 1998 (the "Balance
Sheet Date"), are accurate and complete and present fairly, in conformity with
GAAP applied on a consistent basis throughout the periods involved (except as
may be noted therein), and in conformity with the SEC's Regulation S-X, the
consolidated financial position of the Company as of the Balance Sheet Date and
the consolidated results of operations and changes in financial position for the
period then ended.
4.18. Accreditation and State Licensure/Approval
(1) Schedule 4.18 contains a complete and accurate statement of the
accreditation granted to the School, the date that accreditation was last
granted, and the current term of accreditation. To the Company's Knowledge, no
School or educational and training programs is on probation or warning, have
been directed to show cause why accreditation should not be revoked, or are
subject to an action by an accrediting agency to withdraw or deny accreditation.
To the Company's Knowledge, there are no facts, circumstances, or omissions
concerning the School that could lead to such actions by an accrediting agency.
(2) Except as set forth on Schedule 4.18, the Company and the School
have complied with all stipulations, conditions and other requirements imposed
by the School's accrediting agencies at the time of, or since, the last grant of
accreditation, including but not limited to the timely filing of all required
reports and responses, except where noncompliance would not reasonably be
expected to have a Material Adverse Effect.
(3) The School has secured all requisite approvals from its
accrediting agencies for the educational and training programs currently offered
at the School, except as set forth in Schedule 4.18 or where the failure to
obtain such approvals would not reasonably be expected to have a Material
Adverse Effect.
(4) Except as set forth in Schedule 4.18, the Company and the School
have secured and the Colleges of Food are in the process of securing, all
requisite licenses to operate in the states in which they are located and all
requisite approvals from such states for the educational and training programs
currently offered, except where such failure would not reasonably be expected to
have a Material Adverse Effect.
(5) Except as set forth in Schedule 4.18, the Colleges of Food have
not sought, and are not required to obtain, accreditation from any of the
School's accrediting agencies. No students enrolled at the Colleges of Food
receive funds from programs authorized by Title IV of the Higher Education Act
of 1965, as amended, otherwise receive benefits due to the accredited status of
the School or are recruited by the Colleges of Food using the name or accredited
status of the School.
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(6) The Company and the School have filed an application for renewal
of accreditation with the Accrediting Commission of Career Schools and Colleges
of Technology ("ACCSCT") and all information and documentation filed with ACCSCT
as part of the renewal of accreditation process was timely filed and when filed
was accurate and complete in all material respects.
4.19. U.S. Department of Educational Certification and Eligibility.
(1) Schedule 4.19 contains a complete and accurate statement of the
U.S. Department of Education certification and eligibility status for the
School, including the date that certification was last granted and the current
term of certification. The School is certified by the U.S. Department of
Education to participate in the programs authorized by Title IV of the Higher
Education Act of 1965, as amended. The School is not subject to any limitation,
suspension or termination proceedings, or subject to any other action or
proceeding by the U.S. Department of Education that could result in the loss of
certification or eligibility or a material liability or fine. To the Knowledge
of the Company, there are no facts, circumstances, or omissions concerning the
School, including, but not limited to, changes in the School's ownership that
resulted in a change of control, that could lead to such an action by the U.S.
Department of Education, except as set forth in Schedule 4.19 or where such
facts, circumstances or omissions would not reasonably be expected to have a
Material Adverse Effect.
(2) The School is in compliance with all rules, regulations and
requirements established by the U.S. Department of Education pertaining to each
School's eligibility to participate in the programs authorized by Title IV of
the Higher Education Act of 1965, as amended, and other federal student
financial aid funding programs set forth at 34 C.F.R. xx.xx. 600 et seq, except
as set forth on Schedule 4.19 or where noncompliance would not reasonably be
expected to have a Material Adverse Effect. The Company is not aware of any
facts, circumstances, or omissions concerning the School that might result in a
finding of non-compliance with regard to such rules, regulations and
requirements, except where such facts, circumstances or omissions would not
reasonably be expected to have a Material Adverse Effect. Without limiting the
foregoing, the Company also represents that, except where noncompliance would
not reasonably be expected to have a Material Adverse Effect:
(1) The School satisfies the standards of financial
responsibility and administrative capability, as established by the U.S.
Department of Education and as set forth at 34 C.F.R. xx.xx. 668.15-668.16
and 34 C.F.R. xx.xx. 668.171-175, and each program offered by the School
is an eligible program in accordance with the requirements of 34 C.F.R.
ss. 668.8.
(2) For all periods through the fiscal year ended June 30,
1998, the School received no greater than eighty-five percent (85%) of its
revenues from programs authorized by Title IV of the Higher Education Act
of 1965, as amended, or other federal student financial aid funds;
commencing July 1, 1998, the School receives no greater than ninety
percent (90%) of its revenues from such programs; and further the School
satisfies
-17-
the requirements regarding tuition revenue established by the Department
of Education as set forth at 34 C.F.R. ss. 600.5. Schedule 4.19 contains a
correct statement of the School's percentage of revenue from such federal
funding sources.
(3) The final cohort default rates published by the U.S.
Department of Education for fiscal years 1992 through 1996 for the School
are listed in Schedule 4.19.
(4) The School has established a default reduction plan and
submitted such plans to the U.S. Department of Education in accordance
with 34 C.F.R. ss. 674.6.
(5) The School disburses federal Pell Grant payments in
accordance with procedures that comply with 34 C.F.R. ss. 690.63.
(3) U.S. Department of Education program reviews and compliance
audits conducted at the School since 1992 would not reasonably be expected to
have a Material Adverse Effect nor has any program review or compliance audit
resulted in the imposition of any material liability, financial or otherwise,
affecting the School. The School has complied with all the findings and
conditions arising from the program reviews and compliance audits, except where
noncompliance would not reasonably be expected to have a Material Adverse
Effect. To the extent that any program review or audit remains pending or
unresolved, there are no issues or findings of non-compliance which, to the
Knowledge of the School, could result in the loss of certification or
eligibility or a material liability or fine.
(4) The Company and the School have filed an application for its
recertification as an eligible institution of higher education to participate in
the programs authorized by Title IV of the Higher Education Act of 1965, as
amended, with the U.S. Department of Education and all information and
documentation filed with the U.S. Department of Education as part of the process
of obtaining recertification of eligibility to participate in such programs was
timely filed and when filed was accurate and complete in all material respects.
4.20. Changes. Except as set forth on Schedule 4.20, since December 31,
1998, there has not been:
(1) any change, by itself or together with other changes, that has
had a Material Adverse Effect, or would be reasonably likely to have a Material
Adverse Effect, including changes in the ordinary course of business;
(2) any material damage, destruction or loss to any Company
Property, whether or not covered by insurance;
(3) any knowing waiver by the Company of a valuable right or of a
debt owed to it outside of the ordinary course of business;
-18-
(4) any satisfaction or discharge of any Lien or prepayment of any
obligation by the Company, other than in the ordinary course of business;
(5) any change or amendment to a contract or arrangement by which
the Company or any of its respective assets or properties is bound or subject;
(6) other than in the ordinary course of business, any material
increase in excess of $35,000 annually in any compensation arrangement or
agreement with any employee of the Company receiving compensation; and
(7) the Company has not (i) declared or paid any dividends, or
authorized or made any distribution upon or with respect to any class or series
of its capital stock or equity interests, (ii) incurred any Indebtedness for
money borrowed in excess of $50,000, excluding trade payables incurred in the
ordinary course of business, (iii) made any loans or advances to any Person,
other than ordinary advances for travel expenses not exceeding $50,000, or (iv)
sold, exchanged or otherwise disposed of any of its assets or rights for
consideration in excess of $50,000 in any one transaction or series of related
transactions other than in the ordinary course of business.
4.21. Employee Benefit Plans.
(1) Schedule 4.21(a) contains a complete and accurate list of all
Company Plans and Company Benefit Arrangements. Schedule 4.21(a) specifically
identifies all Company Plans (if any) that are Qualified Plans.
