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NOTE AND SECURITY AGREEMENT
Dated as of March 24, 1998
$2,900,000 Senior Subordinated Secured Note
Due March 24, 2003
and
Warrant to Purchase
Common Stock
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NOTE AND SECURITY AGREEMENT
$2,900,000 Senior Subordinated Secured Note
Due March 24, 2003
and
Warrant to Purchase
Common Stock
Dated as of
March 24, 1998
Xxxxxxx Xxxxxx Mezzanine Fund, L.P.
c/x Xxxxxxx Xxxxxx Capital Partners LLP
0000 - 00xx Xxxxxx, Xxxxx 0000
Xxxxxx, Xxxxxxxx 00000
Gentlemen:
The undersigned, Xxxxxxx Educational Systems, Inc., a Colorado corporation
(the "Company"), and its subsidiaries listed on the signature page of this
Agreement as guarantors (the "Guarantors") agree with Xxxxxxx Xxxxxx Mezzanine
Fund, L.P. ("Purchaser") as follows:
SECTION 1. INTERPRETATION OF AGREEMENT, DEFINITIONS.
1.1. Definitions. Unless the context otherwise requires, the terms
hereinafter set forth when used herein shall have the following meanings and the
following definitions shall be equally applicable to both the singular and
plural forms of any of the terms herein defined:
"Accounts" means, all "accounts" (as defined in the UCC) now owned or
hereafter created or acquired by the Company and its Subsidiaries, including all
accounts receivable, contract rights and general intangibles relating thereto,
notes, drafts and other forms of obligations owed to or owned by the Company and
its Subsidiaries arising or resulting from the sale of goods or the rendering of
services, all proceeds thereof, all guaranties and security therefor, and all
goods and rights represented thereby or arising therefrom including the right of
stoppage in transit, replevin and reclamation.
"Affiliate" means any Person Controlling, Controlled by or under common
Control with another Person. Without limiting the generality of the foregoing,
each of the following shall be an Affiliate of the Company: any officer or
director of the Company, any five percent (5%) or greater holder of Shares of
the Company, and any other Person with whom or which the Company has common
shareholders, officers or directors. Notwithstanding the foregoing, Purchaser
shall not be deemed to be an Affiliate of the Company.
"Bank" shall mean any financial institution providing the Bank
Indebtedness.
"Bank Indebtedness" means Indebtedness in an aggregate amount not to exceed
$2,000,000 incurred pursuant to (a) a line of credit or revolving credit
facility for Data Processing Trainers Co. in an amount up to $1,000,000, and (b)
a line of credit or revolving credit facility for Denver Automotive & Diesel
College, Inc. in an amount up to $1,000,000, and any refinancing of any such
Indebtedness on terms and conditions agreed to by Purchaser, which consent shall
not be unreasonably withheld.
"Business Days" means any day excluding Saturday, Sunday and any day which
is a legal holiday under the laws of the State of Colorado or a day on which
banking institutions located in Colorado are closed.
"Capital Expenditures" means all expenditures made and liabilities incurred
for the acquisition of any fixed asset or improvement, replacement, substitution
or addition thereto which has a useful life of more than one (1) year and
including, without limitation, those arising in connection with Capital Leases.
"Capital Lease" means any lease of property by the Company that, in
accordance with GAAP, should be capitalized for financial reporting purposes and
reflected as a liability on the balance sheet of the Company.
"Cash Equivalents" means: (a) marketable direct obligations issued or
unconditionally guarantied by the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within six (6) months from the date of acquisition thereof;
(b) commercial paper maturing no more than six (6) months from the date issued
and, at the time of acquisition, having a rating of at least A-1 from Standard &
Poor's Ratings Services, or at least P-1 from Xxxxx'x Investors Service, Inc.;
and (c) certificates of deposit or bankers' acceptances maturing within six (6)
months from the date of issuance thereof issued by, or overnight reverse
repurchase agreements from, any commercial bank organized under the laws of the
United States of America or any state thereof or the District of Columbia having
combined capital and surplus of not less than $250,000,000 and not subject to
setoff rights in favor of such bank.
"Change of Control" means the occurrence or existence of any change of
Control of the Company or its Subsidiaries, whether occurring through merger,
sale of assets or stock, exchange or securities or otherwise.
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"Closing Date" has the meaning set forth in ss.2.3.
"Collateral" has the meaning set forth in ss.2.2.
"Control" means the possession, directly or indirectly, of the power to
direct or cause the direction of management and policies of a Person, whether
through ownership of common or preferred stock or other equity interests, by
contract or otherwise.
"Current Assets" at any date means the amount at which the current assets
of the Company would be shown on a consolidated balance sheet of the Company at
such date, prepared in accordance with GAAP, provided that amounts due from
Affiliates and investments in Affiliates shall be excluded therefrom.
"Current Liabilities" at any date means the amount at which the current
liabilities of the Company would be shown on a consolidated balance sheet of the
Company at such date, prepared in accordance with GAAP, other than the current
portion of long term debt.
"Debt Service Coverage" means, for any period, for the Company and its
Subsidiaries on a consolidated basis: (a) EBITDA, minus income or franchise
taxes actually paid in cash, minus Capital Expenditures paid in cash; divided by
(b) interest expenses deducted in the determination of net income; plus
scheduled payments of principal with respect to all Indebtedness.
"Default" means any event or condition the occurrence of which would, with
the lapse of time or the giving of notice, or both, constitute an Event of
Default.
"EBITDA" means for any period of the Company, the net income of the Company
for such period, plus interest expense, provision for income taxes for such
period, depreciation and amortization expense, and non-recurring miscellaneous
expenses, and minus non-recurring miscellaneous income in each case, as
calculated from the consolidated financial statements of the Company prepared in
accordance with GAAP.
"Employee Benefit Plan" means any employee benefit plan within the meaning
of ERISA which is maintained for the benefit of any employees of the Company or
its Subsidiaries.
"Environmental Claims" means claims, liabilities, investigations,
litigation, administrative proceedings, judgments or orders relating to
Hazardous Materials.
"Environmental Laws" means any present or future federal, state or local
law, rule, regulation or order relating to pollution, waste, disposal or the
protection of human health or safety, plant life or animal life, natural
resources or the environment.
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"Equipment" means all "equipment" (as defined in the UCC) now owned or
hereafter acquired by the Company and its Subsidiaries including, without
limitation, all machinery, motor vehicles, trucks, trailers, vessels, aircraft
and rolling stock and all parts thereof and all additions and accessions thereto
and replacements therefor.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and any successor statute of similar import, together with the
regulations thereunder, in each case as in effect from time to time. References
to sections of ERISA shall be construed to also refer to any successor sections.
"ERISA Affiliate" means any corporation, trade or business that is, along
with the Company, a member of a controlled group of corporations or a controlled
group of trades or businesses, as described in section 414(b) and 414(c),
respectively, of the Internal Revenue Code or 1986, as amended, or Section 4001
of ERISA.
"Event of Default" has the meaning set forth in ss.7.1.
"Financing Documents" means and includes this Agreement, the Warrant, the
Note and all other instruments, documents, financing statements and agreements
executed by or on behalf of the Company or the Subsidiaries and delivered
concurrently herewith or at any time hereafter to or for the benefit of
Purchaser in connection with this Agreement and the other transactions
contemplated by this Agreement, each as amended from time to time.
"GAAP" means generally accepted accounting principles at the time,
consistently applied.
"Hazardous Material" means all or any of the following: (a) substances that
are defined or listed in, or otherwise classified pursuant to, any Environmental
Laws or regulations as "hazardous substances", "hazardous materials", "hazardous
wastes", "toxic substances" or any other formulation intended to define, list or
classify substances by reason of deleterious properties such as ignitability,
corrosivity, reactivity, carcinogenicity, reproductive toxicity or "EP
toxicity"; (b) oil, petroleum or petroleum derived substances, natural gas,
natural gas liquids or synthetic gas and drilling fluids, produced waters and
other wastes associated with the exploration, development or production of crude
oil, natural gas or geothermal resources; (c) any flammable substances or
explosives or any radioactive materials; and (d) friable asbestos or electrical
equipment which contains any oil or dielectric fluid containing levels of
polychlorinated biphenyls in excess of fifty parts per million.
"Indebtedness" means all of the Company's or its Subsidiaries' present and
future obligations, liabilities, debts, claims and indebtedness, contingent,
fixed or otherwise, however evidenced, created, incurred, acquired, owing or
arising, whether under written or oral agreement, operation of law or otherwise,
and includes, without limiting the foregoing (i) the Obligations, (ii)
obligations and liabilities of any Person secured by a lien, claim, encumbrance
or security interest upon property owned by the Company or its Subsidiaries,
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even though the Company and its Subsidiaries have not assumed or become liable
therefor, (iii) obligations and liabilities created or arising under any lease
(including Capital Leases) or conditional sales contract or other title
retention agreement with respect to property used or acquired by the Company or
its Subsidiaries, even though the rights and remedies of the lessor, seller or
lender are limited to repossession, (iv) all unfunded pension fund obligations
and liabilities and (v) deferred taxes.
"Indemnified Liabilities" has the meaning set forth in ss.8.4.
"Indemnified Person" has the meaning set forth in ss.8.4.
"Intellectual Property" means all present and future designs, patents,
patent rights and applications therefor, trademarks and registrations or
applications therefor, trade names, inventions, copyrights and all applications
and registrations therefor, software or computer programs, license rights, trade
secrets, methods, processes, know-how, drawings, specifications, descriptions,
and all memoranda, notes and records with respect to any research and
development, whether now owned or hereafter acquired, all goodwill associated
with any of the foregoing, and proceeds of all of the foregoing, including,
without limitation, proceeds of insurance policies thereon.
"Inventory" means all "inventory" (as defined in the UCC) now owned or
hereafter acquired, wherever located, including finished goods, raw materials,
work in process and other materials and supplies used or consumed in a Person's
business including goods which are returned or repossessed.
"Leverage Ratio" means the ratio of (a) the Company's and its Subsidiaries'
consolidated Indebtedness for borrowed money (including any such Indebtedness of
any other Person guaranteed by the Company or any of its Subsidiaries or secured
by a lien, claim, encumbrance or security interest upon property owned by the
Company or its Subsidiaries) to (b) the Company's EBITDA.
"Lien" means any lien, mortgage, pledge, security interest, charge or
encumbrance of any kind, whether voluntary or involuntary (including any
conditional sale or other title retention agreement, any lease in the nature
thereof, and any agreement to give any security interest).
"Material Adverse Effect" means a material adverse effect upon (a) the
business, operations, properties, assets, condition (financial or otherwise) or
prospects of the Company and its Subsidiaries taken as a whole, (b) the ability
of the Company or its Subsidiaries to perform its payment obligations under any
Financing Document to which it is a party, or (c) the ability of Purchaser to
enforce or collect any of the Obligations.
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"Multiemployer Plan" has the meaning given to such term under ERISA.
"Note" has the meaning set forth in ss.2.1 and includes any Note or Notes
issued in exchange or in substitution therefor.
"Obligations" means all obligations, liabilities and indebtedness of every
nature of the Company and its Subsidiaries from time to time owed to the
Purchaser under the Financing Documents including the principal amount of all
debts, claims and indebtedness, accrued and unpaid interest and all fees, costs
and expenses, whether primary, secondary, direct, contingent, fixed or
otherwise, heretofore, now and/or from time to time hereafter owing, due or
payable.
"PBGC" means the Pension Benefit Guaranty Corporation and any entity
succeeding to any or all of its functions under ERISA.
"Permitted Encumbrances" means the following types of Liens: (a) Liens
(other than Liens relating to Environmental Claims or ERISA) for taxes,
assessments or other governmental charges not yet due and payable; (b) statutory
Liens of landlords, carriers, warehousemen, mechanics, materialmen and other
similar liens imposed by law, which are incurred in the ordinary course of
business and are (i) for sums not more than thirty (30) days delinquent or (ii)
being contested in good faith by appropriate proceedings promptly instituted and
diligently conducted and with respect to which appropriate reserves have been
established in accordance with GAAP; (c) Liens (other than any Lien imposed by
ERISA) incurred or deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and other types of
social security, statutory obligations, surety and appeal bonds, bids, leases,
government contracts, trade contracts, performance and return-of-money bonds and
other similar obligations (exclusive of obligations for the payment of borrowed
money); (d) easements, rights-of-way, restrictions, and other similar charges or
encumbrances not interfering in any material respect with the ordinary conduct
of the business of the Company or any of its Subsidiaries; (e) Liens for
purchase money obligations, provided that (i) the purchase of the asset subject
to any such Lien is permitted under ss.6.6(d), (ii) the Indebtedness secured by
any such Lien is permitted under ss.6.7, and (iii) such Lien encumbers only the
asset so purchased; (f) Liens in favor of the Purchaser; (g) the Lien on Data
Processing Trainers Co. stock and assets in favor of the Sellers in connection
with the Seller Indebtedness; and (h) Liens on certain assets of the
Subsidiaries in favor of Bank in connection with the Bank Indebtedness.
"Person" means an individual, partnership, corporation, limited liability
company, trust or unincorporated organization, and a government or agency or
political subdivision thereof.
"Plan" means a "pension plan," as such term is defined in ERISA,
established or maintained by the Company or any ERISA Affiliate or as to which
the Company or any ERISA Affiliate contributed or is a member or otherwise may
have any liability.
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"Pro Forma" means the unaudited consolidated balance sheet of the Company
and its Subsidiaries as of the Closing Date, after giving effect to the
transactions contemplated by this Agreement and the Stock Purchase Agreement.
"Projections" means the Company's forecasted consolidated: (a) balance
sheets; (b) profit and loss statements; (c) cash flow statements; and (d)
capital expenditure statements, together with appropriate supporting details and
a statement of underlying assumptions.
"Proposal Letter" means the letter dated December 9, 1997, between the
Company and Purchaser concerning terms of this Agreement, the Warrant and other
aspects of the transactions contemplated by the Financing Documents.
"Purchaser" means Xxxxxxx Xxxxxx Mezzanine Fund, L.P., a Colorado limited
partnership.
"Restricted Payment" means: (a) any dividend or other distribution, direct
or indirect, on account of any Shares or any other equity securities of the
Company or any of its Subsidiaries now or hereafter outstanding; (b) any payment
or prepayment of principal of, premium, if any, or interest on, or any
conversion, exchange, retirement, defeasance, sinking fund or similar payment,
purchase or other acquisition for value, direct or indirect, of any Indebtedness
(other than the Note) of the Company or any of its Subsidiaries now or hereafter
outstanding; (c) any redemption, dividend, conversion, exchange, retirement,
defeasance, sinking fund or similar payment, purchase or other acquisition for
value, direct or indirect, of any Shares or any other equity securities, as the
case may be, of the Company or any of its Subsidiaries now or hereafter
outstanding; (d) any payment made to retire, or to obtain the surrender of, any
warrants, options or other rights to acquire Shares or any other equity security
of the Company or any of its Subsidiaries now or hereafter outstanding (other
than the Warrant); and (e) any payment by the Company or any of its Subsidiaries
of any compensation, management fees or similar payments to any Affiliate,
whether pursuant to a management agreement, employment agreement, compensation
or bonus plan or otherwise.
"SBA" means the federal Small Business Administration.
"Securities Act" means the Securities Act of 1933, as amended, or any
similar federal statute, and the rules and regulations of the Securities and
Exchange Commission thereunder, all as the same shall be in effect at the time.
"Seller Indebtedness" shall mean all Indebtedness to Sellers incurred in
connection with the Stock Purchase Agreement up to $4,200,000, and any
refinancing of such Indebtedness on terms and conditions consented to by
Purchaser, which consent shall not be unreasonably withheld.
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"Sellers" means Xxxx Xxxxxxxxxx.
"Shareholder Indebtedness" shall mean all Indebtedness to Xxxx X. Xxxxxxx
evidenced by (a) promissory notes on which the Company currently owes an
aggregate amount not in excess of $410,307, and (b) a $2,000,000 promissory note
to be executed simultaneously with this Agreement on terms satisfactory to
Purchaser, including, without limitation, payment terms that (a) prohibit any
payment of principal prior to one day following the date the Note (together with
all interest due and payable on the Note) has been indefeasibly paid in full to
Purchaser in cash or cash equivalents, and (b) prohibit interest payments in
excess of 12% per calendar quarter. Any refinancing of the Shareholder
Indebtedness shall be on terms and conditions consented to by Purchaser, which
consent shall not be unreasonably withheld.