(2) With respect, as applicable, to Employee Benefit Plans and
Benefit Arrangements:
(1) true, correct, and complete copies of all of the following
documents with respect to each Company Plan and Company Benefit
Arrangement, to the extent applicable, have been delivered to the
Purchasers: (A) all documents constituting the Company Plans and Company
Benefit Arrangements and formal and informal amendments thereto; (B) the
two most recent Forms 5500 or 5500 C/R and any financial statements
attached thereto; (C) the most recent Internal Revenue Service (the "IRS")
determination letter and the latest IRS determination letter that covered
the qualification of the entire Company Plan (if different); (D) the most
recent summary plan descriptions, summaries of material modifications, and
any prospectuses that describe a Company Benefit Plan or Company Benefit
Arrangement ; (E) the most recent written descriptions of all non-written
agreements relating to any such plan or arrangement (if such documents or
writings exist), (F) all notices that were given to the Company within the
three years preceding the date of this Agreement by the IRS, Department of
Labor, or any other governmental agency or entity with respect to any plan
or arrangement (excluding extension notices); and (H) employee manuals or
handbooks containing personnel or employee relations policies;
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(2) the only Qualified Plan the Company has ever maintained or
contributed to is the Company 401(k) Plan. The Company 401(k) Plan has a
current determination letter that it qualifies under Section 401(a) of the
Code, and that any trusts maintained under that plan are exempt from
federal income taxation under Section 501 of the Code. Nothing has
occurred with respect to the design or operation of the 401(k) Plan that
would be likely to cause the loss of such qualification or exemption or
the imposition of any liability, lien, penalty, or tax under ERISA or the
Code;
(3) the Company has never sponsored or maintained, had any
obligation to sponsor or maintain, or had any liability (whether actual or
contingent, with respect to any of its assets or otherwise) with respect
to any Employee Benefit Plan subject to Section 302 of ERISA or Section
412 of the Code or Title IV of ERISA (including any Multiemployer Plan),
and the Company has no liability (whether actual or contingent, with
respect to its assets or otherwise) with respect to any such plans
maintained by any of its predecessors;
(4) to the Company's Knowledge, each Company Plan and each
Company Benefit Arrangement has been operated in material compliance with
its constituent documents and with all applicable provisions of the Code,
ERISA and other laws, including federal and state securities laws,
including specifically the inclusion of Company Common Stock;
(5) to the Company's Knowledge, there are no pending claims
(other than routine benefit claims) or lawsuits that have been asserted or
instituted by, against, or relating to, any Company Plans or Company
Benefit Arrangements, nor is there any basis for any such claim or
lawsuit. No Company Plans or Company Benefit Arrangements are, to the
Company's Knowledge, presently under audit or examination (nor has notice
been received of a potential audit or examination) by the IRS, the
Department of Labor, or any other Governmental Authority, and no matters
are pending with respect to any Company Plan under the IRS's Employee
Plans Compliance Resolutions System or any successor or predecessor
program;
(6) no Company Plan or Company Benefit Arrangement contains
any provision or is subject to any law that would prohibit the
transactions contemplated by this Agreement or that would give rise to any
acceleration or vesting of benefits, severance, termination, or other
payments or liabilities as a result of the transactions contemplated by
this Agreement;
(7) with respect to each Company Plan, there has occurred no
non-exempt "prohibited transaction" (within the meaning of Section 4975 of
the Code) or transaction prohibited by Section 406 of ERISA or breach of
any fiduciary duty described in Section 404 of ERISA that would, if
successful, result in any material liability for the Company or any
officer, director, or employee of the Company;
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(8) to the Company's Knowledge, all reporting, disclosure, and
notice requirements of ERISA and the Code have been materially satisfied
with respect to each Company Plan and each Company Benefit Arrangement;
(9) payment has been made of all amounts that the Company is
required to pay as contributions to the Company Benefit Plans as of the
last day of the most recent fiscal year of each of the plans ended before
the date of this Agreement; all benefits accrued under any unfunded
Company Plan or Company Benefit Arrangement will have been paid, accrued,
or otherwise adequately reserved in accordance with GAAP as of the Balance
Sheet Date; and all monies withheld from employee paychecks with respect
to Company Plans have been transferred to the appropriate plan within the
time applicable regulations specify;
(10) except as disclosed on Schedule 4.21(b)(x), the Company
has not prepaid or prefunded any Welfare Plan through a trust, reserve,
premium stabilization, or similar account, nor does it provide benefits
through a voluntary employee beneficiary association as defined in Section
501(c)(9);
(11) no statement, either written or oral, has been made by
the Company to any Person with regard to any Company Plan or Company
Benefit Arrangement that was not in accordance with the Company Plan or
Company Benefit Arrangement and that would result in a Material Adverse
Effect;
(xiii) the Company has no liability (whether actual,
contingent, with respect to any of its assets or otherwise) with respect
to any Employee Benefit Plan or Benefit Arrangement that is not a Company
Plan or Company Benefit Arrangement or with respect to any Employee
Benefit Plan sponsored or maintained (or that has been or should have been
sponsored or maintained) by any ERISA Affiliate;
(12) all group health plans of the Company and its ERISA
Affiliates have been operated in material compliance with the requirements
of Sections 4980B (and its predecessor) and 5000 of the Code and the
Health Insurance Portability and Accountability Act; the Company has no
liability under or with respect to COBRA or the equivalent provisions of
ERISA, whether for its own actions or omissions or those of its
predecessors; no employee or former employee of the Company or beneficiary
of any such employee or former employee is, by reason of such employee's
or former employee's employment, entitled to receive any benefits,
including, without limitation, death or medical benefits (whether or not
insured) beyond retirement or other termination of employment as described
in Statement of Financial Accounting Standards No. 106, other than under
COBRA or other applicable law.
(3) Schedule 4.21(c) hereto sets forth an accurate list, as of the
date hereof, of all officers, directors, and key employees of the Company and
lists all employment agreements with such officers, directors, and key employees
and the rate of compensation (and the portions
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thereof attributable to salary, bonus, and other compensation respectively) of
each such Person as of (a) June 30, 1998 and (b) the date hereof.
(4) Except as set forth in Schedule 4.21(d), the Company has not
declared or paid any bonus compensation in contemplation of the transactions
contemplated by this Agreement.
4.22. Taxes. All federal, state and local and foreign tax returns, reports
and statements required to be filed by the Company have been filed or have been
caused to be filed with the appropriate governmental agencies in all
jurisdictions in which such returns, reports and statements are required to be
filed and all such returns, reports and statements are true, complete and
correct in all respects, except where such failure to file or inaccuracy would
not reasonably be expected to have a Material Adverse Effect. All taxes, charges
and other impositions due and payable by the Company have been paid in full on a
timely basis except where adequate reserves therefor have been established on
the books and records of the Company in accordance with GAAP or where such
failure would not reasonably be expected to have a Material Adverse Effect. The
provision for taxes of the Company is sufficient for all unpaid taxes, charges
and other impositions of any nature due or accrued as of the date thereof,
whether or not assessed or disputed, except where such provision would not
reasonably be expected to have a Material Adverse Effect. Proper and accurate
amounts have been withheld by the Company from its employees for all periods in
full and complete compliance with the tax, social security and unemployment
withholding provisions of applicable federal, state, local and foreign law and
such withholdings have been timely paid to the respective governmental agencies,
except where such failure to withhold or make such payments would not reasonably
be expected to have a Material Adverse Effect. Except as set forth on Schedule
4.22, the Company has not received notice of any audit or of any proposed
deficiencies from any governmental authority, and no controversy with respect to
taxes of any type is pending or to its Knowledge threatened, except where such
notice, audit or controversy would not reasonably be expected to have a Material
Adverse Effect. Except for routine filing extensions granted as a matter of
right under applicable law, the Company has not executed or filed with the IRS
or any other governmental authority any agreement or other document extending
the period of assessment or collection of any taxes, charges or other
impositions. The Company has not agreed and is not required to make any
adjustment under Section 481(a) of the Code by reason of a change in accounting
method or otherwise, except where such adjustment would not reasonably be
expected to have a Material Adverse Effect. Further, the Company has no
obligation under any tax-sharing agreement.
4.23. Qualified Small Business. The Company is a "qualified small
business" within the meaning of Section 1202(d) of the Code.
4.24. Labor and Employment Matters. With respect to employees of and
service providers to the Company: (a) the Company complies and has complied in
all material respects with all applicable Laws respecting employment and
employment practices, terms and conditions of employment and wages and hours,
including without limitation any such Laws respecting employment discrimination,
workers' compensation, family and medical leave, the Immigration Reform and
Control Act, and occupational safety and health requirements, and no claims or
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investigations are pending or, to the Company's Knowledge, threatened with
respect to such laws, either by private individuals or by governmental agencies;
(b) the Company is not engaging and has not engaged in any unfair labor
practice, and there is not now, nor within the past three years has there been,
any unfair labor practice complaint against the Company pending or, to the
Company's Knowledge, threatened, before the National Labor Relations Board or
any other comparable authority; (c) no labor union represents or has ever
represented the Company's employees and no collective bargaining agreement is or
had been binding against the Company, nor is any agreement under negotiation. No
grievance or arbitration proceeding arising out of or under collective
bargaining agreements or employment relationships is pending, and no claims
therefor exist or have, to the Company's Knowledge, been threatened; (d) no
labor strike, lock-out, slowdown, or work stoppage is or has ever been pending
or threatened against or directly affecting the Company; and (e) all persons who
are or were performing services for the Company and are or were classified as
independent contractors do or did satisfy and have satisfied the requirements of
law to be so classified, and the Company has fully and accurately reported its
compensation on IRS Forms 1099 when required to do so.
4.25. No Pending Transactions. Except for the transactions contemplated by
this Agreement, neither the Company nor any Subsidiary is a party to or bound by
or the subject of any agreement, undertaking or commitment with any Person that
could result in (i) the sale, merger, consolidation or recapitalization of the
Company or any Subsidiary, (ii) the sale of all or substantially all of the
assets of the Company or any Subsidiary, or (iii) a change of control of more
than five percent of the outstanding capital stock of the Company or any
Subsidiary.
4.26. Litigation. Except as set forth on Schedule 4.26, there is no
action, suit or proceeding, or governmental inquiry or investigation, pending,
or, to the Company's Knowledge, any basis therefor or threat thereof, against
the Company that would reasonably be expected to have a Material Adverse Effect.
Moreover, there is no investigation by any governmental agency pending or
threatened against the Company which could result in any such suit, action or
other proceeding.
4.27. Indebtedness. The Company has no Indebtedness of any type except as
set forth on Schedule 4.27 and Indebtedness with the Purchasers pursuant to this
Agreement. Upon consummation of the transactions hereunder, except as set forth
on Schedule 4.27 and except for the Allowed Debt, the Convertible Notes will
rank senior in all respects to Unsecured Indebtedness.
4.28. Year 2000. To the Company's Knowledge, the Company will not suffer
any material impairment as a result of the Company's inability or difficulty in
processing date information accurately before, on or after January 1, 2000,
including leap years ("Year 2000 Compliant"), or can be made Year 2000 Compliant
through systems or programming modifications or replacements for an amount that,
in the aggregate, will not have a Material Adverse Effect.
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4.29. Disclosure. All Transaction Documents, schedules and certificates
furnished to the Purchasers pursuant hereto are and will be complete and
accurate in all material respects. No representation or warranty by the Company
contained in this Agreement, in the schedules attached hereto or in any
certificate furnished or to be furnished by the Company to the Purchasers in
connection herewith or pursuant hereto contains or will contain any untrue
statement or a material fact or omits or will omit to state any material fact
necessary in order to make any statement contained herein or therein not
misleading in any material respect. Except as disclosed in the Company SEC
Reports, there is no fact known to the officers and directors of the Company
that has specific application to the Company (other than general economic or
industry conditions) and that materially adversely affects or, as far as such
officers and directors can reasonably foresee, materially threatens, the assets,
business, prospects, financial condition, or results of operations of the
Company that has not been set forth in this Agreement or any schedule hereto.
4.30. Minute Books. The Company's minute books contain a complete summary
of all material actions by its respective directors and shareholders since the
date of its respective incorporation and reflect all transactions referred to in
such minutes accurately in all material respects.
4.31. Brokers' Fees. Except as set forth on Schedule 4.31, the Company has
no contract, arrangement or understanding with any broker, finder, investment
banker or other Person which is entitled to any brokerage fee, finder's fee or
other commission in connection with the transactions contemplated by this
Agreement.
4.32. Not an Investment Company. The Company is not an Investment Company
within the meaning of the Investment Company Act of 1940, as amended. 1.1. 4.33.
Real Property Holding Company. The Company is not a United States Real Property
Holding Corporation within the meaning of Section 897(c)(2) of the Code during
the applicable period specified in Section 897(c)(1)(A)(ii) of the Code.
4.33. Real Property Holding Company. The Company is not a United States
Real Property Holding Corporation within the meaning of Section 897(c)(2) of the
Code during the applicable period specified in Section 897(c)(1)(A)(ii) of the
Code.
SECTION 1
Representations and Warranties of the Purchasers
Each of the Purchasers (severally and not jointly), hereby represents and
warrants to and agrees with the Company, as follows:
4.34. Accredited Investor; Experience; Risk.
(1) Such Purchaser is an "accredited investor" (as such term is
defined in Rule 501 promulgated under the Securities Act) and has been advised
and understands that the Convertible Notes, Warrants and Preferred Stock have
not been registered under the Securities Act, on the basis that no public
offering of the Convertible Notes, Warrants and Preferred Stock
-24-
is to be effected, except in compliance with the applicable securities laws and
regulations or pursuant to an exemption therefrom; provided, however, that
nothing in this Section 5.1 shall limit the Purchasers' right to convert the
Warrants for Warrant Shares and Convertible Notes for Conversion Shares as set
forth in this Agreement, the Warrants or the Convertible Notes.
(2) Such Purchaser is purchasing the Convertible Notes, Warrants and
Preferred Stock for investment purposes, for its own account, and not as nominee
or agent, and not with a view to, or for sale in violation of federal or state
securities laws, and such Purchaser has no present intention, agreement or
arrangement to sell, grant participation interests in, or otherwise distribute
the same.
(3) Each Purchaser is experienced in evaluating and investing in
securities of companies in the development stage and acknowledges that it is
able to fend for itself, can bear the economic risk of its investment, and has
such knowledge and experience in financial and business matters that it is
capable of evaluating the merits and risks of the investment in the Securities.
If other than an individual, each Purchaser also represents it has not been
organized for the purpose of acquiring the Securities.
(4) Each Purchaser understands that the Securities are not, and any
Common Stock acquired on conversion thereof at the time of issuance may not be,
registered under the Securities Act on the ground that the sale provided for in
this Agreement and the issuance of securities hereunder is exempt from
registration under the Securities Act pursuant to section 4(2) thereof, and that
the Company's reliance on such exemption is based on the Purchasers'
representations set forth herein. Each Purchaser realizes that the basis for the
exemption may not be present if, notwithstanding such representations, the
Purchaser has in mind merely acquiring the Securities for a fixed or
determinable period in the future, or for a market rise, or for sale if the
market does not rise. No Purchaser has any such intention.
(5) The certificates representing the Convertible Notes, Warrants
and Preferred Stock, and any Common Stock issuable in on exercise or conversion
therefrom shall bear a legend evidencing such restriction on transfer
substantially in the following form:
"The securities represented by this certificate have been acquired for
investment and have not been registered under the Securities Act of 1933,
as amended (the "Act") or the securities laws of any state and may not be
sold or transferred except pursuant to registration under the Act or an
exemption therefrom."