"Shares" means shares of the Company's common stock, $0.10 par value per
share.
"Stock Purchase Agreement" means that certain Stock Purchase Agreement
dated as of March 24, 1998 among the Company, Data Processing Trainers Co. and
Xxxx Xxxxxxxxxx.
"Subsidiary" means any corporation, partnership, limited liability company
or other entity in which the Company owns, directly or indirectly, at least 50%
of the voting equity securities. For purposes of this Agreement, Data Processing
Trainers Co. shall be considered a Subsidiary of the Company notwithstanding the
fact that the Company is acquiring ownership of Data Processing Trainers Co. on
the date of this Agreement.
"Triggering Event" means (i) a Change of Control, (ii) any consolidation or
merger between the Company and any partnership, limited liability company or
corporation, unless (a) the Company is the surviving entity and (b) the holders
of Shares immediately prior to such transaction hold, immediately after such
transaction, at least a majority of the voting equity securities of the Company,
(iii) consummation of any public offering of equity securities by the Company or
its successors or any stockholders of the Company under the Securities Act, (iv)
the occurrence of any Event of Default, or (v) the receipt by the Company or any
of its shareholders of any Unlocking Proposal (as defined in the Warrant).
"UCC" shall mean the Uniform Commercial Code as in effect on the date
hereof in the State of Colorado, as amended from time to time, and any successor
statute.
"Warrant" means the Warrant issued by the Company to Purchaser in
connection with the transactions contemplated by this Agreement, a copy of which
is attached as Exhibit B.
1.2. Accounting Principles. For purposes of this Agreement, all accounting
terms not otherwise defined herein shall have the meanings assigned to such
terms in conformity with GAAP. Any consolidation or other accounting computation
required to be made for the purposes of this Agreement shall be done in
accordance with GAAP, including without limitation determination of the
character or amount of any asset or liability or item of income or expense.
Financial statements and other information furnished to the Purchaser pursuant
to this Agreement shall be prepared in accordance with GAAP (as in effect at the
8
time of such preparation) on a consistent basis. In the event any changes in
accounting principles implemented by the Company ("Accounting Changes") are
required by GAAP or recommended by the Company's certified public auditors, and
such Accounting Changes affect financial covenants, standards or terms in this
Agreement, then the Company and the Purchaser agree to enter into negotiations
in order to amend such provisions of this Agreement so as to equitably reflect
such Accounting Changes with the desired result that the criteria for evaluating
the financial condition of the Company shall be the same after such Accounting
Changes as if such Accounting Changes had not been made, and until such time as
such an amendment shall have been executed and delivered by the Company and the
Purchaser, (A) all financial covenants, standards and terms in this Agreement
shall be calculated and/or construed as if such Accounting Changes had not been
made, and (B) the Company shall prepare footnotes to each certificate and the
financial statements required to be delivered hereunder that show the
differences between the financial statements delivered (which reflect such
Accounting Changes) and the basis for calculating financial covenant compliance
(without reflecting such Accounting Changes).
1.3. Directly or Indirectly. Where any provision in this Agreement refers
to action to be taken by any Person, or which such Person is prohibited from
taking, such provision shall be applicable whether the action in question is
taken directly or indirectly by such Person.
SECTION 2. DESCRIPTION OF NOTE AND COMMITMENT.
2.1. Description of Note and Warrant. The Company will authorize the issue
and sale to Purchaser of (i) its Senior Subordinated Secured Note in the
principal amount of $2,900,000 (the "Note") to be dated the date of this
Agreement, to bear interest from such date at the rate of 12% per annum, payable
quarterly on the first day of each quarter (commencing on July 1, 1998) and at
maturity and to bear interest on the overdue principal, if any, and (to the
extent legally enforceable) on any overdue installment of interest at the rate
of 18% per annum after the date due, whether by acceleration or otherwise, until
paid, to be payable in equal quarterly principal installments of $300,000
beginning on the fourth anniversary of the Closing Date (together with any
accrued and unpaid interest) and any unpaid principal payable on the fifth
anniversary of the date of this Agreement (together with any accrued and unpaid
interest), and to be substantially in the form attached to this Agreement as
Exhibit A, and (ii) a Warrant (the "Warrant") substantially in the form of
Exhibit B to this Agreement to purchase Shares. Interest on the Note shall be
computed on the basis of a 360-day year of twelve 30-day months. The Note is not
subject to prepayment or redemption at the option of the Company prior to its
expressed maturity date except on the terms and conditions set forth in ss.3.
2.2. Grant of Security Interest. To secure the prompt and complete payment,
performance and observance of the Obligations (other than the Warrant),
including all renewals, extensions, restructurings and refinancings of any or
all of such Obligations, the Company and each Subsidiary hereby grants to the
Purchaser a continuing security interest, lien and mortgage in and to all right,
title and interest of the Company and each Subsidiary in all assets and property
9
of the Company and each Subsidiary, whether now owned or existing or hereafter
acquired or arising and regardless of where located (all being collectively
referred to as the "Collateral"), including without limitation the following
property: (i) Accounts; (ii) Inventory; (iii) general intangibles (as defined in
the UCC); (iv) documents (as defined in the UCC) or other receipts covering,
evidencing or representing goods; (v) instruments (as defined in the UCC); (vi)
chattel paper (as defined in the UCC); (vii) Equipment; (viii) Intellectual
Property; (ix) all deposit accounts of the Company and each Subsidiary
maintained with any bank or financial institution; (x) all cash and other monies
and property of the Company and each Subsidiary in the possession or under the
control of the Purchaser or any participant; (xi) all books, records, ledger
cards, files, correspondence, computer programs, tapes, disks and related data
processing software that at any time evidence or contain information relating to
any of the property described above or are otherwise necessary or helpful in the
collection thereof or realization thereon; (xii) stock and other securities
issued by the Company's Subsidiaries or any Subsidiary of such subsidiaries; and
(xiii) proceeds of all or any of the property described above, including,
without limitation, the proceeds of any insurance policies covering any of the
above-described property. The Purchaser's lien on the Collateral shall be
superior to all other Liens securing Indebtedness other than Liens securing the
Seller Indebtedness and the Bank Indebtedness.
2.3. Commitment, Closing Date.
(a) Subject to the terms and conditions hereof and on the basis of the
representations and warranties hereinafter set forth, on the Closing Date the
Company shall issue and sell to Purchaser, and Purchaser shall purchase and
receive from the Company, the Note and the Warrant.
(b) Delivery of the Note and the Warrant will be made at the offices of the
Purchaser in Denver, Colorado (or at such other location as agreed to by the
Company and Purchaser) against payment therefor by wire transfer of immediately
available funds, on March 24, 1998, or such later date as shall mutually be
agreed upon by the Company and Purchaser (the "Closing Date"). The Note will be
delivered to Purchaser in substantially the form attached hereto as Exhibit A
for the full amount of its purchase, registered in Purchaser's name or in the
name of Purchaser's nominee, all as Purchaser may specify at any time prior to
the Closing Date.
(c) Both GAAP and regulations of the Internal Revenue Service now in effect
require a determination of the value of the Warrant. After taking into account
the general condition of the bond market at this time (including prevailing
interest rates), the exercise price of the Warrant, the period of time during
which the Warrant cannot be exercised, the restrictions on transfer, the lack of
a market for the Shares, and all other matters concerning the Note and the
Warrant, the Company is of the opinion and understands that Purchaser is of the
opinion that the Warrant would have a value of not more than $1,000.
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SECTION 3. PAYMENTS ON THE NOTE.
3.1. Optional Prepayments. Upon compliance with ss.3.2, the Company shall
have the right, at any time and from time to time, to prepay the principal
indebtedness evidenced by the Note, in whole or in part (but if in part then in
a minimum principal amount of $200,000) by making such prepayment, together with
accrued interest thereon to the date of prepayment, plus any applicable
prepayment premium. All optional prepayments which are applied to principal will
be applied to each scheduled installment in the inverse order of maturity.
3.2. Notice of Optional Prepayments. The Company shall give notice to
Purchaser of any prepayment of the Note pursuant to ss.3.1 not less than 30 days
nor more than 60 days before the date fixed for such optional prepayment
specifying (i) such date, (ii) the principal amount of the Note to be prepaid on
such date, and (iii) the accrued interest applicable to the prepayment and any
applicable prepayment premium. Such notice of prepayment shall be irrevocable
and shall certify all facts, if any, that are conditions precedent to any such
prepayment. Notice of prepayment having been so given, the amount of the
prepayment (together with accrued interest and prepayment premium thereon) shall
become due and payable on the prepayment date specified in such notice.
3.3. Mandatory Prepayments. Upon occurrence of a Triggering Event, the
Company shall promptly, but in any event within 7 days, notify the Purchaser of
such event, specifying in such notice (i) the date of the Triggering Event, (ii)
that the Purchaser may elect to require prepayment of all or part of the Note,
and (iii) the accrued interest and prepayment premium applicable to the
prepayment. Such notice shall also contain a reasonably detailed summary of the
Triggering Event. The Purchaser may elect, by giving the Company written notice
of such election within 30 days after receiving the Company's notice, to require
the Company to prepay, on a date specified by the Purchaser in its notice to the
Company, all or part of the principal indebtedness evidenced by the Note,
together with all accrued interest on the Note to the date of prepayment and any
applicable prepayment premium. All mandatory prepayments pursuant to this ss.3.3
which are applied to principal will be applied to each scheduled installment in
the inverse order of maturity.
3.4. Prepayment Premium. In connection with any prepayment pursuant to
ss.3.1 or ss.3.3, the Company shall be obligated to include a prepayment premium
equal to the product of (i) the principal balance of the Note being prepaid,
multiplied by (ii) 5% if the prepayment occurs during the period from the
Closing Date to and including the first anniversary of the Closing Date; 4% if
the prepayment occurs during period from the first day following the first
anniversary of the Closing Date to and including the second anniversary of the
Closing Date; 3% if the prepayment occurs during period from the first day
following the second anniversary of the Closing Date to and including the third
anniversary of the Closing Date; 2% if the prepayment occurs during period from
the first day following the third anniversary of the Closing Date to and
including the fourth anniversary of the Closing Date; and 1% if the prepayment
occurs during period from the first day following the fourth anniversary of the
Closing Date to and including the fifth anniversary of the Closing Date.
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3.5. Direct Payment. Notwithstanding anything to the contrary in this
Agreement or the Note, the Company shall, upon notice from Purchaser, make all
future payments due on the Note (i) directly to Purchaser or its nominee or (ii)
directly to an account in a United States bank designated by Purchaser.
3.6. Time and Manner of Payment. Unless otherwise agreed by the parties,
all payments required hereunder or by the Note shall be in immediately available
funds and delivered to Purchaser as provided in the Note not later than 11:00
a.m., Denver time; funds received by the Purchaser after that time shall be
deemed to have been paid by the Company on the next succeeding Business Day. If
any payment is otherwise due on a day which is not a Business Day, the payment
shall be made on the next succeeding Business Day and such extension of time
shall be included in the computation of the amount of interest or fees due
hereunder.
SECTION 4. REPRESENTATIONS.
4.1. Representations of the Company. The Company represents and warrants
that all representations and warranties set forth in Exhibit D are true and
correct as of the date hereof and are incorporated herein by reference with the
same force and effect as though herein set forth in full.
4.2. Representations of Purchaser. Purchaser represents, and in entering
into this Agreement the Company understands, that Purchaser is acquiring the
Note and the Warrant for its own account with the present intention of holding
such securities for the purposes of investment, that it is an accredited
investor as that term is defined in Rule 501 under the Securities Act and that
it has no intention of selling such securities in a public distribution in
violation of the federal securities laws or any applicable state securities
laws. Purchaser represents that it has a principal place of business in
Colorado.
SECTION 5. CLOSING CONDITIONS.
5.1. Conditions. Purchaser's obligation to purchase the Note and the
Warrant on the Closing Date shall be subject to the performance by the Company
of its agreements hereunder that by their terms are to be performed at or prior
to the time of delivery of the Note and the Warrant and to the following further
conditions precedent:
(a) Closing Certificates. Purchaser shall have received a certificate dated
the Closing Date, signed on behalf of the Company by an executive officer, the
truth and accuracy of which shall be a condition to Purchaser's obligation to
purchase the Note and the Warrant to the effect that (i) the representations and
warranties of the Company set forth in Exhibit D are true and correct as if made
12
on the Closing Date, (ii) the Company has performed all of its obligations
hereunder that are to be performed on or prior to the Closing Date, (iii) no
Default or Event of Default has occurred and is continuing, and (iv) attached to
or accompanying such certificate are true and accurate copies of the charter and
bylaws of the Company and its Subsidiaries, in each case as amended through the
Closing Date, and resolutions of the Company and its Subsidiaries authorizing
the sale and issuance of the Note and the authorization, execution and delivery
of this Agreement and each of the other agreements required to be executed by
the Company or such Subsidiary in connection therewith.
(b) Legal Opinion. Purchaser shall have received from counsel to the
Company, its opinion dated the Closing Date, in form and substance reasonably
satisfactory to Purchaser, and covering the matters set forth in Exhibit E.
(c) Application of Proceeds. Upon the issuance and sale of the Note and the
Warrant to Purchaser, the Company shall use the proceeds of the Note and the
Warrant to pay certain amounts owing to the Sellers in connection with the Stock
Purchase Agreement.
(d) Certain Expenses. Concurrently with the delivery of the Note and the
Warrant on the Closing Date, the Company shall have paid the balance of the
"Processing Fee" and "Eligible Costs" that the Company agreed to pay to
Purchaser pursuant to the terms of the Proposal Letter. Upon receipt from time
to time of one or more supplemental statements, the Company shall pay such
additional "Eligible Costs" as were not reflected in Purchaser's accounting
records at the Closing Date.
(e) SBA Matters. Purchaser shall have received the Company's signature on
SBA Forms 480, 652D and 1031 concerning size status, nondiscrimination
requirements, and portfolio financing, respectively, and the letter concerning
SBA matters substantially in the form set forth as Exhibit F.
(f) Execution of Guarantees and Financing Documents. Each of the Guarantors
shall have duly executed and delivered a Guarantee substantially in the form of
Exhibit C guaranteeing the performance by the Company of all obligations of the
Company pursuant to this Agreement. The Company shall deliver to Purchaser
insurance binders requested by Purchaser evidencing Purchaser as an additional
insured as soon as reasonably possible and, in any event, within thirty days of
the Closing Date. The Company and the Subsidiaries shall have duly executed,
acknowledged and delivered the Financing Documents and they shall have been
recorded or filed for record in each public office wherein such recording or
filing is deemed necessary or appropriate by Purchaser or its counsel to perfect
the lien thereof as against creditors of or purchasers from the Company. Without
limiting the foregoing, all taxes, fees and other charges in connection with the
execution, delivery, recording and filing of the foregoing instruments shall
have been paid by the Company.
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(g) Reservation of Shares. The Company shall have reserved the total number
of shares issuable upon exercise of the Warrants.
(h) Projections and Pro Forma Financial Statements. On or prior to the
Closing, the Company shall have delivered to the Purchaser the Pro Forma and the
Company's Projections for 1998.
(i) Xxxx X. Xxxxxxx Note and Warrant. The Company shall have obtained
$2,000,000 from Xxxx X. Xxxxxxx in return for a promissory note and warrant from
the Company, issued on terms satisfactory to the Purchaser.
(j) Limitations. No order, judgment or decree of any court, arbitrator or
governmental authority shall purport to enjoin or restrain the Purchaser from
entering into this Agreement and issuing the Note.
(k) Satisfactory Proceedings. All proceedings taken in connection with the
transactions contemplated by this Agreement, and all documents necessary to the
consummation thereof (including, specifically, but without limitation, the
charter and bylaws of the Company), shall be reasonably satisfactory in form and
substance to Purchaser and its counsel, and Purchaser shall have received a copy
(executed or certified as may be appropriate) of all legal documents or
proceedings taken in connection with the consummation of such transactions.
5.2. Waiver of Conditions. If on the Closing Date the Company fails to
tender the Note and the Warrant to Purchaser or if any of the conditions
specified ss.5.1 have not been fulfilled, Purchaser may thereupon elect to be
relieved of all further obligations under this Agreement. Without limiting the
foregoing, if any of the conditions specified in ss.5.1 have not been fulfilled,
Purchaser may waive compliance by the Company with any such condition to such
extent as Purchaser may in its sole discretion determine. Nothing in this ss.5.2
shall operate to relieve the Company of any of its obligations hereunder or to
waive any of Purchaser's rights against the Company.