(6) Each Purchaser has received the information regarding the
Company to enable it to make a meaningful investment decision with respect to
the purchase of the Securities. Stock Each Purchaser further represents that it
has had an opportunity to ask questions and receive answers from the Company
regarding the terms and conditions of the offering of the Securities and the
business, properties, prospects and financial condition of the Company and to
obtain additional information (to the extent the Company possessed such
information or could acquire it without unreasonable effort or expense)
necessary to verify the accuracy of any information furnished to it or to which
it had access. The foregoing, however, does not limit or
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modify the representations and warranties of the Company in Section 2 of this
Agreement or the right of the Purchasers to rely thereon.
4.35. Authorization. Such Purchaser has all requisite power and authority
to execute and deliver this Agreement and each of the Transaction Documents to
which it is a party and to perform its obligations hereunder and thereunder. The
execution, delivery and performance of the Agreement and the transactions
contemplated hereby have been duly authorized by all necessary action on the
part of such Purchaser. Each Transaction Document to which such Purchaser is a
party has been duly and validly executed and delivered by such Purchaser and
constitutes the legal, valid and binding obligation of such Purchaser,
enforceable against it in accordance with its terms, subject to applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
similar laws affecting creditors' rights and remedies generally, and subject, as
to enforceability, to general principles of equity, including principles of
commercial reasonableness, good faith and fair dealing (regardless of whether
enforcement is sought in a proceeding at law or in equity).
4.36. Governmental Consents. No consent, approval, order or authorization
of, or registration, qualification, designation, declaration or filing with, any
federal, state, or local governmental authority on the part of such Purchaser is
required in connection with the valid execution and delivery by such Purchaser
of the Transaction Documents to which it is a party, or the consummation by such
Purchaser of the transactions contemplated by the Transaction Documents to which
it is a party, except for such filings as have been made prior to the Closing.
4.37. Compliance with Other Instruments and Legal Requirements. Such
Purchaser is not in violation or default of any provisions of its organizational
documents. Such Purchaser is not in violation or default in any respect under
any provision, instrument, judgment, order, writ, decree, contract or agreement
to which it is a party or by which it is bound or of any provision of any
federal, state or local statute, rule or regulation applicable to it in any such
case that would reasonably be expected to materially adversely affect the
benefits to be derived by the Company from the transactions contemplated hereby.
The execution, delivery and performance by each Purchaser of each Transaction
Document and the consummation of the transactions contemplated hereby and
thereby will not result in any such violation or be in conflict with or
constitute, with or without the passage of time or giving of notice, either a
default under or give rise to any obligations under, the organizational
documents of such Purchaser, or any contract, agreement or other instrument or
obligation, decree or order to which such Purchaser is a party or by which the
Purchaser or its properties or assets is or may be bound, or to the Knowledge of
such Purchaser violate any law, order, rule or regulation applicable to such
Purchaser, and does not require any consent, waiver or approval thereunder,
except where such violation, conflict or default would reasonably be expected to
materially adversely affect the benefits to be derived by the Company from the
transactions contemplated hereby.
SECTION 5
Conditions to Closing of Purchasers
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Each Purchaser's obligation to purchase the Convertible Notes, Warrants
and Preferred Stock at the Closing is, at the option of such Purchaser, subject
to the fulfillment on or prior to the applicable Closing Date of the following
conditions:
5.1. Representations and Warranties. The representations and warranties of
the Company contained in Section 4 hereof shall be true and correct in all
respects when made, and shall be true and correct in all respects on the Closing
Date with the same force and effect as though all such representations and
warranties had been made as of Closing Date; provided, however, that this
condition shall be deemed satisfied unless the inaccuracy of any representation
or warranty or the cumulative effect of inaccuracies of the representations or
warranties has had a Material Adverse Effect or would reasonably be expected to
have a Material Adverse Effect.
5.2. Covenants. All covenants, agreements and conditions contained in this
Agreement to be performed by the Company on or prior to the Closing Date shall
have been performed or complied with in all material respects.
5.3. No Material Adverse Change. There shall not have occurred any events
or circumstances that has a Material Adverse Effect on the Company, except as
otherwise disclosed on Schedule 4.20.
5.4. Securities Laws. All registrations, qualifications and Permits
required under applicable state securities laws, and by any other governmental
or regulatory agency, if any, shall have been obtained for the lawful execution,
delivery and performance of this Agreement.
5.5. Shareholders' Approval. The transactions contemplated hereby shall
have been approved by the Company's shareholders in accordance with the rules
and regulations of the NASDAQ National Market System.
5.6. Issuance of Convertible Notes, Warrants and Preferred Stock. The
Company shall have issued the Convertible Notes, Warrants and Preferred Stock at
the Closing pursuant to this Agreement, and shall have delivered to each
Purchaser instruments representing such Purchaser's Convertible Notes and
Warrants.
5.7. New Orleans Project. There shall be evidence of firm commitments for
a sale and leaseback transaction with a third party purchaser involving the
Company's six buildings, including the Civic Theater, in New Orleans, Louisiana
(the "New Orleans Project"), providing for annual lease payments no greater than
fifteen percent (15%) of such purchaser's total investment in the New Orleans
Project (including the total purchase price and planned leasehold improvements).
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5.8. Registration Rights Agreement. The Company and any other parties
thereto shall have executed and delivered the Registration Rights Agreement in
substantially the form of Exhibit B hereto to Purchasers.
5.9. Appointment of Directors. Xxxxx Xxxxxxx or another individual
designated by Xxxxxx Xxxxxxx, as the holder of the Series B Preferred Stock,
shall have been duly appointed and elected as a member of the Company's Board of
Directors; provided, however, that this condition precedent shall not be deemed
unsatisfied as a result of the failure of Xxxxx Xxxxxxx or another individual to
be appointed by Xxxxxx Xxxxxxx or to accept such appointment.
5.10. Acknowledgment. Each of Xxxxx X. Xxxxx, Xxxxxxx X. Xxxxx, Xxxxx X.
Xxxxxx and Xxxxxx X. Xxxxxxx shall execute and deliver written confirmation to
the Purchasers that the transactions contemplated hereby do not trigger any
change of control provisions in his or her respective employment agreement.
5.11. Lead-based Paint. The Company shall have implemented an operation
and management plan for lead-based paint at the Company's headquarters located
at 000 Xxxx Xxxxxx.
5.12. No Event of Default. No Event of Default shall have occurred or then
exist.
5.13. Purchaser Rights Agreement. The Company and the other parties
thereto shall have executed and delivered the Purchaser Rights Agreement in
substantially the form of Exhibit C hereto to Purchasers.
5.14. Shareholders Agreement. Xxxxx X. Xxxxx shall have executed and
delivered to the Purchasers the Shareholders Agreement with the Purchasers, in
form and substance satisfactory to the Purchasers.
5.15. Opinion of Company's Counsel. The Purchasers shall have received
from Pillsbury Madison & Sutro LLP, counsel to the Company, an opinion addressed
to the Purchasers, dated the Closing Date, in substantially the form attached
hereto as Exhibit G.
5.16. Officer's Certificate. Each of the Purchasers shall have received a
certificate of the President or a Vice President of the Company to the effect
set forth in Sections 6.1 and 6.2.
5.17. Company Required Consents. The Company shall have obtained the
Company Required Consents.
5.18. Corporate Documents. The Company shall have delivered or caused to
be delivered to each Purchaser:
(1) a certificate of the Secretary of State of California dated not
earlier than the tenth (10th) day preceding the Closing Date, to the effect that
the Company is in good standing under the laws of California as of such date;
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(2) a certificate of the Secretary of State of each state where the
Company is required to qualify to do business dated not earlier than the tenth
(10th) day preceding the Closing Date, to the effect that the Company is a
corporation duly licensed or qualified to do business in such state and is in
good standing as a foreign corporation under the laws of such state as of such
date; and
(3) certificates of the Secretary or Assistant Secretary, or such
other authorized officer, of the Company including (A) copies of the articles of
incorporation and bylaws of the Company as then in effect or a certification
that there has been no change in such instruments since the last such
certification delivered to the Purchasers pursuant to this Agreement, (B) duly
enacted resolutions of the Company's board of directors in form and substance
satisfactory to the Purchasers approving the Transaction Documents and
authorizing officers of the Company to execute and deliver instruments required
to be delivered hereunder as a condition precedent to the Closing, and (C)
specimen signatures of the officers of the Company authorized to sign such
instruments to the extent such specimen signatures have not previously been
delivered to the Purchasers.