SECTION 6. COMPANY COVENANTS.
Except with prior approval of Purchaser, from and after the Closing Date
and continuing so long as any amount remains unpaid on the Note:
6.1. Existence, Etc. The Company shall preserve and keep in full force and
effect, and shall cause each Subsidiary to preserve and keep in full force and
effect, its corporate existence and all licenses and permits necessary to the
proper conduct of its business, except to the extent permitted by ss.6.8(b). The
Company shall not, and shall not permit any of its Subsidiaries to, amend,
restate, supplement or otherwise modify (i) any term or provision of its charter
or bylaws, or (ii) the Stock Purchase Agreement or any agreements relating to
the transactions contemplated by the Stock Purchase Agreement, except to the
extent such amendment, restatement, supplement or modification would not have a
Material Adverse Effect or would otherwise adversely affect any right or
remedies of the Purchaser under this Agreement or the Financing Documents.
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6.2. Insurance; Maintenance of Properties. The Company shall, and shall
cause its Subsidiaries to, maintain insurance coverage by financially sound and
reputable insurers and in such forms and amounts and against such risks as are
customary for corporations of established reputation engaged in the same or a
similar business and owning and operating similar properties, including business
interruption insurance in an amount of at least $1,000,000 and such other
insurance as may be required by any of the Financing Documents. The Company
shall provide evidence of such business interruption insurance as soon as
reasonably possible and, in any event, within thirty days after the Closing
Date. The proceeds of such policies shall, upon request of the Purchaser, be
paid in whole (up to the amount of the Obligations) or in part to the Purchaser
and, if so paid, applied by the Purchaser to prepay the principal indebtedness
evidenced by the Note, in whole or in part, together with accrued interest
thereon to the date of prepayment. The Company shall not be obligated to make
payment of any prepayment premium pursuant to ss.3.4 in connection with such
prepayment. All such amounts which are applied to principal will be applied to
each scheduled installment in the inverse order of maturity. The Company shall,
and shall cause its Subsidiaries to, maintain, preserve and keep its material
properties which are used or useful in the conduct of its business (whether
owned in fee or a leasehold interest) in good repair and working order and from
time to time shall make all necessary repairs, replacements, renewals and
additions so that at all times the efficiency thereof shall be maintained.
6.3. Taxes, Claims for Labor and Materials, Compliance with Laws.
(a) The Company shall, and shall cause its Subsidiaries to, promptly pay
and discharge all lawful taxes, assessments and governmental charges or levies
imposed upon the Company and its Subsidiaries, or upon or in respect of all or
any part of the property or business of the Company, all trade accounts payable
in accordance with usual and customary business terms, and all claims for work,
labor or materials, which if unpaid might become a Lien upon any property of the
Company or its Subsidiaries; provided the Company and its Subsidiaries shall not
be required to pay any such tax, assessment, charge, levy, account payable or
claim if (i) the validity, applicability or amount thereof is being contested in
good faith by appropriate actions or proceedings that will prevent the
forfeiture or sale of any property of the Company or its Subsidiaries or any
material interference with the use thereof by the Company and its Subsidiaries,
and (ii) the Company and its Subsidiaries shall set aside on its books, reserves
deemed by it to be adequate with respect thereto.
15
(b) The Company shall, and shall cause its Subsidiaries to, promptly comply
with all laws, ordinances or governmental rules and regulations to which it is
subject including, without limitation, (a) all applicable state or federal laws,
ordinances, rules and regulations relating to education, school licensing, and
financial responsibility requirements for eligibility for federal financial
assistance programs, including those promulgated by the United States Department
of Education, (b) all applicable accreditation standards relating to the schools
operated by the Company's Subsidiaries, (c) the Occupational Safety and Health
Act of 1970, as amended, and (d) ERISA and all Environmental Laws, the violation
of which could reasonably be expected to have a Material Adverse Effect or would
result in any Lien not permitted under ss.6.8. Without limiting the foregoing,
the Company shall, and shall cause its Subsidiaries to, promptly obtain all
necessary consents or other approvals from the Department of Education that
relate in any way to this Agreement or to the Stock Purchase Agreement.
6.4. Further Assurances. The Company shall, and shall cause its
Subsidiaries to, from time to time, execute and deliver to the Purchaser such
financing or continuation statements, security agreements, certificates of
title, mortgages, surveys, title insurance, reports and other documents or
instruments as the Purchaser at any time may reasonably request in connection
with the Note and the Financing Documents in order to evidence, perfect or
otherwise implement the security for repayment of the Note provided in this
Agreement or otherwise carry out the intent of this Agreement.
6.5. Nature of Business. Neither the Company nor its Subsidiaries shall
engage, directly or indirectly, in any business if, as a result, the general
nature of the business that would then be engaged in by the Company and its
Subsidiaries would be changed in any material respect from the general nature of
the business engaged in by the Company and its Subsidiaries on the date of this
Agreement.
6.6. Certain Financial Covenants.
(a) Current Ratio. The Company shall not permit its ratio of Current Assets
to Current Liabilities to be less than 1.1.
(b) Debt Service Coverage. The Company shall not permit its Debt Service
Coverage to be less than (i) .70 for the quarters ended June 30, 1998 and
September 30, 1998, (ii) .80 for the quarter ended December 31, 1998, (iii) .90
for the quarters ended March 1, 1999 and June 30, 1999, (iv) 1.00 for the
quarters ended September 30, 1999 and December 31, 1999, (v) 1.1 for the
quarters ended March 31, 2000 and June 30, 2000, (vi) 1.3 for the quarters ended
September 30, 2000 and December 31, 2000, and (vii) 1.5 for the quarter ended
March 31, 2001 and any calendar quarter thereafter.
(c) Leverage Ratio. The Company shall not permit its Leverage Ratio to be
greater than (i) 5.5 for the quarters ended June 30, 1998 and September 30,
1998, (ii) 4.0 for the quarter ended December 31, 1998, (iii) 3.0 for the
quarter ended March 31, 1999, and (iv) 2.5 for the quarter ended June 30, 1999
and any calendar quarter thereafter.
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(d) Capital Expenditures. The Company shall not, and shall not permit any
Subsidiary to, make any Capital Expenditures if, after giving effect thereto,
the aggregate amount of all Capital Expenditures by the Company and its
Subsidiaries since the Closing Date (on a cumulative basis) would exceed
$400,000.
6.7. Indebtedness. The Company will not, and will not permit any of its
Subsidiaries to, create, incur, assume, guaranty, or otherwise become or remain
directly or indirectly liable, on a fixed or contingent basis, with respect to
any Indebtedness (including any Indebtedness in connection with Capital Leases),
other than: (a) the Obligations; (b) an amount of Seller Indebtedness not to
exceed $4,340,000, reduced by an amount equal to $542,500 on each June 24,
September 24, December 24 and March 24, commencing June 24, 1998; (c) the
Shareholder Indebtedness; (d) the Bank Indebtedness; (e) trade payables, other
contractual obligations to suppliers and customers, and obligations for normal
expenses, in each case incurred in the ordinary course of business, and (f)
Indebtedness secured by purchase money security interests which are Permitted
Encumbrances, provided that the purchase of any asset subject to such Lien is
permitted by the provisions of ss.6.6(d).
6.8. Transfers, Mergers, Leases and Limitations on Liens.
(a) Transfers of Assets and Sale of Securities. Except as a result of
condemnation or casualty loss, the Company will not, and will not permit any of
its Subsidiaries to, sell, assign (by operation of law or otherwise), transfer
or otherwise dispose of, or grant any option with respect to any of, any assets
or property of, or any securities issued by, such Person, except that (i) the
Company and its Subsidiaries may sell Inventory in the ordinary course of
business; (ii) the Company and its Subsidiaries may sell equipment no longer
needed in the operation of the Company's business, provided such equipment is
sold for fair market value on arms length terms and conditions; (iii) any
wholly-owned Subsidiary of the Company may sell, lease or otherwise dispose of
all or any part of its assets to another wholly-owned Subsidiary of the Company;
and (iv) the Company may sell equity securities.
(b) Mergers. The Company shall not, and shall not permit any Subsidiary to,
consolidate with or be a party to a merger, consolidation or similar business
combination with any other Person, except that any wholly-owned Subsidiary of
the Company may merge or consolidate with or into the Company or any other
wholly-owned Subsidiary of the Company so long as in any merger or consolidation
involving the Company, the Company shall be the surviving or continuing entity,
the Shares shall be unchanged, and no equity shall be issued by the Company.
(c) Change of Control. The Company shall not cause or permit any Change of
Control.
(d) Liens. Except for Permitted Encumbrances, the Company will not, and
will not permit any of its Subsidiaries to, directly or indirectly create,
incur, assume or permit to exist any Lien on or with respect to any of the
assets of such Person or any proceeds, income or profits therefrom.
17
(e) No Negative Pledges. The Company will not, and will not permit any of
its Subsidiaries to, enter into or assume any agreement (other than the
Financing Documents) prohibiting the creation or assumption of any Lien upon its
properties or assets, whether now owned or hereafter acquired.
(f) No Restrictions on Subsidiary Distributions to the Company. Except as
provided in this Agreement, the Company will not, and will not permit any of its
Subsidiaries to, directly or indirectly create or otherwise cause or suffer to
exist or become effective any consensual encumbrance or restriction of any kind
on the ability of any such Subsidiary to: (1) pay dividends or make any other
distribution on any of such Subsidiary's capital stock owned by the Company or
any Subsidiary of the Company; (2) pay any Indebtedness owed to the Company or
any other Subsidiary; (3) make loans or advances to the Company or any other
Subsidiary; or (4) transfer any of its property or assets to the Company or any
other Subsidiary.
(g) Leases. The Company shall not, and shall not permit any Subsidiary to,
become obligated, as lessee, under any lease of real or personal property;
provided, however, that the Company may enter into leases of personal property
if, at the time of entering into such lease and after giving effect thereto, the
aggregate rent and other fixed payments payable by the Company and its
Subsidiaries on a consolidated basis in any one fiscal year under all leases of
personal property entered into in reliance on this proviso would not exceed
$50,000 annually; and provided, further, that the Company and its Subsidiaries
may lease real property from Xxxx X. Xxxxxxx in an amount that is no greater
than $180,000 per fiscal year in the aggregate.
(h) Sale-Leasebacks. The Company shall not, and shall not permit any
Subsidiary to, enter into any arrangement whereby the Company or any Subsidiary
shall sell or transfer any property owned by the Company or any Subsidiary to
any Person (other than sales by a wholly owned Subsidiary to another
wholly-owned subsidiary) and, following such sale or transfer, the Company or
any Subsidiary shall lease or intend to lease, as lessee, the same property.
6.9. Restricted Payments. The Company shall not, and shall not permit any
of its Subsidiaries to, directly or indirectly, declare, order, pay, make or set
apart any sum for any Restricted Payment, except that:
(a) Subsidiaries of the Company may make Restricted Payments with respect
to their common stock to the extent necessary to permit the Company to pay the
Obligations and to permit the Company to pay expenses incurred in the ordinary
course of business;
(b) the Company may make regularly scheduled payments on the Seller
Indebtedness and the Shareholder Indebtedness;
18
(c) the Company's Subsidiaries may make regularly scheduled payments on the
Bank Indebtedness;
(d) the Company may pay compensation in any fiscal year up to the following
amounts to the following officers, directors and consultants: (a) $180,000 in
the aggregate to the Company's Chief Executive Officer and to Christian Business
Advisory Services, Inc.; (b) $180,000 to Xxxx X. Xxxxxxx; and (c) $90,000 to all
other officers, directors and consultants of the Company.
6.10. Investments. The Company shall not, and will not permit any of its
Subsidiaries to, establish, create or acquire any subsidiary and shall not make
or permit to exist investments in or loans to any other Person, except: (a) Cash
Equivalents; (b) loans and advances to employees for moving, entertainment,
travel and other similar expenses reasonably incurred in the ordinary course of
business; and (c) investments received by or issued to the Company or any
Subsidiary of the Company on account or in settlement of any claim of the
Company or such Subsidiary against any other Person in any bankruptcy or similar
insolvency proceeding involving such Person.
6.11. Guarantees. Except for endorsements of instruments or items of
payment for collection in the ordinary course of business and except as other
wise provided in this Agreement, the Company will not, and will not permit any
of its Subsidiaries to, guaranty, endorse, or otherwise in any way become or be
responsible for any obligations of any other Person, whether directly or
indirectly by agreement to purchase the indebtedness of any other Person or
through the purchase of goods, supplies or services, or maintenance of working
capital or other balance sheet covenants or conditions, or by way of stock
purchase, capital contribution, advance or loan for the purpose of paying or
discharging any indebtedness or obligation of such other Person or otherwise.
6.12. Seller Indebtedness; Bank Indebtedness; Shareholder Indebtedness. The
Company will not cause or permit any waiver, amendment, consent or modification
of the terms of the Seller Indebtedness, the Bank Indebtedness, or the
Shareholder Indebtedness without the consent of Purchaser, which consent will
not be unreasonably withheld. The Company will use its best efforts to obtain
the line of credit of Data Processing Trainers Co. on terms reasonably
satisfactory to Purchaser within ninety days of the Closing Date, and the
Company will, in any event, obtain the line of credit of Data Processing
Trainers Co. on terms reasonably satisfactory to Purchaser within six months of
the Closing Date.
6.13. Transactions with Affiliates and Consultants. The Company will not,
and will not permit any of its Subsidiaries to, directly or indirectly, enter
into or permit to exist any transaction (including the purchase, sale or
exchange of property or the rendering of any service) with any Affiliate or with
any officer, director, employee or consultant of the Company, its Subsidiaries
and Affiliates, including but not limited to Xxxxxxxx Xxxxxx and Xxxx X.
19
Xxxxxxx, except for (i) payments permitted under ss.6.9, and (ii) other
transactions in the ordinary course of and pursuant to the reasonable
requirements of the Company's business and upon fair and reasonable terms which
are fully disclosed to Purchaser and which are no less favorable to the Company
than it would obtain in a comparable arm's length transaction with an
unaffiliated Person.
6.14. Plans. The Company shall not, and shall not permit any of its
Subsidiaries to, withdraw from any Multiemployer Plan or permit any employee
benefit plan maintained by it to be terminated if such withdrawal or termination
could result in withdrawal liability in excess of $50,000 (as described in Part
1 of Subtitle E of Title IV of ERISA) or the imposition of a Lien on any
property of the Company or its Subsidiaries pursuant to Section 4608 of ERISA.
The Company shall not, and shall not permit any of its Subsidiaries to,
establish any new Employee Benefit Plan providing post-retirement welfare
benefits or amend any such plan if the liability or increased liability
resulting from such action could reasonably be expected, singly or in the
aggregate with the liabilities resulting from all other such establishments or
amendments, to exceed $50,000.
6.15. Financial Statements, Reports and Rights of Inspection. The Company
shall, and shall cause its Subsidiaries to, keep proper books of record and
account in which full and correct entries will be made of all dealings or
transactions of, or in relation to, the business and affairs of the Company and
such Subsidiaries, in accordance with GAAP consistently applied (except for
changes disclosed in the financial statements furnished to Purchaser pursuant to
this ss.6.15 and concurred in by the independent public accountants referred to
in ss.6.15(b)), and shall furnish to Purchaser so long as Purchaser is the
holder of the Note:
(a) Monthly Statements. As soon as available and in any event within 30
days after the end of each monthly accounting period of each year, copies of
consolidated and consolidating balance sheets of the Company as of the close of
such monthly period, consolidated and consolidating statements of income of the
Company for such monthly accounting period and for the portion of the fiscal
year ending with such monthly accounting period, and consolidated and
consolidating statements of cash flows of the Company for such monthly period
and the portion of the fiscal year ending with such monthly accounting period,
in each case setting forth in comparative form the projected budget figures for
such periods and the consolidated figures for the corresponding periods of the
preceding fiscal year, all in reasonable detail and certified as complete and
correct in all material respects by the Chief Financial Officer of the Company.
(b) Annual Statements. As soon as available and in any event within 90 days
after the close of each fiscal year of the Company, copies of consolidated and
consolidating balance sheets of the Company as of the close of such fiscal year,
and consolidated and consolidating statements of income and cash flows of the
Company for such fiscal year, in each case setting forth in comparative form the
projected budget figures for such periods and the consolidated figures for the
preceding fiscal year, all in reasonable detail and accompanied by an
unqualified report thereon of a firm of independent public accountants of
recognized national standing selected by the Company to the effect that the
20
consolidated financial statements present fairly, in all material respects, the
consolidated financial position of the Company as of the end of the fiscal year
being reported on and the consolidated results of the operations and cash flows
for said year in conformity with GAAP and that the examination of such
accountants in connection with such financial statements has been conducted in
accordance with generally accepted auditing procedures as said accountants
deemed necessary in the circumstances.
(c) Budget and Projections. As soon as practicable and in any event 30 days
prior to the commencement of each new fiscal year (on or prior to Closing for
1998), reasonably detailed statements showing projected consolidated balance
sheets of the Company as of the close of each monthly period during the new
year, consolidated statements of income of the Company for each monthly
accounting period during the new year and for the portion of the fiscal year
ending with such monthly accounting period, and consolidated statements of cash
flows of the Company for each monthly period during the new year and the portion
of the fiscal year ending with such monthly accounting period, in each case
setting forth in comparative form the actual figures for the corresponding
periods of the preceding fiscal year, all in reasonable detail and certified as
complete and correct in all material respects by the Chief Financial Officer of
the Company.
(d) Audit Reports. Promptly upon their becoming available, (i) one copy of
each interim or special audit made by independent accountants of the books of
the Company and any management letter received from such accountants, and (ii)
one copy of any significant reports submitted to the Company by the independent
accountants in connection with each annual, interim or special audit of the
financial statements of the Company made by such accountants, including the
management letter and other recommendations or correspondence submitted by such
accountants to management in connection with the annual audit and any lawyer's
response letters sent to such accountants.
(e) Income Tax Returns and Reports. As soon as practicable after filing
with the Internal Revenue Service, complete copies of any federal and state
income tax returns and reports (other than any schedules thereto).
(f) SEC and Other Reports, if Applicable. Promptly upon receipt thereof,
one copy of each financial statement, report, notice, proxy statement or other
material sent by the Company to its shareholders generally and of each regular
or periodic report, registration statement, prospectus or other material filed
by the Company with any securities exchange or the Securities and Exchange
Commission or any successor agency, and copies of any orders in any proceedings
to which the Company is a party, issued by any governmental agency, federal,
foreign, state or local, having jurisdiction over the Company.
(g) Officer's Certificates. As soon as available and in any event within 20
days following the end of each fiscal quarter (including the fourth quarter), a
certificate of the Company's Chief Financial Officer stating that such officer
has reviewed the provisions of this Agreement and setting forth the information
21
and computations (in sufficient detail) required in order to establish whether
the Company was in compliance with the requirements of ss.6 at the end of such
quarterly period. As soon as available and in any event within 20 days following
the end of each month (including the final month of the fiscal year), a
certificate of the Company's Chief Financial Officer stating that such officer
has reviewed the provisions of this Agreement and setting forth whether there
existed as of the end of such month and whether, to the best of such officer's
knowledge, there exists on the date of the certificate or existed at any time
during the such month any Default or Event of Default and, if any such condition
or event exists on the date of the certificate, specifying the nature and period
of existence thereof and the action the Company is taking and proposes to take
with respect thereto.
(h) Accountant's Certificates. Within the period provided in ss.ss.6.15(b)
above, a certificate of the accountants who render an opinion with respect to
such financial statements, stating that they have reviewed this Agreement and
stating further whether, in making their audit, such accountants have become
aware of any Default or Event of Default under any of the terms or provisions of
this Agreement insofar as any such terms or provisions of this Agreement pertain
to or involve accounting matters or determinations, and if any such condition or
event then exists, specifying the nature and period of existence thereof.
(i) Trade Names and Locations. The Company will give the Purchaser at least
thirty (30) days advance written notice of (i) any change of name or of any new
trade name or fictitious business name used by the Company or any Subsidiary,
and (ii) any change in the Company's or any Subsidiary's principal place of
business or any change in the location of its books and records or the
Collateral or of any new location for its books and records or the Collateral.
(j) Inspection. Without limiting the foregoing, upon reasonable notice the
Company shall permit Purchaser (or such Persons as Purchaser may designate,
including representatives of the SBA) to visit and inspect, under the Company's
guidance, any of the properties of the Company and its Subsidiaries, to examine
all of their books of account, records, reports and other papers, to make copies
and extracts therefrom and to discuss their respective affairs, finances and
accounts with their respective officers and independent public accountants (and
by this provision the Company authorizes such accountants to discuss with
Purchaser the finances and affairs of the Company) all at such reasonable times
and as often as may be reasonably requested. The Company shall reimburse the
Purchaser for the reasonable out of pocket expenses for such visit and
inspection, provided, however, that so long as no Event of Default has occurred
and is continuing, the Company shall not be obligated to reimburse the Purchaser
for more than one visit and inspection in any calendar year.
(k) Other Information. With reasonable promptness and without duplication
of information described above, such other data and information as Purchaser may
reasonably request, including, without limitation, all information reasonably
requested by Purchaser in order for it to prepare and file SBA Form 468 and any
other information reasonably requested or required by any governmental agency
assessing jurisdiction over Purchaser.
22
6.16 Chief Executive Officer. The Company agrees to (a) use best efforts to
hire a Chief Executive Officer of the Company within 90 days of the Closing Date
who has been approved by Purchaser, (b) if a Chief Executive Officer has not
been hired within90 days of the Closing Date, to provide Purchaser with a list
of qualified candidates for Chief Executive Officer within 120 days of the
Closing Date, and (c) in any event, to hire a Chief Executive Officer of the
Company within 180 days of the Closing Date who has been approved by Purchaser.
6.17 Compliance With Covenants In Stock Purchase Agreement. The Company
shall comply, and shall cause its Subsidiaries to comply, with all covenants and
conditions precedent agreed to by the Company in the Stock Purchase Agreement,
including but not limited to the conditions precedent in Article IV of the Stock
Purchase Agreement with respect to compliance and approvals.
SECTION 7. EVENTS OF DEFAULT AND REMEDIES THEREFOR.
7.1. Events of Default. Any one or more of the following shall constitute
an "Event of Default" as such term is used herein:
(a) Default shall occur in the payment of interest on the Note within 5
days of the date when the same shall have become due; or
(b) Default shall occur in the making of any payment of the principal of
the Note at the expressed or any accelerated maturity date or at any date fixed
for prepayment; or
(c) Default shall be made in the payment when due (whether by lapse of
time, by declaration, by call for redemption or otherwise) of the principal of
or interest on any Indebtedness (other than the Note) of the Company or its
Subsidiaries having an aggregate principal amount of $100,000 or more and such
default shall continue beyond the period of grace, if any, allowed with respect
thereto; or
(d) Default or the happening of any event shall occur under any indenture,
agreement or other instrument under which any Indebtedness (other than the Note)
of the Company or its Subsidiaries having an aggregate principal amount of
$100,000 or more has been or may be issued and such default or event shall
continue for a period of time sufficient to permit the acceleration of the
maturity of any Indebtedness of the Company or its Subsidiaries outstanding
thereunder; or
(e) Default shall occur in the observance or performance of any covenant or
agreement contained in ss.6 or any other provision of this Agreement or any
other Financing Document, provided, however, that in the case of any such
Default which is capable of being cured, such Default is not remedied or waived
within 30 days; provided, further, that the provisions of ss.6.16 shall not be
capable of being cured; or
23
(f) Any representation or warranty made by the Company in this Agreement
(including Exhibit D) or in any other Financing Document, or made by the Company
in any statement or certificate furnished by the Company in connection with the
consummation of the issuance and delivery of the Note or the Warrant or
furnished by the Company pursuant hereto or pursuant to any Financing Document,
is untrue as of the date of the issuance or making thereof; or
(g) Final judgment or judgments for the payment of money aggregating in
excess of $100,000 is or are outstanding against the Company or its Subsidiaries
or against any property or assets of any of them unless such judgment is fully
covered by insurance and the insurer with respect thereto has admitted liability
therefor; or
(h) A custodian, liquidator, trustee or receiver is appointed for the
Company or for the major part of its property and is not discharged within 30
days after such appointment; or
(i) The Company becomes insolvent or bankrupt, is generally not paying its
debts as they become due or makes an assignment for the benefit of creditors, or
the Company applies for or consents to the appointment of a custodian,
liquidator, trustee or receiver for the Company or for the major part of its
property; or
(j) Bankruptcy, reorganization, arrangement or insolvency proceedings, or
other proceedings for relief under any bankruptcy or similar law or laws for the
relief of debtors, are instituted by or against the Company and, if instituted
against the Company, are consented to or are not dismissed within 60 days after
such institution.
7.2. Notice to Purchaser. When any Event of Default described in the
foregoing ss.7.1 has occurred, the Company shall give notice thereof to
Purchaser immediately.
7.3. Acceleration of Maturities. When an Event of Default described in
ss.7.1(h) through (j), inclusive, has happened and is continuing, the entire
principal and all interest accrued on the Note shall be automatically and
without any action on the part of the Purchaser become due and payable, without
any presentment, demand, protest or other notice of any kind, all of which are
hereby expressly waived. When any other Event of Default has happened and is
continuing, the Purchaser may, by notice to the Company, declare the entire
principal and all interest accrued on the Note to be, and the Note shall
thereupon become, forthwith due and payable, without any presentment, demand,
protest or other notice of any kind, all of which are hereby expressly waived.
Upon any such acceleration, the Company will forthwith pay to Purchaser the
entire principal and interest accrued on the Note. No course of dealing on
Purchaser's part nor any delay or failure on its part to exercise any right
shall operate as a waiver of such right or otherwise prejudice Purchaser's
rights, powers and remedies. The Company further shall, to the extent permitted
by law, pay to Purchaser all reasonable costs and expenses incurred by Purchaser
in the collection of the Note upon any default hereunder or thereon, including
expenses and reasonable fees of Purchaser's attorneys.
24
7.4. Remedies. If any Event of Default shall have occurred and be
continuing, in addition to and not in limitation of any rights or remedies
available to Purchaser at law or in equity, Purchaser may exercise in respect of
the Collateral, in addition to all other rights and remedies provided for herein
or otherwise available to it, all the rights and remedies of a secured party on
default under the UCC (whether or not the UCC applies to the affected
Collateral) and may also (a) notify any or all obligors on the Accounts to make
all payments directly to Purchaser; (b) require the Company and each Subsidiary
to, and the Company and each Subsidiary hereby agrees that it will, at its
expense and upon request of Purchaser forthwith, assemble all or part of the
Collateral as directed by Purchaser and make it available to Purchaser at a
place to be designated by Purchaser which is reasonably convenient to both
parties; (c) without notice or demand or legal process other than as provided by
law, enter upon any premises of the Company or any Subsidiary and take
possession of the Collateral; and (d) without notice except as specified below,
sell the Collateral or any part thereof in one or more parcels at public or
private sale, at any of the Purchaser's offices or elsewhere, at such time or
times, for cash, on credit or for future delivery, and at such price or prices
and upon such other terms as Purchaser may deem commercially reasonable. The
Company and each Subsidiary agrees that, to the extent notice of sale shall be
required by law, at least ten (10) days notice to the Company of the time and
place of any public sale or the time after which any private sale is to be made
shall constitute reasonable notification. At any sale of the Collateral, if
permitted by law, Purchaser may bid (which bid may be, in whole or in part, in
the form of cancellation of indebtedness) for the purchase of the Collateral or
any portion thereof for the account of Purchaser. Purchaser shall not be
obligated to make any sale of Collateral regardless of notice of sale having
been given. The Company shall remain liable for any deficiency. Purchaser may
adjourn any public or private sale from time to time by announcement at the time
and place fixed therefor, and such sale may, without further notice, be made at
the time and place to which it was so adjourned. To the extent permitted by law,
the Company and each Subsidiary hereby specifically waives all rights of
redemption, stay or appraisal which it has or may have under any law now
existing or hereafter enacted. Purchaser shall not be required to proceed
against any Collateral but may proceed against the Company and each Subsidiary
directly.
7.5. Appointment of Attorney-in-Fact. The Company hereby
constitutes and appoints Purchaser as the Company's and each Subsidiary's
attorney-in-fact with full authority in the place and stead of the Company or
each Subsidiary and in the name of the Company or each Subsidiary, Purchaser or
otherwise, from time to time in Purchaser's discretion to take any action and to
execute any instrument that Purchaser may deem reasonably necessary or advisable
to accomplish the purposes of this Agreement, including, if an Event of Default
shall exist, (a) to ask, demand, collect, xxx for, recover, compound, receive
and give acquittance and receipts for moneys due and to become due under or in
respect of any of the Collateral; (b) to adjust, settle or compromise the amount
or payment of any Account, or release wholly or partly any customer or obligor
thereunder or allow any credit or discount thereon; (c) to receive, endorse, and
25
collect any drafts or other instruments, documents and chattel paper, in
connection with clause (a) above; (d) to file any claims or take any action or
institute any proceedings that Purchaser may deem necessary or desirable for the
collection of any of the Collateral or otherwise to enforce the rights of
Purchaser with respect to any of the Collateral; and (e) to sign and endorse any
invoices, freight or express bills, bills of lading, storage or warehouse
receipts, assignments, verifications and notices in connection with Accounts and
other documents relating to the Collateral. The appointment of Purchaser as the
Company's and each Subsidiary's attorney and Purchaser's rights and powers are
coupled with an interest and are irrevocable until payment in full and complete
performance of all of the Obligations (other than the Warrant).
7.6. Limitation on Duty of Purchaser with Respect to Collateral. Beyond the
safe custody thereof, Purchaser shall have no duty with respect to any
Collateral in its possession or control (or in the possession or control of any
agent or bailee) or with respect to any income thereon or the preservation of
rights against prior parties or any other rights pertaining thereto. Purchaser
shall be deemed to have exercised reasonable care in the custody and
preservation of the Collateral in its possession if the Collateral is accorded
treatment substantially equal to that which Purchaser accords its own property.
Purchaser shall not be liable or responsible for any loss or damage to any of
the Collateral, or for any diminution in the value thereof, by reason of the act
or omission of any warehouseman, carrier, forwarding agency, consignee or other
agent or bailee selected by Purchaser in good faith. Purchaser shall not be
liable or responsible for any loss or damage to any of the Collateral, or for
any diminution in the value thereof, other than as a result of Purchaser's gross
negligence or willful misconduct.
7.7. Application of Proceeds. Upon the occurrence and during the
continuance of an Event of Default, (a) the Company and each Subsidiary
irrevocably waives the right to direct the application of any and all payments
at any time or times thereafter received by Purchaser from or on behalf of the
Company or each Subsidiary, and the Company hereby irrevocably agrees that
Purchaser shall have the continuing exclusive right to apply and to reapply any
and all payments received at any time or times after the occurrence and during
the continuance of an Event of Default against the Obligations in such manner as
Purchaser may deem advisable notwithstanding any previous entry by Purchaser
upon any books and records, and (b) the proceeds of any sale of, or other
realization upon, all or any part of the Collateral shall be applied: first, to
all fees, costs and expenses incurred by Purchaser with respect to this
Agreement, the other Financing Documents or the Collateral; second, to all fees
due and owing to Purchaser; third, to accrued and unpaid interest on the
Obligations; fourth, to the principal amounts of the Obligations outstanding
including any prepayment penalty; and fifth, to any other indebtedness or
obligations of the Company or each Subsidiary owing to Purchaser.
7.8. License of Intellectual Property. The Company and each Subsidiary
hereby assigns, transfers and conveys to Purchaser, effective upon the
occurrence of any Event of Default hereunder, the non-exclusive right and
license to use all Intellectual Property owned or used by the Company and each
Subsidiary together with any goodwill associated therewith, all to the extent
necessary to enable Purchaser to realize on the Collateral and any successor or
26
assign to enjoy the benefits of the Collateral. This right and license shall
inure to the benefit of all successors, assigns and transferees of Purchaser and
its successors, assigns and transferees, whether by voluntary conveyance,
operation of law, assignment, transfer, foreclosure, deed in lieu of foreclosure
or otherwise. Such right and license is granted free of charge, without
requirement that any monetary payment whatsoever be made to the Company or each
Subsidiary by Purchaser.