5.19. Xxxxx Xxxxx Employment Contract. The Company and Xxxxx X. Xxxxx
shall have entered into an employment contract with a term of at least two
years.
5.20. U.S. Department of Education Assurance. The Company shall provide
Purchasers with corrected U.S. Department of Education eligibility and
certification records on the School's ownership, provided that this condition
may also be satisfied if the Company has obtained written assurance from the
U.S. Department of Education to the effect that U.S. Department of Education
records will be changed to correctly report the School's current ownership
structure.
SECTION 6
Conditions to Closing of the Company
The Company's obligation to issue and sell the Convertible Notes, Warrants
and Preferred Stock at the Closing is, at the option of the Company, subject to
the fulfillment of the following conditions prior to the applicable Closing
Date:
6.1. Representations and Warranties. The representations and warranties of
the Purchasers contained in Section 5 hereof shall be true and correct in all
respects when made, and shall be true and correct in all respects on the Closing
Date with the same force and effect as though all such representations and
warranties had been made as of Closing Date; provided, however, that this
condition shall be deemed satisfied unless the inaccuracy of any representation
or warranty or the cumulative effect of inaccuracies of the representations or
warranties has materially adversely affected, or would reasonably be expected to
materially
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adversely affect, the benefits to be derived by the Company from the
transactions contemplated hereby.
6.2. Covenants. All covenants, agreements and conditions contained in this
Agreement to be performed by the Purchasers on or prior to the Closing Date
shall have been performed or complied with in all material respects.
6.3. Certificate. The Company shall have received a certificate from the
Purchasers to the effect set forth in Sections 7.1 and 7.2.
6.4. Other Agreements. The Purchasers shall have executed and delivered
the Purchaser Rights Agreement, the Standstill Agreement and the Registration
Rights Agreement.
6.5. State Securities Laws. All registrations, qualifications and Permits
required under applicable state securities laws, and by any other governmental
or regulatory agency, if any, shall have been obtained for the lawful execution,
delivery and performance of this Agreement.
6.6. Shareholder Approval. The transactions contemplated hereby shall have
been approved by the Company's shareholders in accordance with the rules and
regulations of the NASDAQ National Market System.
6.7. Company Required Consents. The Company shall have obtained the
Company Required Consents.
6.8. Receipt of Purchase Price. The Purchasers shall have wired Seven
Million Dollars ($7,000,000) to an account designated by the Company.
SECTION 7
Covenants of the Company and the Purchasers
7.1. Regulatory Matters. Each of the Company and Purchasers will (i) make
on a prompt and timely basis all governmental or regulatory notifications,
filings or submissions, as necessary for the consummation of the transactions
contemplated hereby, including any filings required pursuant to the
Xxxx-Xxxxx-Xxxxxx Antitrust Act, if required, (ii) use all reasonable efforts to
cooperate with the other and its representatives in (A) determining which
notifications, filings and submissions are required to be made prior to the
Closing Date with, and which consents, approvals, permits or authorizations are
required to be obtained prior to the Closing Date from, any governmental
authority in connection with the execution, delivery and performance of this
Agreement and the transactions contemplated hereby, and (B) timely making of all
such notifications, filings or submissions and timely seeking all such consents,
approvals, permits or authorizations, and (iii) use all reasonable efforts to
take, or cause to be taken, all
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other action and do, or cause to be done, all other reasonable things necessary
or appropriate to consummate the transactions contemplated by this Agreement.
7.2. Notice to Purchasers Upon an Event of Default. For so long as the
Convertible Notes are outstanding, upon the occurrence or existence of an Event
of Default (including without limitation an event of default with respect to any
other Indebtedness) and prior to the expiration of any applicable cure period,
the Company shall provide prompt notice of such Event of Default to the
Purchaser pursuant to Section 11.2 hereof.
7.3. Issuance of Warrant Shares. The Company shall issue Warrant Shares to
the Purchaser as soon as practicable, but no later than five (5) business days
(or such additional waiting period required under the Xxxx-Xxxxx-Xxxxxx
Antitrust Act), after payment by the Purchaser for such Warrant Shares. The
Warrant Shares shall be duly authorized, validly issued, fully paid and
non-assessable; will be free and clear of all Liens; and assuming that the
representations of the Purchasers in Section 5 hereof are true and correct, will
be issued in compliance with all applicable federal and state securities laws.
7.4. Restrictive Covenants. From the date hereof through the Closing Date,
without the prior written consent of the Purchasers, the Company shall not:
(1) issue any equity securities of the Company (other than
securities issued pursuant to outstanding options) or any securities convertible
into equity securities of the Company;
(2) operate the business of the Company in any manner not in the
ordinary course of business;
(3) take any of the actions set forth in Section 5 of the Purchaser
Rights Agreement attached hereto as Exhibit C, which Section is expressly
incorporated herein by reference;
(4) incur any Indebtedness other than Allowed Debt.
SECTION 8
Events of Default
8.1. Events of Default. For so long as any indebtedness under the
Convertible Notes shall be outstanding, each of the following events shall
constitute an event of default upon the lapsing of a 5 day grace period (an
"Event of Default"), unless the Company has provided prior written notification
to Purchasers of the Company's good faith intent to cure such default within
fifteen (15) business days; provided, however, that the grace period for 9.1(h)
below shall be 120 days:
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(1) The Company shall fail to pay any installment of principal of or
interest on the Convertible Notes when due; or
(2) The Company shall fail to perform or default in the performance
of any material term or covenant contained in any Transaction Document, or any
other material agreement with the Purchasers, and such failure or default has a
Material Adverse Effect; or
(3) Any representation or warranty made by the Company in this
Agreement or by the Company (or any officers of the Company) in any certificate,
instrument or written statement contemplated by or made or delivered pursuant to
any Transaction Document shall prove to have been incorrect when made and have a
Material Adverse Effect; or
(4) The Company shall (i) admit in writing its inability to pay its
debts generally as they become due; (ii) commence a voluntary case under Title
11 of the United States Code as from time to time in effect ("Title 11"), or
authorize, by appropriate proceedings of its Board of Directors or other
governing body, the commencement of such a voluntary case; (iii) file an answer
or other pleading omitting or failing to deny the material allegations of a
petition filed against it commencing an involuntary case under such Title 11, or
seek, consent to or acquiesce in the relief therein provided, or fail to
controvert timely the material allegations of any such petition; (iv) suffer the
entry of an order for relief in any involuntary case commenced under said Title
11; (v) seek relief as a debtor under any applicable law, other than said Title
11, of any jurisdiction relating to the liquidation or reorganization of debtors
or to the modification or alteration of the rights of creditors, or consent to
or acquiesce in such relief; (vi) suffer the entry of an order by a court of
competent jurisdiction (A) finding it to be bankrupt or insolvent, (B) ordering
or approving its liquidation, reorganization or any modification or alteration
of the rights of its creditors, or (C) assuming custody of, or appointing a
receiver or other custodian for, all or a substantial part of its property; or
(vii) make an assignment for the benefit of, or enter into a composition with,
its creditors, or appoint or consent to the appointment of a receiver or other
custodian for all or a substantial part of its property; or
(5) Any final judgment, writ, warrant of attachment or execution or
similar process shall be issued or levied against the property of the Company in
an aggregate amount which exceeds $1,000,000 and such judgment, writ, or similar
process shall not be discharged within thirty (30) days after all rights to
appeal have been exhausted; or
(6) Upon the existence or occurrence of a breach or other default by
the Company under any agreement to which the Company is a party which would have
a Material Adverse Effect; or
(7) Upon the removal of any individual designated by the Purchasers
to the Board of Directors, or any replacement(s) designated by the Purchasers,
from the Company's Board of Directors, except as contemplated by the Transaction
Documents or removal of such directors under sections 302 or 304 of the
California Corporations Code;
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(8) Any withdrawal, revocation, order to show cause, probation order
or denial of accreditation, any revocation, termination or denial of a license
to operate, or termination or suspension of eligibility to participate in the
student financial assistance programs authorized by Title IV of the Higher
Education Act of 1965, as amended, for the School; or
(9) The Company fails to maintain a cash balance of at least $1.0
million in its accounts until the end of tenth full calendar quarter following
the Closing Date. Thereafter, and for so long as the Preferred Stock remains
outstanding, the Company shall fail to be in compliance with an EBITDA Coverage
Ratio of 2-to-1.
Upon the occurrence or existence of any Event of Default and the lapsing of any
grace periods set forth above, and in any such event, any holder of at least
fifty percent (50%) of the outstanding principal amount of all Convertible Notes
may, by notice to the Company, declare the entire unpaid principal amount of
such Convertible Note, all interest accrued and unpaid thereon and all other
amounts payable to such holder under such Convertible Note or this Agreement to
be forthwith due and payable, whereupon such Convertible Note, all such accrued
interest and all such amounts shall become and be forthwith due and payable
(unless there shall have occurred an Event of Default under Section 9.1(d) in
which case all such accounts shall automatically become due and payable without
such declaration), without presentment, demand, protest or further notice of any
kind, all of which are hereby expressly waived by the Company. From the date of
an Event of Default until satisfaction of all obligations thereunder, interest
shall accrue on the Convertible Notes at a rate of fifteen percent (15%) per
annum. Upon the occurrence or existence of any Event of Default, the exercise
price of the Warrants shall be reduced to $0.01 per share and that shall remain
as the exercise price per share until the Warrants expire.
8.2. Annulment of Defaults. Section 9.1 is subject to the condition that,
if at any time after the principal of the Convertible Notes shall have become
due and payable, and before any judgment or decree for the payment of the moneys
so due shall have been entered, all arrears of interest upon such Convertible
Notes and all other sums payable to the holders of the Convertible Notes (except
the principal amount which by such declaration shall have become payable) shall
have been duly paid, and every other Event of Default shall have been made good
or cured, then and in every such case the holder of the Convertible Notes, by
written instrument delivered to the Company, may rescind and annul such
declaration and its consequences; provided, however, that no such rescission or
annulment shall extend to or affect any other or subsequent Event of Default or
impair any right of the holders of any other Convertible Notes consequent
thereon.
SECTION 9
Company Put Option
9.1. Company Put Option. Subject to the terms and conditions hereunder, in
the event that the Company has achieved at least ninety percent (90%) of the
cumulative EBITDA set forth on Schedule 10.1 attached hereto for the period July
1, 1999 through the end of the most recent calendar quarter ending immediately
prior to delivery of the Option Notice (as defined below),
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the Company shall have the right to sell (the "Company Put Option") to the
Purchasers, and the Purchasers agree to purchase, severally and not jointly, in
the amounts set forth opposite each Purchaser's name on Exhibit H, Convertible
Notes (the "Option Notes") in the aggregate principal amount of Three Million
Dollars ($3,000,000). The purchase price to be paid by each Purchaser shall be
equal to the aggregate principal amount of the Option Notes acquired by such
Purchaser. As additional consideration for purchasing the Convertible Notes
pursuant to the Company Put Option, the Company agrees to issue to each
Purchaser a Warrant as set forth on Exhibit H (the "Option Warrants"), which in
the aggregate entitle the Purchasers to acquire Twenty-Five Thousand (25,000)
shares of the Company's Common Stock.
9.2. Exercise of Company Put Option.
(1) The Company Put Option may be exercised by the Company by
delivering a written notice ("Option Notice") to each of the Purchasers at its
address set forth in Section 12.3. Such notice must be signed by the Company and
shall constitute an irrevocable obligation on the part of the Company to sell
the Option Notes against payment therefor by the Purchasers. The Option Notice
shall set forth the date of the sale, which date shall be (i) no more than sixty
(60) days after the date of the Option Notice and (ii) no less than forty-five
(45) days after the date of the Option Notice.
(2) At the closing of the sale of the Option Notes, the Company
shall deliver to the Purchasers any documents, instruments, or certificates
(including without limitation a bring-down certificate with respect to the
representations, warranties and covenants hereunder) reasonably requested by the
Purchasers in order to satisfy the conditions set forth in Section 10.3.
(3) At the closing of the sale of the Option Notes, each Purchaser
shall pay to the Company the purchase price for such Option Notes as set forth
on Exhibit H hereto.
(4) The Company shall be responsible for the payment of all
reasonable out-of-pocket expenses incurred by the Purchasers with respect to the
sale of the Option Notes, including without limitation any reasonable attorneys'
fees, transfer taxes, notarial fees or other similar costs and expenses;
provided that such expenses payable by the Company shall in no event exceed
$25,000.
(5) Unless otherwise agreed to in writing by the Purchasers, the
Company may exercise the Company Put Option on only one occasion and the Company
Put Option must be exercised in its full amount. Subject to Section 10.1, the
Company may exercise the Company Put Option at any time after June 30, 2000 and
before the last day of the twenty-first (21st) full month following the Closing
Date, at which time the Company Put Option shall immediately expire in its
entirety without any further action by the parties.
9.3. Company Put Option Closing
(1) Each Purchaser's obligation to purchase the Common Stock
pursuant to Section 10 at a subsequent closing, is subject to the fulfillment on
or prior to the applicable
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closing of the sale of the Option Notes (the "Option Closing Date") of the
following conditions (unless waived by such Purchaser in writing):
(2) Company Representations and Warranties Correct. Except as set
forth on the schedule of exceptions to be provided by the Company to the
Purchasers in connection with the closing of the Company Put Option (the
"Company Schedule of Exceptions"), the representations and warranties made by
the Company in Section 4 hereof shall have been true and correct when made, and
giving effect to the Company Schedule of Exceptions shall be true and correct on
the Option Closing Date with the same force and effect as if they had been made
on and as of such date (except that in Sections 4.17(b) and 4.20, the reference
date shall be "June 30, 1999" and "December 31, 1999"); provided that the
inclusion on the Company Schedule of Exceptions of an event or change which has
had or would be reasonably expected to have a Material Adverse Effect compared
to the condition of the Company as of the date hereof shall be deemed a failure
of this condition precedent unless waived by the Purchaser in writing.
(3) Purchaser Representations and Warranties Correct. Except as set
forth on the schedule of exceptions to be provided by the Company to the
Purchasers in connection with the closing of the Company Put Option (the
"Purchaser Schedule of Exceptions"), the representations and warranties made by
the Purchasers in Section 5 hereof shall have been true and correct when made,
and giving effect to the Purchaser Schedule of Exceptions shall be true and
correct on the Option Closing Date with the same force and effect as if they had
been made on and as of such date; provided that the inclusion on the Purchaser
Schedule of Exceptions of an event or change which has had or which would
reasonably be expected to materially adversely affect the benefits to be derived
by the Company from the sale of the Option Notes shall be deemed a failure of
this condition precedent unless waived by the Company in writing.
(4) Covenants. All covenants, agreements and conditions contained in
this Agreement to be performed by the Company on or prior to the Option Closing
Date shall have been performed or complied with in all material respects.
(5) Appointment of Directors. The Purchasers shall be entitled to
appoint one additional person to the Company's Board of Directors and such
nominee shall have been duly appointed and elected as a member of the Company's
Board of Directors; provided, however, that neither the failure of the
Purchasers nor such nominee's failure to accept such appointment shall
constitute a failure of this condition precedent. Xxxxx Xxxxxxx or another
individual designated by Xxxxxx Xxxxxxx, as the holder of the Series B Preferred
Stock, shall have been duly appointed and elected as a member of the Company's
Board of Directors; provided, however, that this condition precedent shall not
be deemed unsatisfied as a result of the failure of Xxxxx Xxxxxxx or another
individual to be appointed by Xxxxxx Xxxxxxx or to accept such appointment.