7.9. Waivers, Non-Exclusive Remedies. No failure on the part of Purchaser
to exercise, and no delay in exercising and no course of dealing with respect
to, any right under this Agreement or the other Financing Documents shall
operate as a waiver thereof; nor shall any single or partial exercise by
Purchaser of any right under this Agreement or any other Financing Document
preclude any other or further exercise thereof or the exercise of any other
right. The rights in this Agreement and the other Financing Documents are
cumulative and are not exclusive of any other remedies provided by law.
7.10. Marshaling; Payments Set Aside. Purchaser shall not be under any
obligation to marshal any assets in favor of the Company or any Subsidiary or
other party or against or in payment of any or all of the Obligations. To the
extent that the Company or any Subsidiary makes a payment or payments to
Purchaser or Purchaser enforces its security interests or exercise its rights of
setoff, and such payment or payments or the proceeds of such enforcement or
setoff or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside and/or required to be repaid to a trustee,
receiver or any other party under any bankruptcy law, state or federal law,
common law or equitable cause, then to the extent of such recovery, the
Obligations or part thereof originally intended to be satisfied, and all Liens,
rights and remedies therefor, shall be revived and continued in full force and
effect as if such payment had not been made or such enforcement or setoff had
not occurred.
SECTION 8. MISCELLANEOUS.
8.1. Purchaser's Consent Required. Any term, covenant, agreement or
condition of this Agreement binding upon or to be performed or complied with by
the Company may be waived (either generally or in a particular instance and
either retroactively or prospectively) with Purchaser's consent. No such consent
shall be given, however, until Purchaser shall have been supplied with
sufficient information to enable Purchaser to make an informed decision with
respect thereto.
8.2. Loss, Theft, Etc. of Note. Upon receipt of evidence satisfactory to
the Company of the loss, theft, mutilation or destruction of the Note, and, if
reasonably requested by the Company, a reasonable indemnification by the holder
of the Note, the Company shall make and deliver without expense to such holder a
new Note, of like tenor and issue, in lieu of such lost, stolen, destroyed or
mutilated Note.
27
8.3. Expenses and Other Fees. In addition to the fees and costs
contemplated by the Proposal Letter, the Company shall pay to Purchaser and save
Purchaser harmless from all reasonable expenses relating to any proposed or
actual amendment, waivers or consents pursuant to the provisions hereof,
including, without limitation, any amendments, waivers or consents resulting
from any work-out, renegotiation or restructuring relating to the performance by
the Company of its obligations under this Agreement, the Note and the other
Financing Documents. The Company also shall pay and save Purchaser harmless
against any liability for all brokerage fees and commissions payable or claimed
to be payable to any Person in connection with the transactions contemplated by
this Agreement and the other Financing Documents other than fees or commissions
incurred by Purchaser.
8.4. Indemnification. In addition to the payment of expenses pursuant to
ss.8.3, whether or not the transactions contemplated hereby shall be
consummated, the Company and each Subsidiary agrees to indemnify, pay and hold
Purchaser and any holder of the Note, and the officers, directors, employees,
agents, affiliates and attorneys of Purchaser and such holder (collectively
called the "Indemnified Person") harmless from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
claims, tax liabilities, broker's or finders fees, costs, expenses and
disbursements of any kind or nature whatsoever (including the reasonable fees
and disbursements of counsel for such Indemnified Person in connection with any
investigative, administrative or judicial proceeding commenced or threatened,
whether or not such Indemnified Person shall be designated a party thereto) that
may be imposed on, incurred by, or asserted against that Indemnified Person, in
any manner relating to or arising out of (a) the negotiation, execution,
delivery, performance, administration, or enforcement of any of the Financing
Documents, (b) any of the transactions contemplated by the Financing Documents,
(c) any breach by the Company or any Subsidiary of any representation, warranty,
covenant, or other agreement contained in any of the Financing Documents, (d)
the presence, release, threatened release, disposal, removal, or cleanup of any
Hazardous Material located on, about, within or affecting any of the properties
or assets of the Company and its Subsidiaries or any violation of any applicable
Environmental Law for which the Company or its Subsidiaries is liable, (e) the
statements contained in the Proposal Letter, (f) the Purchaser's agreement to
enter into this Agreement make the loans hereunder, or (g) the use or intended
use of the proceeds of any of the Note (the foregoing liabilities herein
collectively referred to as the "Indemnified Liabilities"); provided that the
Company and each Subsidiary shall have no obligation to an Indemnified Person
hereunder with respect to Indemnified Liabilities arising from the gross
negligence or willful misconduct of that Indemnified Person as determined by a
court of competent jurisdiction. To the extent that the undertaking to
indemnify, pay and hold harmless set forth in the preceding sentence may be
unenforceable because it is violative of any law or public policy, the Company
and each Subsidiary shall contribute the maximum portion that it is permitted to
pay and satisfy under applicable law to the payment and satisfaction of all
Indemnified Liabilities incurred by the Indemnified Person or any of them.
28
8.5. Powers and Rights Not Waived. No delay or failure on the part of
Purchaser in the exercise of any power or right shall operate as a waiver
thereof. No single or partial exercise of the any power or right shall preclude
any other or further exercise thereof, or the exercise of any other power or
right. The rights and remedies of Purchaser pursuant to the Note and this
Agreement are cumulative to, and are not exclusive of, any rights or remedies
Purchaser would otherwise have.
8.6. Notices. Any notice, demand or delivery to be made pursuant to the
provisions of this Agreement shall be in writing and (i) given by prepaid
overnight delivery, in which case such notice shall be deemed to have been given
or made one day after the date sent, or (ii) given by personal delivery,
confirmed telegram or confirmed facsimile transmission, in which case such
notice shall be deemed to have been made or given when received. Notices given
by the Company shall be addressed to Purchaser at its address appearing on the
first page of this Agreement, and notices given by Purchaser shall be addressed
to the Company at 000 Xxxxx Xxxxxx Xxxxx Xxxxx, Xxxxx 0X, Xxxxxx, Xxxxxxxx
00000; Purchaser and the Company may each designate a different address by
notice to the other in the manner provided in this ss.8.6.
8.7. Successors and Assigns. This Agreement and the rights evidenced hereby
shall inure to the benefit of and be binding upon and the successors and
permitted assigns of the Company, the Subsidiaries and Purchaser, provided that
this Agreement and such rights shall not be assigned by the Company or any
Subsidiary without consent of the Purchaser.
8.8. Survival of Covenants and Representations. All covenants,
representations and warranties of the Company and the Subsidiaries herein and in
any certificates delivered pursuant hereto, whether or not in connection with
the Closing Date, shall survive the closing and delivery of this Agreement, the
Note and the other Financing Documents. Notwithstanding anything in this
Agreement implied by law to the contrary, the provisions of ss.8.3 and 8.4 shall
survive the payment of the Note and the termination of this Agreement.
8.9. Amendments. This Agreement may not be modified, supplemented, varied
or amended except by an instrument in writing signed by the Company and
Purchaser.
8.10. Headings. The table of contents and the descriptive headings of
sections of this Agreement are provided solely for convenience of reference and
shall not, for any purpose, be deemed a part of this Agreement.
8.11. Maximum Interest Rate. It is not intended hereby to charge interest
at a rate in excess of the maximum rate of interest permitted to be charged to
the Company under applicable law, but if, notwithstanding such intention,
interest in excess of the maximum rate shall be paid hereunder, the excess shall
be, at the Purchaser's option (i) applied as a credit against the outstanding
principal balance of the Note, (ii) retained by Purchaser as additional cash
collateral for the payment of the Note, unless such retention is not permitted
by law, or (iii) refunded to the Purchaser. In such case the interest rate on
the Note shall be adjusted to the maximum permitted under applicable law during
the period or periods that the interest rate otherwise provided herein would
exceed the maximum permitted under applicable law.
29
8.12. Governing Law. This Agreement and all matters concerning this
Agreement, including the Note, shall be governed by the laws of the State of
Colorado for contracts entered into and to be performed in such state without
regard to principles of conflicts of laws.
8.13. No Fiduciary Relationship.
(a) No provision in this Agreement or in any of the other Financing
Documents and no course of dealing between the parties shall be deemed to create
any fiduciary duty by the Purchaser to the Company or any Subsidiary.
(b) Neither the Purchaser, nor any affiliate, officer, director, employee,
attorney, partner or agent of the Purchaser shall have any liability with
respect to, and the Company and each Subsidiary hereby waives, releases and
agrees not to xxx any of them upon, any claim for any special, indirect,
incidental or consequential damages suffered or incurred by the Company or any
Subsidiary in connection with, arising out of, or in any way related to, this
Agreement or any of the other Financing Documents, or any of the transactions
contemplated by this Agreement or any of the other Financing Documents. The
Company and each Subsidiary hereby waives, releases and agrees not to xxx the
Purchaser or any of the Purchaser's affiliates, officers, directors, employees,
attorneys, partners or agents for punitive damages in respect of any claim in
connection with, arising out of, or in any way related to, this Agreement or any
of the other Financing Documents, or any of the transactions contemplated by
this Agreement or any of the Financing Documents.
(c) All attorneys, accountants, appraisers and other professional Persons
and consultants retained by the Purchaser shall have the right to act
exclusively in the interest of the Purchaser and shall have no duty of
disclosure, duty of loyalty, duty of care or other duty or obligation of any
type or nature whatsoever to the Company or any Subsidiary or to the Company's
shareholders or any or any other Person; provided, however, that such limitation
shall not apply to any such Person serving as a director or officer of the
Company.
8.14. Consent to Jurisdiction. THE COMPANY HEREBY CONSENTS TO THE
JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED WITHIN THE COUNTY OF DENVER,
STATE OF COLORADO AND IRREVOCABLY AGREES THAT, SUBJECT TO THE PURCHASER'S
ELECTION, ALL ACTIONS OR PROCEEDINGS ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE OTHER FINANCING DOCUMENTS SHALL BE LITIGATED IN SUCH COURTS.
THE COMPANY AND EACH SUBSIDIARY ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS
PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF THE
AFORESAID COURTS AND WAIVES ANY DEFENSE OF FORUM NON CONVENIENS, AND IRREVOCABLY
AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS
AGREEMENT, THE NOTE, OR ANY OTHER FINANCING DOCUMENT.
30
8.15. Waiver of Jury Trial. THE COMPANY AND THE PURCHASER EACH HEREBY WAIVE
THE RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT
OF, OR IN ANY WAY RELATING TO: (i) THIS AGREEMENT OR ANY OF THE FINANCING
DOCUMENTS, OR (ii) ANY OTHER PRESENT OR FUTURE INSTRUMENT OR AGREEMENT BETWEEN
PURCHASER AND THE COMPANY OR ANY SUBSIDIARY; OR (iii) ANY CONDUCT, ACTS OR
OMISSIONS OF THE COMPANY, ANY SUBSIDIARY OR PURCHASER OR ANY OF THEIR DIRECTORS,
OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH THE
COMPANY OR PURCHASER; IN EACH OF THE FOREGOING CASES, WHETHER SOUNDING IN TORT
OR OTHERWISE. THE COMPANY, EACH SUBSIDIARY AND THE PURCHASER ALSO WAIVE ANY BOND
OR SURETY OR SECURITY UPON SUCH BOND WHICH MIGHT, BUT FOR THIS WAIVER, BE
REQUIRED OF LENDERS. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL-ENCOMPASSING
OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE
SUBJECT MATTER OF THIS AGREEMENT, INCLUDING WITHOUT LIMITATION, CONTRACT CLAIMS,
TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY
CLAIMS. THE COMPANY, EACH SUBSIDIARY AND PURCHASER ACKNOWLEDGE THAT THIS WAIVER
IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH HAS
ALREADY RELIED ON THE WAIVER IN ENTERING INTO THIS AGREEMENT AND THAT EACH WILL
CONTINUE TO RELY ON THE WAIVER IN THEIR RELATED FUTURE DEALINGS. THIS WAIVER IS
IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING,
AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS
OR MODIFICATIONS TO THIS AGREEMENT, THE FINANCING DOCUMENTS, OR TO ANY OTHER
DOCUMENTS OR AGREEMENTS RELATING TO THE NOTE. THE COMPANY, EACH SUBSIDIARY AND
PURCHASER FURTHER WARRANT AND REPRESENT THAT EACH HAS REVIEWED THIS WAIVER WITH
ITS LEGAL COUNSEL, AND THAT EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL
RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION,
THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
31
The execution hereof by Purchaser shall constitute a contract between the
parties for the uses and purposes set forth in this Agreement, and this
Agreement may be executed in any number of counterparts, each executed
counterpart constituting an original but all together only one agreement.
Xxxxxxx Educational Systems, Inc.
/s/ Xxxx X. Xxxxxxx
-------------------------------------------
By: Xxxx X. Xxxxxxx
Its: Chief Executive Officer
Data Processing Trainers Co.
By: /s/ Xxxx X. Xxxxxxx
----------------------------------------
Its: President
---------------------------------------
Denver Automotive & Diesel College, Inc.
By: /s/ Xxxx X. Xxxxxxx
---------------------------------------
Its: President
--------------------------------------
ACCEPTED AS OF MARCH 24, 1998:
By: XXXXXXX XXXXXX MEZZANINE FUND, L.P.
By: XXXXXXX XXXXXX CAPITAL PARTNERS LLP,
as General Partner
By: /s/ Xxxxxx X. Xxxxx
---------------------------------------
Xxxxxx X. Xxxxx, Managing Partner
32
EXHIBIT A
FORM OF SENIOR SUBORDINATED SECURED NOTE
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, AND CANNOT BE TRANSFERRED EXCEPT PURSUANT TO
REGISTRATION OR AN EXEMPTION THEREFROM.
THIS NOTE IS SUBJECT TO AN INTERCREDITOR AGREEMENT, DATED AS OF
MARCH 24, 1998, AMONG XXXXXXX XXXXXX MEZZANINE FUND, L.P. AND XXXX
XXXXXXXXXX
THIS NOTE WAS ISSUED WITH ORIGINAL ISSUE DISCOUNT. THE CHIEF FINANCIAL OFFICER
OF THE ISSUER, LOCATED AT 000 XXXXX XXXXXX XXXXX XXXXX, XXXXX 0X, XXXXXX,
XXXXXXXX 00000, WILL, BEGINNING NO LATER THAN TEN DAYS AFTER THE ISSUE DATE,
PROMPTLY MAKE AVAILABLE TO HOLDERS UPON REQUEST THE ISSUE PRICE, THE AMOUNT OF
ORIGINAL ISSUE DISCOUNT, THE ISSUE DATE, AND THE YIELD TO MATURITY OF THIS NOTE
----------------------------
Senior Subordinated Secured Note
Due March 24, 2003
$2,900,000 March 24, 1998.
Xxxxxxx Educational Systems, Inc., a Colorado corporation (the "Company"),
for value received, hereby promises to pay to
XXXXXXX XXXXXX MEZZANINE FUND, L.P.
or registered assigns
on March 24, 2003
the principal amount of
Two Million Nine Hundred Thousand Dollars ($2,900,000)
(or such lesser amount as shall then be outstanding pursuant to this Note)
at the time and in the amounts set forth in the Note Agreement (as defined
below) and to pay interest (computed on the basis of a 360-day year of twelve
30-day months) on the principal amount from time to time remaining unpaid hereon
at the rate of 12% per annum from the date hereof until maturity, payable
quarterly on the first day of each calendar quarter (commencing July 1, 1998)
and at maturity. The Company agrees to pay interest on overdue principal and (to
the extent legally enforceable) on any overdue installment of interest, at the
rate of 18% per annum after the due date, whether by acceleration or otherwise,
until paid. Both the principal hereof and interest hereon are payable at the
principal office of Colorado National Bank, Denver, Colorado, in coin or
currency of the United States of America that at the time of payment shall be
legal tender for the payment of public and private debts.
This Note is issued or to be issued under and pursuant to the terms and
provisions of the Note and Security Agreement dated as of March 24, 1998 (the
"Note Agreement"), entered into by the Company with the Purchaser therein
referred to and is secured by the Collateral (as defined in the Note Agreement).
Reference is hereby made to the Note Agreement for a full statement of terms and
provisions thereof and for a description of the Collateral thereunder.
Principal on this Note shall be payable at the times set forth in the Note
Agreement. This Note may be declared due prior to its expressed maturity date on
the terms and in the manner provided in the Note Agreement.
This Note is not subject to prepayment or redemption at the option of the
Company prior to its expressed maturity date except on the terms and conditions
and in the amounts set forth in the Note Agreement.
The holder of this Note is registered on the books of the Company. It is
transferable only by surrender at the principal office of the Company duly
endorsed or accompanied by a written instrument of transfer duly executed by
such holder or its attorney duly authorized in writing. Payment of or on account
of principal and interest on this Note shall be made only to or upon the order
in writing of such holder.
Xxxxxxx Educational Systems, Inc.
By: ____________________________________
Its: ____________________________________
A-2
EXHIBIT B
FORM OF WARRANT
EXHIBIT C
FORM OF GUARANTEE
C-1
EXHIBIT D
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Purchaser as follows, except as set
forth on the Disclosure Schedule attached to this Agreement:
1. Organization and Authority. The Company and its Subsidiaries:
(a) are corporations, duly organized, validly existing and in good
standing under the laws of Colorado, except that Data Processing Trainers Co. is
a corporation, duly organized, validly existing and in good standing under the
laws of the Commonwealth of Pennsylvania;
(b) each has all requisite power and authority and all necessary
licenses and permits to own and operate its properties and to carry on its
business as now conducted and as presently proposed to be conducted except where
the failure to have such licenses and permits, either singularly or in the
aggregate, would not have a Material Adverse Effect; and
(c) each is duly licensed or qualified and is in good standing as a
foreign corporation in each jurisdiction wherein the nature of the business
transacted by it or the nature of the property owned or leased by it makes such
licensing or qualification necessary except where the failure to be so licensed,
qualified or in good standing, either singularly or in the aggregate, would not
have a Material Adverse Effect.
2. Financial Information.
(a) All financial statements concerning the Company and its
Subsidiaries which have been or will hereafter be furnished by the Company and
its Subsidiaries to Purchaser pursuant to this Agreement have been or will be
prepared in accordance with GAAP consistently applied throughout the periods
involved (except as disclosed therein) and do or will present fairly in all
material respects the financial condition of the Persons covered thereby as at
the dates thereof and the results of their operations for the periods then
ended. The Pro Forma was prepared by the Company based on the audited balance
sheet of the Company and Data Processing Trainers Co., each dated December 31,
1997 (except as noted therein). The Projections delivered and to be delivered
have been and will be prepared by the Company in light of the past operations of
the business of the Company and its Subsidiaries, and such Projections represent
and will represent the good faith estimate of the Company and its senior
management concerning the most probable course of its business as of the date
such Projections are prepared and delivered.
(b) The Company and its Subsidiaries have no contingent liability or
contingent obligation which is not listed in the Pro Forma or otherwise
disclosed in writing to the Purchaser, except for liabilities arising in the
ordinary course of business since the most recent date of such financial
statements.
D-1
3. Indebtedness. The Company and its Subsidiaries have no Indebtedness
as of the date hereof other than Indebtedness reflected on the Pro Forma.
4. Full Disclosure. None of the financial information referred to in
section 2 of this Exhibit D, the Agreement, any Financing Document, and any
other written statement furnished by the Company or its agents to Purchaser in
connection with the negotiation of the sale of the Note and Warrant, contains
any untrue statement of a material fact or omits a material fact necessary to
make the statements contained therein or herein not misleading. To the Company's
knowledge, there is no fact peculiar to the Company or its Subsidiaries which
the Company has not disclosed to Purchaser in writing that could reasonably have
a Material Adverse Effect. The Projections and the Pro Forma are based upon good
faith estimates and assumptions believed by such Persons to be reasonable at the
time made. To the extent the Projections have not been prepared on a basis
consistent with the historical financial statements of the Company, the Company
has disclosed such to Purchaser. The Pro Forma and the Projections are attached
to this Agreement as Schedule 4.
5. Pending Litigation. There are no proceedings pending or, to the
knowledge of the Company, threatened against or affecting the Company or its
Subsidiaries in any court or before any governmental authority or arbitration
board or tribunal which could reasonably be expected to result in a Material
Adverse Effect.
6. Title to Properties. The Company and its Subsidiaries have good and
marketable title, free and clear of all Liens, to all property each owns,
including property reflected in the Pro Forma, except as sold or otherwise
disposed of in the ordinary course of business and except for Permitted
Encumbrances. The Company and its Subsidiaries hold valid leaseholds or licenses
in all property used by the Company and its Subsidiaries that is not owned by
the Company or its Subsidiaries, and there are no actual, or, to the Company's
knowledge, threatened or alleged, defaults with respect to any such leases or
licenses.
7. Patents and Trademarks. The Company or its Subsidiaries owns,
possesses, has applied for or has the right to use pursuant to valid licenses
all of the patents, trademarks, trade names, service marks, copyright, licenses
and rights with respect to the foregoing necessary for the present and projected
conduct of its business, without any known conflict with the rights of others.
8. Sale is Legal and Authorized. The sale of the Note and the Warrant
by the Company and compliance by the Company and the Subsidiaries with all of
the provisions of the Financing Documents:
(a) are within their powers;
D-2
(b) will not violate any provisions of any law or any order of any
court or governmental authority or agency and will not conflict with or result
in any breach of any of the terms, conditions or provisions of, or constitute a
default under the Company's or any Subsidiary's charter or bylaws or any
indenture or other agreement or instrument to which the Company or its
Subsidiaries is a party or by which they may be bound or result in the
imposition of any Liens or encumbrances on any of their property (other than as
contemplated in the Agreement and the Financing Documents); and
(c) have been duly authorized by proper corporate action on the part
of the Company and the Subsidiaries (no action by the Company's shareholders
being required by law, by its charter or bylaws or otherwise), and the Financing
Documents constitute the legal, valid and binding obligations, contracts and
agreements of the Company and the Subsidiaries, enforceable in accordance with
their respective terms.
9. No Defaults. No Default or Event of Default has occurred and is
continuing. The Company and its Subsidiaries are not in default in the payment
of principal or interest on any Indebtedness and are not in default under any
instrument or instruments or agreements under and subject to which any
Indebtedness has been issued. No event has occurred and is continuing under the
provisions of any such instrument or agreement which with the lapse of time or
the giving of notice, or both, would constitute an event of default thereunder.
10. Governmental Consent. No further approval, consent or withholding
of objection on the part of any regulatory body, federal, state or local, is
necessary in connection with the execution and delivery by the Company and the
Subsidiaries of the Financing Documents or compliance with any of the Financing
Documents.
11. Taxes. All tax returns required to be filed by the Company and its
Subsidiaries in any jurisdiction have, in fact, been filed, and all taxes,
assessments, fees and other governmental charges upon any of them or upon any of
their properties, income or franchises that are shown to be due and payable in
such returns have been paid. The Company does not know of any proposed
additional tax assessment against it for which adequate provisions has not been
made on their respective accounts, and no controversy in respect of additional
federal or state income taxes due since such date is pending or to the knowledge
of the Company threatened. The provisions for taxes on the books of the Company
and its Subsidiaries are adequate for all open years, and for its current fiscal
period.
12. ERISA. The Company, each of its Subsidiaries and each ERISA
Affiliate is in compliance with all applicable provisions of ERISA, the Internal
Revenue Code and all other applicable laws and the regulations and
interpretations thereof with respect to all Plans. No liability has been
incurred by the Company, any of its Subsidiaries or any ERISA Affiliate which
remains unsatisfied for any funding obligation, taxes or penalties with respect
to any Plan.
D-3
13. Compliance with Law. Neither the Company nor its Subsidiaries (i)
is in violation of any law, ordinance, franchise, governmental rule or
regulation to which it is subject, the violation of which could reasonably be
expected to have a Material Adverse Effect; or (ii) has failed to obtain or
apply for the transfer of any license, consent, permit, franchise or other
governmental authorization necessary to the ownership of its property or to the
conduct of its business, which violation or failure to obtain could reasonably
be expected to have a Material Adverse Effect. The Company and its Subsidiaries
are not in default with respect to any order of any court or governmental
authority or arbitration board or tribunal, which default could reasonably be
expected to have a Material Adverse Effect. The Company and its Subsidiaries are
not, and after giving effect to the transactions contemplated by the Agreement
will not be, subject to regulation under the Public Utility Holding Company Act
of 1935, the Federal Power Act, or the Investment Company Act of 1940 or to any
federal or state statute or regulation limiting its ability to incur
indebtedness for borrowed money. The Company and its Subsidiaries have obtained
all required consents and approvals under and have complied with all state or
federal laws, ordinances, rules and regulations of any kind relating to
education, licensing, and financial responsibility requirements for eligibility
for federal financial assistance programs, including those of the United States
Department of Education, other than those with respect to the transaction with
Data Processing Trainers Co., which the Company will obtain promptly after the
Closing. The Company and its Subsidiaries have obtained all necessary or
desirable accreditations of schools operated by the Company's Subsidiaries.
14. Compliance with Environmental Laws. The Company and its
Subsidiaries are not in violation of any applicable Environmental Law that could
reasonably be expected to have a Material Adverse Effect. The Company and its
Subsidiaries have obtained and maintained in effect all permits, licenses or
other authorizations required by applicable Environmental Laws, except to the
extent any failure to obtain or maintain such would not have a Material Adverse
Effect. There are no claims, liabilities, investigations, litigation,
administrative proceedings, whether pending or, to the knowledge of the Company,
threatened, or judgments or orders relating to any Hazardous Materials asserted
or, to the knowledge of the Company, threatened against the Company or its
Subsidiaries or relating to any real property currently or formerly owned,
leased or operated by the Company or its Subsidiaries.
15. Solvency. On the Closing Date and after giving effect to the
Indebtedness created by the Note and the acquisition of DPT:
(a) On a consolidated basis, the fair saleable value of the property
of the Company on a going concern basis is greater than the total amount of
liabilities (including contingent and unliquidated liabilities) of the Company
on the Closing Date; and
(b) the Company is able to pay all of its liabilities as they mature
and does not have unreasonably small capital for the business about to be
engaged.
D-4
In computing the amount of contingent or liquidated liabilities at any
time, such liabilities will be computed at the amount which, in light of all the
facts and circumstances existing at such time, represents the amount that can
reasonably be expected to become an actual or matured liability.
16. Employee Matters.
(a) Neither the Company nor its Subsidiaries is a party to any
management, consulting, employment or other agreement with any of the
shareholders, consultants, directors or officers of the Company or their
respective Affiliates.
(b) Except as set forth on Schedule 16(b) attached hereto, (i) neither
the Company, its Subsidiaries nor any of their employees are subject to any
collective bargaining agreement, (ii) no petition for certification or union
election is pending with respect to the employees of the Company or its
Subsidiaries and no union or collective bargaining unit has sought such
certification or recognition with respect to the employees of the Company and
its Subsidiaries and (iii) there are no strikes, slowdowns, work stoppages or
controversies pending or, to the best knowledge of the Company after due
inquiry, threatened between the Company or its Subsidiaries and their employees,
other than employee grievances arising in the ordinary course of business, which
could reasonably be expected to have, either individually or in the aggregate, a
Material Adverse Effect.
17. Use of Proceeds. The Company shall use the proceeds of the sale of
the Note and the Warrant solely for the payment of amounts owing to the Sellers
pursuant to the transactions contemplated by the Stock Purchase Agreement and
related expenses and working capital.
18. Commission Filings. The Company has delivered to Purchaser copies
of the Company's (a) Annual Report on Form 10-K for the year ended December 31,
1996 (the "Company Form 10-K"), and (b) Quarterly Report on Form 10-Q for the
quarter ended September 30, 1997 (the "Company Form 10-Q"), in each case as
filed with the Securities and Exchange Commission the "Commission"). The Company
has made available to Purchaser all other reports, registration statements and
other documents filed by the Company with the Commission under the Exchange Act
since the Company was formed. The Company's securities are not required to be
registered pursuant to Section 12 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). The Company has filed all reports, registration
statements and other documents required to be filed with the Commission under
the rules and regulations of the Commission since the Company was formed, and
all such Commission filings complied as to form with the requirements of the
Exchange Act. As of their respective dates, the Company Form 10-K and Company
Form 10-Q (including in all cases any exhibits or schedules or documents
incorporated therein by reference) did not contain any untrue statement of
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
D-5
19. Shares. Upon closing of this Agreement, there will be two
shareholders of the Company holding 5% or more of the outstanding Shares and one
holder of a Warrant exercisable for 5% or more of the outstanding Shares, as set
forth in Schedule 19 attached to this Agreement. All of the Shares are duly
authorized and validly issued, fully paid, nonassessable, free and clear of any
liens, and issued in compliance with all applicable federal and state laws,
including securities laws. The Company has no outstanding warrants, options or
other obligations to issue securities other than the Warrant and as set forth on
Schedule 19. No shareholder or other person is entitled to any preemptive or
similar rights with respect to any interest in the Company, other than as set
forth in the Warrant. When issued upon complete exercise of the Warrant, the
Shares held by the Purchaser shall be validly issued, fully paid and
nonassessable, and, assuming no further issuances of Shares, shall constitute
22% of the Company's Shares other than Shares issued pursuant to Exempt Sales
(as defined in the Warrant), on a fully diluted basis taking into account the
exercise or conversion of all outstanding derivative securities relating to the
Shares. The Company shall keep reserved the total number of Shares issuable at
any time (which number shall be increased or decreased in accordance with the
terms of the Warrant) upon exercise of the Warrant.
20. Collateral.
(a) The Collateral has not suffered damage or destruction which
renders it inoperable and, under applicable zoning, use, environmental
protection and other laws, ordinances, rules and regulations, such properties
may be used for the present use and purpose as described in the Agreement. The
Collateral is free and clear of all Liens other than Permitted Encumbrances.
Without limiting the foregoing, no portion of the real property constituting a
portion of the Collateral is located in an "area of special flood hazard," as
that term is defined in the regulations of the Federal Insurance Administration,
Department of Housing and Urban Development, under the National Flood Insurance
Act of 1968, as amended (24 C.F.R. ss.1909.1).
(b) Other than its current name, and the names "Chartwell Cable Fund,
Inc.", "Data Processing Trainers Co.", and "Denver Automotive & Diesel College,
Inc.", none of the Company or its Subsidiaries has used any names (either as a
company name, tradename, business name, fictitious name or otherwise) and has no
present plans to use any such names.
(c) The location of the Company's principal place of business and its
books and records is 000 Xxxxx Xxxxxx Xxxxx Xxxxx, Xxxxx 0X, Xxxxxx, Xxxxxxxx
00000. In addition, the Company also has locations for its business and the
Collateral at the places listed on Schedule 20(c) attached to this Agreement.
The Company's federal employer identification number is listed on Schedule
20(c).
21. Subsequent Events. Since December 31, 1997, there has not been any
material adverse change in the business, financial condition, operations,
results of operations, or future prospects of the Company and, without limiting
the generality of the foregoing, since December 31, 1997, the Company has not
engaged in any practice, taken any action, or entered into any transaction
outside the ordinary course of business other than in connection with
transactions contemplated by the Financing Documents and the Stock Purchase
Agreement.
D-6
22. Compliance with Small Business Investment Act Requirements.
(a) The Company and its Subsidiaries have not engaged in any
activities and shall not hereafter engage in any activities or use directly or
indirectly the proceeds from the issuance of the Notes or any proceeds received
from shareholders of the Company for any purpose for which a Small Business
Investment Company is prohibited from providing funds by the Small Business
Investment Act and the regulations thereunder, including Title 13, Code of
Federal Regulations, Part 107 (collectively, "SBIA").
(b) Neither the Company nor any of its Subsidiaries, officers,
directors, or shareholders or, to the best of the Company's knowledge, its
employees or consultants directly or indirectly own or control, or are related
to any Person who owns or controls, any interest in, or is an officer, director,
employee, shareholder, or agent of, Purchasers or any entity in any way related
to or affiliated with Purchasers or any other Small Business Investment Company.
(c) Neither the Company nor any of its Subsidiaries has received, is
receiving, or has any intention to apply for any assistance from the Small
Business Administration or any small Business Investment Company other than
Purchaser.
(d) The Company qualifies as a "small business concern" under, and is
in full compliance with, the provisions of the SBIA. The aggregate consolidated
net worth of the Company and all other business entities affiliated with the
Company does not exceed $1 million and the Company's consolidated net income in
each of its last two fiscal years has not exceeded $1 million.