(6) Opinion of Company's Counsel. The Purchasers shall have received
an opinion from counsel to the Company addressed to the Purchasers, dated the
Option Closing Date, that is customary for a transaction of this type.
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(7) No Material Adverse Change. Since the Closing Date, there shall
not have occurred any events or circumstances that have had, individually or in
the aggregate, a Material Adverse Effect, except as otherwise disclosed on
Schedule 4.20.
(8) State Securities Laws. All registrations, qualifications and
Permits required under applicable state securities laws, if any, shall have been
obtained for the lawful execution and delivery of this Agreement, and the sale
of the Option Notes and Option Warrants to the Purchasers pursuant hereto.
(9) Issuance of Warrants and Option Notes. The Company shall have
issued instruments representing the Option Warrants and Option Notes.
(10) Officer's Certificate. Each of the Purchasers shall have
received a certificate of the President or a Vice President of the Company to
the effect set forth in Sections 6.1 and 6.2.
(11) Corporate Documents. The Company shall have delivered or caused
to be delivered to each Purchaser:
(1) a certificate of the Secretary of State of the Company's
state of incorporation dated not earlier than the tenth (10th) day
preceding the Option Closing Date, to the effect that the Company is a
corporation validly existing and in good standing under the laws of such
state as of such date;
(2) a certificate of the Secretary of State of each state
where the Company is required to qualify to do business dated not earlier
than the tenth (10th) day preceding the Option Closing Date, to the effect
that the Company is a corporation duly licensed or qualified to do
business in such state and is in good standing as a foreign corporation
under the laws of such state as of such date; and
(3) certificates of the Secretary or Assistant Secretary, or
such other authorized officer, of the Company including (A) copies of the
certificate of incorporation, bylaws and other governing documents of the
Company as then in effect or a certification that there has been no change
in such instruments since the last such certification delivered to the
Purchasers pursuant to this Agreement, (B) duly enacted resolutions of the
Company's board of directors in form and substance satisfactory to the
Purchasers approving the Transaction Documents and authorizing officers of
the Company to execute and deliver instruments required to be delivered
hereunder as a condition precedent to the closing of the Company Put
Option, and (C) specimen signatures of the officers of the Company
authorized to sign such instruments to the extent such specimen signatures
have not previously been delivered to the Purchasers.
(12) No Event of Default. No Event of Default shall have occurred
and not been cured or shall then exist.
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SECTION 10
Termination and Abandonment
10.1. Termination. This Agreement may be terminated at any time prior to
the Closing Date:
(1) by unilateral action of the Company;
(2) by the Company or the Purchasers, if the Company's shareholders
fail to approve the transactions contemplated hereunder;
(3) by the Company or the Purchasers, if the Closing shall not have
been consummated on or before June 30, 1999 (the "Termination Date"); provided,
however, that this Agreement may not be terminated by (i) the Purchasers if the
Purchasers fail to perform their obligations under this Agreement or (ii) the
Company if the Company fails to perform its obligations under this Agreement,
and in either case such failure to perform causes the Closing not to have been
consummated prior to the Termination Date;
(4) by the Purchasers if any representation, warranty or covenant of
the Company, the breach of which would reasonably be expected to have a Material
Adverse Effect, shall not be satisfied at such time and (i) such condition is
incapable of being satisfied prior to the Closing Date or (ii) the Company is
not using its best efforts to cure the breach resulting in such condition not
being satisfied in as timely a manner as practicable; or
(5) by the Company if any representation, warranty or covenant of
the Purchasers, the breach of which would reasonably be expected to materially
adversely affect the benefits to be derived by the Company from the transactions
contemplated hereby, shall not be satisfied at such time and (i) such condition
is incapable of being satisfied prior to the Closing Date or (ii) the Purchasers
are not using their best efforts to cure the breach resulting in such condition
not being satisfied in as timely a manner as practicable
10.2. Procedure and Effect of Termination. In the event of termination of
this Agreement pursuant to Section 11.1, written notice thereof shall forthwith
be given to the other parties hereto, and this Agreement shall terminate without
further action by any of the parties hereto. If this Agreement is terminated
pursuant to Section 11.1(a), (c) or (d), this Agreement shall forthwith become
void, and there shall be no liability on the part of any party hereto, except
that the Company shall pay to each Purchaser such Purchaser's pro-rata share of
an aggregate termination fee of One Hundred Forty Thousand Dollars ($140,000) as
liquidated damages. If this Agreement is terminated pursuant to Section 11.1(b)
and within six months after the meeting of shareholders the Company enters into
a definitive agreement to sell equity or debt securities to a third party where
the aggregate net proceeds to the Company would exceed $5 million, then the
Company shall pay to the Purchasers a termination fee of One Hundred Forty
Thousand Dollars ($140,000) as liquidated damages. Except for the provisions
above with respect to liquidated
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damages, nothing herein shall relieve any party from liability for any breach
hereof occurring prior to the termination of this Agreement.
SECTION 11
Miscellaneous
11.1. California Corporate Securities Law. The sale of the Convertible
Notes, Warrants and Series B Preferred Stock has not been qualified with the
commissioner of corporations of the state of California and the issuance of such
securities or the payment or receipt of any part of the consideration for such
securities prior to such qualification is unlawful, unless the sale of
securities is exempt from qualification by section 25100, 25101.1, 25102,
25102.1, 25105 or any other provision of the California Corporations Code. The
rights of all parties to this agreement are expressly conditioned upon such
qualification being obtained, unless the sale is so exempt.
11.2. Amendment; Waiver. Neither this Agreement nor any provision hereof
may be amended, modified, supplemented or waived, except by a written instrument
executed by (i) the Company and (ii) the Purchasers.
11.3. Notices. Any notices or other communications required or permitted
hereunder shall be sufficiently given if in writing and delivered in Person,
transmitted by facsimile transmission (fax) or sent by registered or certified
mail (return receipt requested) or recognized overnight delivery service,
postage pre-paid, addressed as follows, or to such other address as such party
may notify to the other parties in writing:
(1) if to the Company:
California Culinary Academy, Inc.
000 Xxxx Xxxxxx
Xxx Xxxxxxxxx, XX 00000
Attn: Xxxxx X. Xxxxx
Telephone No.: 000-000-0000
Facsimile No.: 000-000-0000
with a copy to:
Pillsbury Madison & Sutro LLP
000 Xxxxxxxxxx Xxxxxx
Xxx Xxxxxxxxx, XX 00000
Attn.: Xxxxx X. Xxxxx, Esq.
Telephone: 000-000-0000
Facsimile No.: 000-000-0000
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(2) if to the Purchasers:
c/x Xxxxxx, Xxxxxxx & Company, L.L.C.
Xxx Xxxxx Xxxxxx, Xxxxx 0000
Xxxxxxxxx, XX 00000
Attn: Xxxxx X. Xxxxxxx
Telephone No.: 000-000-0000
Facsimile No.: 000-000-0000
with a copy to:
Xxxxxx, Xxxxxx & Xxxxxxxxx
000 Xxxxx Xxxxxx
Xxxxxxxxx, XX 00000
Attn: Xxxxxx X. Xxxxxx, Esq.
Telephone No.: 000-000-0000
Facsimile No.: 000-000-0000
A notice or communication will be effective (i) if delivered in person or by
overnight courier, on the business day it is delivered, (ii) if transmitted by
telecopier, on the business day of actual confirmed receipt by the addressee
thereof, and (iii) if sent by registered or certified mail, three (3) business
days after dispatch.