23. Stock Purchase Agreement. The Company is not aware of any breach,
by the Sellers, of any covenant, representation or warranty of Sellers in the
Stock Purchase Agreement.
D-7
EXHIBIT E
DESCRIPTION OF CLOSING OPINION OF COUNSEL TO THE COMPANY
The closing opinion of _________, counsel to the Company, which is called
for by ss.5.1(b) of the Agreement, shall be dated the Closing Date and addressed
to Purchaser, shall be reasonably satisfactory in scope and form to Purchaser,
and shall be to the effect that:
(1) The Company and each of its Subsidiaries is a corporation, duly
organized, legally existing and in good standing under the laws of the
State of Colorado.
(2) The Company and each of its Subsidiaries has corporate power and
authority and is duly authorized to enter into and perform the Financing
Agreements to which it is a party, and, in the case of the Company, to
issue the Note and the Warrant and incur the Indebtedness to be evidenced
by the Note. The Company and its Subsidiaries have corporate power and
authority to conduct the activities in which each is engaged, and are duly
licensed or qualified and in good standing as a foreign corporation in each
jurisdiction where the failure to so qualify could reasonably be expected
to have a Material Adverse Effect.
(3) The Agreement and the Financing Documents have been duly
authorized, executed and delivered by the Company (and, to the extent they
are parties, its Subsidiaries) and constitute the legal, valid and binding
agreements of the Company and its Subsidiaries enforceable in accordance
with their terms, subject to applicable bankruptcy, insolvency or similar
laws affecting creditors' rights generally, and subject as to
enforceability to general principles of equity (regardless of whether
enforcement is sought in a proceeding in equity or at law) and except that
certain remedies described in ___________ of the Financing Documents may be
limited by applicable law (none of which limitations will, however, in our
opinion, materially interfere with the practical realization of the
security provided by the Financial Documents).
(4) The Note has been duly authorized by proper corporate action on
the part of the Company, has been duly executed by authorized officers of
the Company and constitutes the legal, valid and binding obligation of the
Company enforceable in accordance with its terms, subject to applicable
bankruptcy, insolvency or similar laws affecting creditors' rights
generally, and subject as to enforceability to general principles of equity
(regardless of whether enforcement is sought in a proceeding in equity or
at law).
(5) The Warrant has been duly authorized by proper corporate action on
the part of the Company, has been duly executed and delivered by authorized
officers of the Company and constitutes the legal, valid and binding
agreement of the Company enforceable in accordance with its terms, except
as enforcement of such terms may be limited by bankruptcy, insolvency or
similar laws and legal and equitable principles affecting or limiting the
availability of equitable remedies and except that enforcement of the
provisions contained in ss.11.5 of the Warrant may be limited by public
policy considerations.
E-1
(6) No approval, consent or withholding of objection on the part of,
or filing, registration or qualification with, any governmental body,
federal, state or local, is necessary in connection with the execution and
delivery of the Financing Documents by the Company or any Subsidiary which
has not been obtained.
(7) The Financing Documents create valid and enforceable security
interests in favor of Xxxxxxx Xxxxxx Mezzanine Fund, L.P. in the Collateral
therein described which constitutes property in which a security interest
can be granted under the UCC.
(8) The issuance and sale of the Note and the Warrant, the issuance of
any Shares upon exercise of the Warrant, and the execution, delivery and
performance by the Company of the Financing Documents will not violate
preemptive rights of shareholders of the Company or conflict with or result
in any breach of any of the provisions of or constitute a default under the
provisions of the Company's or any Subsidiary's charter or bylaws or under
laws of the State of Colorado or any material agreement or other instrument
known to such counsel to which the Company or any Subsidiary is a party or
by which the Company or any Subsidiary may be bound.
(9) Assuming the accuracy of the Purchaser's representations and
warranties in the Agreement, the issuance, sale and delivery of the Note
and the Warrant under the circumstances contemplated by the Agreement
constitute an exempt transaction under the registration provisions of the
Securities Act of 1933, as amended, and do not under existing law require
the registration of the Note or the Warrant under the Securities Act of
1933, as amended.
(10) Assuming compliance with the terms and provisions of the Warrant,
the Shares issuable upon exercise thereof shall be duly issued, fully paid
and nonassessable.
(11) The authorized capital stock of the Company consists of ______
shares of which ______ shares are issued and outstanding. _______ shares
have been reserved for issuance upon exercise of the Warrant, and upon
complete exercise of the Warrant, and, assuming no further issuances of
Shares, shall constitute __% of the Company's shares, on a fully diluted
basis taking into account the exercise or conversion of all outstanding
derivative securities relating to the shares.
This opinion shall cover such other matters relating to the sale of the
Note and the Warrant as Purchaser may reasonably request. With respect to
matters of fact on which such opinion is based, counsel shall be entitled to
rely on appropriate certificates of public officials and officers of the
Company.
E-2
EXHIBIT F
FORM OF SBA LETTER
Xxxxxxx Xxxxxx Mezzanine Fund, L.P.
March 24, 1998
Xxxxxxx Educational Systems, Inc.
000 Xxxxx Xxxxxx Xxxxx Xxxxx
Xxxxx 0X
Xxxxxx, Xxxxxxxx 00000
Ladies and Gentlemen:
Reference is made to that certain (i) Note and Security Agreement (the
"Note Agreement"), dated as of the date hereof, by and among Xxxxxxx Educational
Systems, Inc., a Colorado corporation (the"Company") and Xxxxxxx Xxxxxx
Mezzanine Fund, L.P., a Colorado partnership ("Lender"), and (ii) Warrant (the
"Warrant" and together with the Note Agreement (the "Purchase Agreements"),
dated as of the date hereof, by and among the Company and the Lender) pursuant
to which the Lender is purchasing subordinated notes and warrants issued by the
Company. The subordinated notes and warrants issued by the Company to Lender are
sometimes collectively referred to herein as the "Securities."
Lender is a Small Business Investment Company ("SBIC") licensed by the
United States Small Business Administration ("SBA"). In order for Lender to
acquire and hold the Securities, it must obtain from the Company certain
representations and rights as set forth below. As a material inducement to
Lender to enter into the Purchase Agreements and to purchase the Securities, the
Company hereby makes the following representations and warranties and agrees to
comply with the following covenants:
1. Small Business Matters.
(a) The Company, together with its "affiliates" (as that term is defined in
Title 13, Code of Federal Regulations, ss.121.103), is a "small business
concern" within the meaning of the Small Business Investment Act of 1958, as
amended ("SBIA"), and the regulations thereunder, including Title 13, Code of
Federal Regulations, ss.121.301(c). The information set forth in the Small
Business Administration Forms 480, 652 and Part A of Form 1031 regarding the
Company and its affiliates, when delivered to Lender, will be accurate and
complete and will be in form and substance acceptable to Lender. Copies of such
forms shall be completed and executed by the Company and delivered to Lender at
the closing of the sale of the Securities under the Purchase Agreements (the
"Closing").
F-1
(b) The proceeds from the sale of the Securities will be used by the
Company (1) for the purposes described in Section 17 of Exhibit D of the Note
Agreement, and (2) pay expenses related to the transactions contemplated by the
Purchase Agreements. No portion of such proceeds (i) will be used to provide
capital to a corporation licensed under the SBIA, (ii) will be used to acquire
farm land, (iii) will be used to fund production of a single item or defined
limited number of items, generally over a defined production period, and such
production will constitute the majority of the activities of the Company and its
Subsidiaries (examples include motion pictures and electric generating plants),
or (iv) will be used for any purpose contrary to the public interest (including,
but not limited to, activities which are in violation of law) or inconsistent
with free competitive enterprise, in each case, within the meaning of 13 C.F.R.
ss. 107.720.
(c) Neither the Company's nor any of its Subsidiaries' primary business
activity involves, directly or indirectly, providing funds to others, the
purchase or discounting of debt obligations, factoring or long-term leasing of
equipment with no provision for maintenance or repair, and neither the Company
nor any of its Subsidiaries is classified under Major Group 65 (Real Estate) of
the SIC Manual. The assets of the business of the Company and its Subsidiaries
(the "Business") will not be reduced or consumed, generally without replacement,
as the life of the Business progresses, and the nature of the Business does not
require that a stream of cash payments be made to the Business's Financing
sources, on a basis associated with the continuing sale of assets (examples of
such businesses would include real estate development projects and oil and gas
xxxxx). (See 13 C.F.R. ss. 107.720)
(d) The proceeds from the sale of the Securities will not be used
substantially for a foreign operation; and at Closing or within one year
thereafter, no more than 49 percent of the employees or tangible assets of the
Company and its Subsidiaries will be located outside the United States (unless
the Company can show, to SBA's satisfaction, that the proceeds from the sale of
the Securities will be used for a specific domestic purpose). This subsection
(d) does not prohibit such proceeds from being used to acquire foreign materials
and equipment or foreign property rights for use or sale in the United States.
2. Regulatory Compliance Cooperation.
(a) In the event that Lender determines that it has a Regulatory Problem,
the Company agrees to take all such actions as are reasonably requested by
Lender in order to (i) permit Lender to convert its voting Securities into
non-voting Securities which are convertible back into such voting Securities
upon such conditions as Lender specifies or (ii) effectuate and facilitate any
transfer by Lender of any Securities of the Company than held by Lender to any
Person designated by Lender.
(b) In the event that any Subsidiary of the Company offers to sell any of
its Securities to Lender, then the Company will cause such Subsidiary to enter
into agreements with Lender substantially similar to this Section 2.
F-2
(c) Promptly after the end of each fiscal year (but in any event prior to
February 28 of each year), the Company shall provide to Lender a written
assessment, in form and substance reasonably satisfactory to Lender, of the
economic impact of Lender's financing hereunder, specifying the full-time
equivalent jobs created or retained, the impact of the financing on the
consolidated revenues and profits of the Business and on taxes paid by the
Business and its employees (See 13 C.F.R. ss. 107.630(e)).
(d) For a period of one year following the date hereof, neither the Company
nor any of its Subsidiaries will change its business activity if such change
would render the Company ineligible to receive financial assistance from an SBIC
under the SBIA and the regulations thereunder (within the meanings of 13 C.F.R.
xx.xx. 107.720 and 107.760(b)).
(e) The Company will at all times comply with the non-discrimination
requirements of 13 C.F.R., Parts 112, 113 and 117.
(f) The Company will notify Lender whenever the number of record holders of
the Company's voting securities increases to 50 or more or falls below 50 (see,
13 C.F.R. ss. 107.785).
3. Remedies.
The Company understands that its violation of this letter agreement may
result in Lender being required by the SBA to sell Securities, and such sale may
be at depressed prices due to the circumstances and timing of the sale.
Therefore, in addition to all other remedies available to Lender for the
Company's violation of this letter agreement, the Company agrees that Lender
shall be entitled to seek specific enforcement or other equitable relief to
prevent a violation by the Company of this letter agreement, and the Company
waives any requirement that Lender post any bond as a condition to seeking or
obtaining equitable relief.
4. Definitions.
"Affiliate" means, with respect to any Person, (i) a director, officer or
stockholder of such Person, (ii) a spouse, parent, sibling or descendant of such
Person (or spouse, parent, sibling or descendant of any director or executive
officer of such Person), and (iii) any other Person that, directly or indirectly
through one or more intermediaries, Controls, or is Controlled by, or is under
common Control with, such Person.
"Control" means, with respect to any Person, the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of a Person, whether through the ownership of voting securities, by
contract or otherwise.
"Person" shall be construed broadly and shall include an individual, a
partnership, a corporation, a limited liability company, an association, a joint
stock company, a trust, a joint venture, an unincorporated organization or a
governmental entity (or any department, agency or political subdivision
thereof).
F-3
"Regulatory Problem" means, (i) any set of facts or circumstances wherein it has
been asserted by any governmental regulatory agency (or Lender believes that
there is a significant risk of such assertion) that such Person is not entitled
to hold, or exercise any material right with respect to, all or any portion of
the Securities of the Company which such Person holds or (ii) when such Person
and its Affiliates would own, control or have power (including voting rights)
over a greater quantity of Securities of the Company than is permitted under any
law or regulation or any requirement of any governmental authority applicable to
such Person or to which such Person is subject.
"Securities" means, with respect to any Person, such Person's capital stock or
any options, warrants or other Securities which are directly or indirectly
convertible into, or exercisable or exchangeable for, such Person's capital
stock (whether or not such derivative Securities are issued by the Company).
Whenever a reference herein to Securities refers to any derivative Securities,
the rights of Lender shall apply to such derivative Securities and all
underlying Securities directly or indirectly issuable upon conversion, exchange
or exercise of such derivative Securities.
"Subsidiary" means, with respect to any Person, any other Person of which the
securities having a majority of the ordinary voting power in electing the board
of directors (or other governing body), at the time as of which any
determination is being made, are owned by such first Person either directly or
through one or more of its Subsidiaries.
F-4
Please indicate your acceptance of the terms of this letter agreement by
returning a signed copy to the undersigned.
XXXXXXX XXXXXX MEZZANINE FUND, L.P.
By: Xxxxxxx Xxxxxx Capital Partners LLP,
Its General Partner
By: __________________________________
Name: Xxxxxx X Xxxxx,
Title: Managing Partner
Agreed as of the date first
set forth above.
Xxxxxxx Educational Systems, Inc.
By: ________________________________
Name:
Title:
F-5
FORM OF SENIOR SUBORDINATED SECURED NOTE
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, AND CANNOT BE TRANSFERRED EXCEPT PURSUANT
TO REGISTRATION OR AN EXEMPTION THEREFROM.
THIS NOTE IS SUBJECT TO AN INTERCREDITOR AGREEMENT, DATED AS OF
MARCH 24, 1998, AMONG XXXXXXX XXXXXX MEZZANINE
FUND, L.P. AND XXXX XXXXXXXXXX
THIS NOTE WAS ISSUED WITH ORIGINAL ISSUE DISCOUNT. THE CHIEF
FINANCIAL OFFICER OF THE ISSUER, LOCATED AT 000 XXXXX XXXXXX
XXXXX XXXXX, XXXXX 0X, XXXXXX, XXXXXXXX 00000, WILL, BEGINNING NO
LATER THAN TEN DAYS AFTER THE ISSUE DATE, PROMPTLY MAKE
AVAILABLE TO HOLDERS UPON REQUEST THE ISSUE PRICE, THE AMOUNT
OF ORIGINAL ISSUE DISCOUNT, THE ISSUE DATE, AND THE YIELD TO
MATURITY OF THIS NOTE
----------------------------
Senior Subordinated Secured Note
Due March 24, 2003
$2,900,000 March 24, 1998.
Xxxxxxx Educational Systems, Inc., a Colorado corporation (the "Company"),
for value received, hereby promises to pay to
XXXXXXX XXXXXX MEZZANINE FUND, L.P.
or registered assigns
on March 24, 2003
the principal amount of
Two Million Nine Hundred Thousand Dollars ($2,900,000)
(or such lesser amount as shall then be outstanding pursuant to this Note)
at the time and in the amounts set forth in the Note Agreement (as defined
below) and to pay interest (computed on the basis of a 360-day year of twelve
30-day months) on the principal amount from time to time remaining unpaid hereon
at the rate of 12% per annum from the date hereof until maturity, payable
quarterly on the first day of each calendar quarter (commencing July 1, 1998)
and at maturity. The Company agrees to pay interest on overdue principal and (to
the extent legally enforceable) on any overdue installment of interest, at the
rate of 18% per annum after the due date, whether by acceleration or otherwise,
until paid. Both the principal hereof and interest hereon are payable at the
principal office of Colorado National Bank, Denver, Colorado, in coin or
currency of the United States of America that at the time of payment shall be
legal tender for the payment of public and private debts.
This Note is issued or to be issued under and pursuant to the terms and
provisions of the Note and Security Agreement dated as of March 24, 1998 (the
"Note Agreement"), entered into by the Company with the Purchaser therein
referred to and is secured by the Collateral (as defined in the Note Agreement).
Reference is hereby made to the Note Agreement for a full statement of terms and
provisions thereof and for a description of the Collateral thereunder.
Principal on this Note shall be payable at the times set forth in the Note
Agreement. This Note may be declared due prior to its expressed maturity date on
the terms and in the manner provided in the Note Agreement.
This Note is not subject to prepayment or redemption at the option of the
Company prior to its expressed maturity date except on the terms and conditions
and in the amounts set forth in the Note Agreement.