11.4. Legend. Each certificate representing a Convertible Note, Warrant or
the Series B Preferred Stock shall bear on its face substantially the following
legends:
(1) "THESE SECURITIES ARE SUBJECT TO THE PROVISIONS OF A CERTAIN
SECURITIES PURCHASE AGREEMENT DATED APRIL 28, 1999, AS AMENDED AND IN EFFECT
FROM TIME TO TIME, AMONG THE CORPORATION AND THE SHAREHOLDERS NAMED THEREIN, AND
A STANDSTILL AGREEMENT DATED ______ __, 1999, AMONG THE CORPORATION AND THE
SHAREHOLDERS NAMED THEREIN, COPIES OF WHICH ARE ON FILE AT THE OFFICES OF THE
CORPORATION."
(2) Any legends required by the laws of any applicable jurisdiction.
11.5. Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision will be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement.
11.6. Successors and Assigns. Except as otherwise provided herein, the
provisions hereof shall inure to the benefit of, and be binding upon, the
successors and permitted assigns of the parties hereto. The Company shall not
have the right to assign its rights or delegate its
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obligations under this Agreement without the prior written consent of the
Purchasers. Each Purchaser may assign its rights only to one or more of its
Affiliates; provided, however, that upon an Event of Default, this Agreement,
the Convertible Notes, and the Warrants and all rights hereunder and thereunder
shall be freely assignable (subject to applicable state and federal securities
laws) to any Person by the Purchaser without the consent of the Company.
11.7. Survival of Representations, Warranties and Covenants. All
representations and warranties made in, pursuant to or in connection with this
Agreement shall survive the execution and delivery of this Agreement, any
investigation at any time made by or on behalf of any Purchaser, and the sale
and purchase of the Convertible Notes, Warrants and any Common Stock, and
payment therefor for a period of fifteen (15) months; provided, however, that
the representations and warranties made in Sections 4.16 (Environmental), 4.21
(Benefits) and 4.22 (Taxes) shall survive for the applicable statutory period of
limitations with respect to any liabilities covered thereby. Unless otherwise
provided in this Agreement, the covenants and agreements set forth in Sections
8, 9, 11 and 12.12 shall survive and remain in force so long as any Convertible
Note or Warrant remains issued and outstanding.
11.8. Entire Agreement. This Agreement and the Transaction Documents
delivered pursuant hereto constitute the full and entire understanding and
agreement between the parties with regard to the subject matter hereof and
thereof and supersede and cancel all prior representations, alleged warranties,
statements, negotiations, undertakings, letters, acceptances, understandings,
contracts and communications, whether verbal or written, among the parties
hereto and thereto or their respective agents with respect to or in connection
with the subject matter hereof.
11.9. Choice of Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Delaware without regard to principles
of conflict of laws.
11.10. Counterparts. This Agreement may be executed in any number of
counterparts and by different parties hereto in separate counterparts, with the
same effect as if all parties had signed the same document. All such
counterparts shall be deemed an original, shall be construed together and shall
constitute one and the same instrument.
11.11. Costs and Expenses. Promptly after the Closing, the Company shall
pay the reasonable legal fees and expenses incurred by the Purchasers in
connection with the due diligence review and Closing under this Agreement and
the transactions contemplated hereby in an amount not to exceed $60,000.
11.12. No Third-Party Beneficiaries. Nothing in this Agreement will confer
any third party beneficiary or other rights upon any Person (specifically
including any Company employees) or entity that is not a party to this
Agreement.
11.13. Indemnification.
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(1) The Company agrees to indemnify and hold harmless the Purchasers
and their Affiliates, and their respective partners, co-investors, officers,
directors, employees, agents, consultants, attorneys and advisers (a "Purchaser
Indemnified Party"), from and against any and all actual losses, claims,
damages, liabilities, costs and expenses (including, without limitation,
environmental liabilities, costs and expenses and all reasonable fees, expenses
and disbursements of counsel), joint or several (hereinafter collectively
referred to as a "Loss"), which may be incurred by or asserted or awarded
against any Purchaser Indemnified Party in connection with or arising out of the
inaccuracy or breach by the Company of any representation, warranty or covenant
contained in the Agreement.
(2) The Purchasers agree to indemnify and hold harmless the Company
and its officers, directors, employees and affiliates (the "Company Indemnified
Parties" and together with each Purchaser Indemnified Party, an "Indemnified
Party"), from and against any Loss, which may be incurred by or asserted or
awarded against the Company in connection with or arising out of the inaccuracy
or breach by any Purchaser of any representation, warranty or covenant contained
in the Agreement.
(3) An Indemnified Party shall give written notice to the Company or
Purchasers, as the case may be (an "Indemnifying Party"), of any claim with
respect to which it seeks indemnification within ten (10) days after the
discovery by such parties of any matters giving arise to a claim for
indemnification pursuant to Section 12.13(a) or (b); provided that the failure
of any Indemnified Party to give notice as provided herein shall not relieve an
Indemnifying Party of its obligations under this Section 12.13, except to the
extent that an Indemnifying Party is actually prejudiced by such failure to give
notice. In case any such action or claim is brought against any Indemnified
Party, an Indemnifying Party shall be entitled to participate in and, unless in
the reasonable good faith judgment of the Indemnified Party a conflict of
interest between such Indemnified Party and an Indemnifying Party may exist in
respect of such action or claim, to assume the defense thereof, with counsel
satisfactory to the Indemnified Party and after notice from an Indemnifying
Party to the Indemnified Party of its election so to assume the defense thereof,
an Indemnifying Party shall not be liable to such Indemnified Party for any
legal or other expenses subsequently incurred by the latter in connection with
the defense thereof other than reasonable costs of investigation. In any event,
unless and until an Indemnifying Party elects in writing to assume and does so
assume the defense of any such action or claim the Indemnified Party's costs and
expenses arising out of the defense, settlement or compromise of any such action
or claim shall be Losses subject to indemnification hereunder. If an
Indemnifying Party elects to defend any such action or claim, then the
Indemnified Party shall be entitled to participate in such defense with counsel
of its choice at its sole cost and expense. An Indemnifying Party shall not be
liable for any settlement of any action or claim effected without its written
consent. Anything in this Section 12.13 to the contrary notwithstanding, an
Indemnifying Party shall not, without the Indemnified Party's prior written
consent, settle or compromise any claim or consent to entry of any judgment in
respect thereof that imposes any future obligation on the Indemnified Party or
that does not include, as an unconditional term thereof, the giving by the
claimant or the plaintiff to the Indemnified Party, a release from all liability
in respect of such claim.
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(4) An Indemnifying Party agrees that no Indemnified Party shall
have any liability (whether direct or indirect, in contract, tort or otherwise)
to an Indemnifying Party, shareholders or creditors for or in connection with
the transactions contemplated by this Agreement or the other Transaction
Documents, except to the extent such liability is found in a final judgment by a
court of competent jurisdiction to have resulted from such Indemnified Party's
gross negligence or willful misconduct or the misrepresentations of the
Indemnified Party, but in no event shall an Indemnified Party be liable for
punitive, exemplary or consequential damages.
[Remainder of Page Intentionally Left Blank]
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SECURITIES PURCHASE AGREEMENT
SIGNATURE PAGE
IN WITNESS WHEREOF, the Company and the Purchasers have caused this
Agreement to be executed effective as of the date first above written.
THE COMPANY:
CALIFORNIA CULINARY ACADEMY, INC.
By: /s/ Xxxxx X. Xxxxx
----------------------------------------------
Name: Xxxxx X. Xxxxx
Title: President and Chief Executive Officer
PURCHASERS:
XXXXXX, XXXXXXX STRATEGIC PARTNERS FUND, L.P.
By: XXXXXX XXXXXXX STRATEGIC PARTNERS, L.P.,
its General Partner
By: /s/ Xxxxx X. Xxxxxxx
----------------------------------------------
Name: Xxxxx X. Xxxxxxx
Title: a General Partner
STRATEGIC ASSOCIATES, L.P.
By: XXXXXX, XXXXXXX & COMPANY, LLC, its
General Partner
By: /s/ Xxxxx X. Xxxxxxx
----------------------------------------------
Name: Xxxxx X. Xxxxxxx
Title: Managing Member