The holder of this Note is registered on the books of the Company. It is
transferable only by surrender at the principal office of the Company duly
endorsed or accompanied by a written instrument of transfer duly executed by
such holder or its attorney duly authorized in writing. Payment of or on account
of principal and interest on this Note shall be made only to or upon the order
in writing of such holder.
Xxxxxxx Educational Systems, Inc.
By: /s/ Xxxx X. Xxxxxxx
------------------------------------
Its: President
-----------------------------------
THIS WARRANT AND THE SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT
HAVE NOT BEEN REGISTERED OR QUALIFIED FOR SALE UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAW
AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF
SUCH REGISTRATION OR QUALIFICATION OR AN EXEMPTION THEREFROM UNDER
SUCH ACT AND ANY SUCH LAWS THAT MAY BE APPLICABLE
AND ARE TRANSFERABLE ONLY UPON
THE CONDITIONS SPECIFIED IN THIS WARRANT.
No. WR-1 Exercise Price: $100.00
WARRANT
TO PURCHASE COMMON SHARES
OF XXXXXXX EDUCATIONAL SYSTEMS, INC.
March 24 1998
THIS WARRANT AND THE SHARES ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE NOT BEEN REGISTERED OR QUALIFIED FOR
SALE UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
ANY STATE SECURITIES LAW AND MAY NOT BE
SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR
QUALIFICATION OR AN EXEMPTION THEREFROM UNDER SUCH ACT AND ANY
SUCH LAWS THAT MAY BE APPLICABLE, AND ARE TRANSFERABLE ONLY UPON
THE CONDITIONS SPECIFIED IN THIS WARRANT.
No. WR-1 Dated March 24, 1998 EXERCISE PRICE: $100.00
WARRANT
TO PURCHASE COMMON SHARES
OF XXXXXXX EDUCATIONAL SYSTEMS, INC.
THIS IS TO CERTIFY that, for value received and subject to the provisions set
forth in this Warrant,
XXXXXXX XXXXXX MEZZANINE FUND, L.P.
or permitted assigns is entitled to purchase from Xxxxxxx Educational Systems,
Inc., a Colorado corporation (the "Company"), at any time during the Exercise
Period (as hereinafter defined), 1,268,486 Common Shares, $0.10 par value per
share, subject to adjustment as provided in this Warrant, for an aggregate price
(for all such shares of common stock, as adjusted) of $100.00 (the "Exercise
Price"), all on and subject to the terms, provisions and conditions set forth in
this Warrant.
The additional terms and conditions that follow on the next 18 pages are
incorporated in this Warrant as if fully set forth on this page. Capitalized
terms shall have the meanings specified in ss. 1 unless the context shall
otherwise require.
WITNESS the seal of the Company and the signatures of its duly authorized
officers.
Xxxxxxx Educational Systems, Inc.
ATTEST:
/s/ Xxxxxxx Xxxxxxx
------------------------------ By: /s/ Xxxx X. Xxxxxxx
Secretary ---------------------------------
Its:
SECTION 1. DEFINITIONS.
In addition to the terms defined elsewhere in this Warrant, the following
terms have the following respective meanings:
"Applicable Percentage" means the number of Underlying Shares or
Shares held by a Holder divided by the number of Fully Diluted Shares.
"Appraised Value" means the fair value of the Company determined in
accordance with the procedures set forth below. In determining Appraised Value,
no discount shall be applied to reflect the fact that the Underlying Shares or
the Shares obtained upon exercise of the Warrant would constitute a minority
interest in the Company's total capital structure, and no discount shall be
applied to reflect the fact that the Warrant or the Shares obtained upon
exercise of the Warrant may not be freely tradable due to restrictions on
transfer, lack of a public market, or otherwise. Promptly after any event
requiring the determination of Appraised Value, the Majority Holders and the
Company shall attempt to reach agreement on Appraised Value. In connection with
the determination of the fair value of the Company, the Company shall provide
the Holders and the Holders' agents with all information in the Company's
possession applicable to the determination of Appraised Value. If the Majority
Holders and the Company agree on Appraised Value, the parties shall put their
agreement in writing. If the parties cannot agree, they shall promptly appoint a
mutually acceptable qualified independent appraiser to determine Appraised
Value. If such parties shall be unable to agree on such an appraiser within 20
days of the event requiring determination of Appraised Value, Appraised Value
shall be determined by a panel of three independent appraisers, one of whom
shall be selected in good faith by the Company, another of whom shall be
selected in good faith by the Majority Holders, and the third of whom shall be
selected by such other two appraisers or, if such appraisers shall be unable to
agree upon a third appraiser within 10 days of the selection date of the second
of such two appraisers, by the American Arbitration Association; provided, that
if either party fails to select its appraiser within 10 days after the
expiration of the time period for selecting a single appraiser, then Appraised
Value shall be determined solely by the appraiser selected by the other party.
The appraiser or appraisers appointed pursuant to the foregoing procedure shall
be instructed to determine the fair value of the Company within 30 days after
the final appointment of all appraisers, and such determination shall be final
and binding upon the parties. If three appraisers shall be appointed, then (a)
if the median of the determinations of the appraisers shall equal the mean of
such determinations, then such mean shall constitute the determination of the
appraisers, and otherwise (b) the determination of the appraiser that shall
differ most from the other two appraisers shall be excluded, the remaining two
determinations shall be averaged and such average shall constitute Appraised
Value. Each party shall bear its respective fees and expenses with respect to
any appraisal procedures and one-half of the fees and expenses of the appraisers
participating in any appraisal procedure. The Company shall cause one copy of
the final determination of the appraisers to be sent directly to each Holder.
"Calculation Date" means the latest of (i) the date that this Warrant
and any Shares obtained by the Fund upon the exercise of this Warrant are
Transferred by the Fund to the Company or to an unaffiliated third party, in one
or more transactions (other than a Transfer, in a privately negotiated
transaction, to a financial institution or other institutional investor), and
(ii) the date that the Note is repaid in full.
"Company" means Xxxxxxx Educational Systems, Inc., a Colorado
corporation, and any successor to all or substantially all of the assets and
business of Xxxxxxx Educational Systems, Inc. Unless the context otherwise
indicates, "Company" shall also include all Subsidiaries.
"Determined Value" means, as of the date of any determination of
Determined Value, the higher of Appraised Value of the Company and the Company's
EBITDA Multiple.
"EBITDA" means for any period of the Company, the consolidated net
income of the Company for such period, plus consolidated interest expense,
provision for income taxes for such period, depreciation expense and
amortization expense, and minus non-recurring miscellaneous income and expenses,
all calculated in accordance with generally accepted accounting principles,
consistently applied. In connection with the determination of EBITDA, the
Company shall notify each Holder in writing of its determination of EBITDA
within 10 days of the event requiring determination of Determined Value, and at
the same time provide the Holders and the Holders' agents with all information
in the Company's possession applicable to the determination of EBITDA. If the
Majority Holders and the Company agree on EBITDA, the parties shall execute a
written agreement so stating. If the parties cannot agree, they shall promptly
appoint a mutually acceptable independent accounting firm to determine the
EBITDA. If such parties shall be unable to agree on such a firm within 20 days
of the event requiring determination of Determined Value, EBITDA shall be
determined by a panel of three independent accountants, one of whom shall be
selected in good faith by the Company, another of whom shall be selected in good
faith by the Majority Holders, and the third of whom shall be selected by such
other two accountants or, if such accountants shall be unable to agree upon a
third accountant within 10 days of the selection date of the second of such two
accountants, by the American Arbitration Association; provided, that if either
party fails to select its accountant within 10 days of the expiration of the
time period for selecting a single accountant, then EBITDA shall be determined
solely by the accountant selected by the other party. The accountant or
accountants appointed pursuant to the foregoing procedure shall be instructed to
determine EBITDA within 30 days after the final appointment of all accountants,
and such determination shall be final and binding upon the parties. If three
accountants shall be appointed, then (a) if the median of the determinations of
the accountants shall equal the mean of such determinations, then such mean
shall constitute the determination of the accountants, and otherwise (b) the
determination of the accountant that shall differ most from the other two
accountants shall be excluded, the remaining two determinations shall be
averaged and such average shall constitute EBITDA. Each party shall bear its
respective fees and expenses with respect to any accounting procedures and
one-half of the fees and expenses of the accountants participating in any
accounting procedure. The Company shall cause one copy of the final
determination of the accountants to be sent directly to each Holder.
"EBITDA Multiple" means the sum of: (a) the product of 6 times the sum
of the Company's EBITDA for the 12 full months preceding the date of
determination of EBITDA Multiple; less (b) an amount equal to the Minimum
Revolving Credit (as defined below) and any term indebtedness outstanding as of
2
the end of the 12-month period described above; plus (c) the Company's cash and
Cash Equivalents (as defined in the Note Agreement), in each case as of the end
of the 12-month period described above. For purposes of this definition,
"Minimum Revolving Credit" means the minimum amount of revolving credit
outstanding during the 12-month period described above.
"Excess Compensation" shall mean any cash, securities or other
remuneration, including cash, securities or other remuneration related to future
performance or payable subsequent to the closing of a Sale Transaction, in
excess of (a) annual compensation in the form of salary (but excluding stock
based compensation) for services rendered in an amount equal to the amounts paid
by the Company during the previous 12 full months, plus (b) consideration
received on a pro rata basis as a shareholder of the Company. To the extent such
cash, securities or other remuneration is payable subsequent to the closing of a
Sale Transaction, the amount of Excess Compensation shall be the present value
of such cash, securities or other remuneration, discounted to the time of the
closing of the Sale Transaction at the then prevailing prime rate of interest as
set forth in the "Money Rates" or similar listing in The Wall Street Journal. To
the extent such cash, securities or other remuneration payable subsequent to the
closing of the Sale Transaction is unliquidated or contingent, the amount of
such cash, securities or other remuneration, for purposes of computing Excess
Compensation, shall be equal to the maximum amount that may be payable at such
future time.
"Exempt Sales" means (a) the issuance of Shares upon the exercise of
this Warrant, (b) any issuance of Shares upon exercise of options issued to the
One Capital Corporation in effect on the date of this Agreement, provided,
however, that any such issuance will be exempt only if the issuance occurs on or
before six months after the Closing Date (as defined in the Note Agreement), and
(c) up to 100,000 shares upon exercise of options outstanding on the Closing
Date (as defined in the Note Agreement) and held by Xxxxx Ciem and Sandringham
Investments.
"Exercise Period" means the period commencing on the First Exercise
Date and terminating at 5:01 p.m., Denver time, on the Expiration Date.
"Exercise Price" is defined and set forth on the face of this Warrant.
"Expiration Date" with reference to this Warrant, means the sixth
anniversary of the payment in full (whether by prepayment or at maturity) of all
obligations of the Company pursuant to the Note.
"Fair Market Value" means the Appraised Value divided by the number of
Fully Diluted Shares.
"First Exercise Date" means the earliest of (a) the third anniversary
of the initial issuance date of this Warrant, (b) the first occurrence of a
Triggering Event (as defined in the Note Agreement), and (c) 60 days prior to
any dissolution or liquidation of the Company.
3
"Fully Diluted Shares" means the sum of (a) the total number of
outstanding Shares plus (b) the total number of Shares issuable upon exercise of
this Warrant.
"Fund" means Xxxxxxx Xxxxxx Mezzanine Fund, L.P., a Colorado limited
partnership.
"Holder" means a registered holder of this Warrant, and, if the
context so indicates, the holder of Shares.
"IRR" means the internal rate of return, computed in accordance with
accepted financial practice, recognized by the Fund in connection with the
Fund's investment in the Company pursuant to the Note Agreement and this
Warrant, taking into account any principal, prepayment penalty and interest
received by the Fund and the date of the Fund's investments in the Note and this
Warrant.
"Majority Holders" means the Holders of a majority of the Underlying
Shares and Shares issued upon exercise of this Warrant. At all times the
Majority Holders shall designate a representative, who shall, until such
designation is changed, be the Fund. Such representative shall be entitled to
act on behalf of the Majority Holders for all purposes in connection with this
Warrant and the Company shall be entitled to rely on such actions as the actions
of the Majority Holders.
"Note Agreement" means the Note and Security Agreement among the
Company and the other borrowers pursuant to such agreement and the Fund, dated
as of the date of initial issuance of this Warrant, as such agreement may be
amended from time to time.
"Note" has the meaning given to such term in the Note Agreement.
"Notice of Sale" has the meaning set forth in ss.l0.2.
"Principals" means Xxxx X. Xxxxxxx, Christian Business Advisory
Services, Inc., and any other person who beneficially owns 5% or more of the
Shares. Prior to any permitted Transfer of any Shares to any person who would,
following such Transfer, be a Principal, the Company and each of the Principals
agrees that it or he will obtain the consent of the prospective transferee to be
bound by all provisions of this Warrant applicable to a Principal.
"Registration Expenses" means all expenses incident to the Company's
performance of or compliance with ss. 11, including, without limitation, all
registration and filing fees (including fees of the Securities and Exchange
Commission and the National Association of Securities Dealers, Inc.), all fees
and expenses of complying with state securities or blue sky laws, all word
processing, duplicating and printing expenses, messenger and delivery expenses,
the fees and disbursements of counsel for the Company and of its independent
public accountants, including the expenses of any special audits or "cold
comfort" letters required by or incident to such performance and compliance, the
fees and disbursements of counsel and accountants retained by the Majority
Holders with respect to Underlying Shares being registered, premiums and other
4
costs of policies of insurance against liabilities arising out of the public
offering of such securities and any fees and disbursements of underwriters
customarily paid by issuers or sellers of securities, but excluding underwriting
discounts and commissions and transfer taxes, if any.
"Reorganization" means (a) any split, subdivision, reorganization or
reclassification of the Shares or other equity securities or interests of the
Company, (b) any merger, consolidation, combination or similar transaction
involving the Company, or (c) any transaction or series of related transactions
which result in a change of control of the Company (as the term "control" is
defined in Rule 405 the Securities Act), whether such change of control occurs
through sale of assets, securities or Shares, exchange of securities, or
otherwise.
"Right to Put" has the meaning set forth in ss.10.1.
"Sale Transaction" shall mean any transaction pursuant to which (a)
the Company would sell or dispose (in one or a series of related sales or
dispositions) all or substantially all of the assets of the Company on a
consolidated basis (other than inventory in the ordinary course of business),
including any sale or disposition of the capital stock or assets of the
subsidiaries of the Company, or (b) the Company or holders of Shares would
Transfer Shares, or the Company would engage in any merger, combination,
consolidation or similar transaction, in one or a series of related
transactions, such that the outstanding Shares immediately prior to the
transaction or transactions will, immediately after such transaction or
transactions, represent less than a majority of the outstanding equity of the
surviving company, or (c) any transaction or series of related transactions
which result in any change of control of the Company (as the term "control" is
defined in Rule 405 the Securities Act), whether such change of control occurs
through sale of assets, securities or Shares, exchange of securities, or
otherwise.
"Securities Act" means the Securities Act of 1933, as amended, or any
similar federal statute, and the rules and regulations under such act, all as
the same shall be effect at the time.
"Shares" means, collectively, (a) the Company's Common Shares, $0.10
par value per share, and (b) any other class of equity security issued by the
Company that is not limited to a fixed sum in respect to the rights of the
holders of such security to participate in the distribution of assets upon any
liquidation, dissolution or winding up of the Company.
"Transfer" means any sale, transfer, issuance, assignment, pledge or
other disposition or conveyance of Shares.
"Underlying Shares" means the Shares issuable upon exercise of this
Warrant.
"Unlocking Proposal" shall mean any bona fide proposal made to the
Company or any of its shareholders pursuant to which a Sale Transaction would
occur.
"Warrant" or "this Warrant" as used in this document means this
Warrant and any warrant issued in exchange or substitution for this Warrant.
5
SECTION 2. EXERCISE OF WARRANT AND EARN-BACK.
2.1 Exercise Procedure. Subject to the conditions set forth in this
Warrant, this Warrant may be exercised in whole or in part during the Exercise
Period, but in no event subsequent to the end of the Exercise Period, by the
surrender of this Warrant (with the subscription form attached to this Warrant
duly completed and executed) at the principal office of the Company at 000 Xxxxx
Xxxxxx Xxxxx Xxxxx, Xxxxx 0X, Xxxxxx, Xxxxxxxx 00000, and upon payment of the
applicable Exercise Price. At the option of the exercising Holder, payment may
be made by (a) funds immediately available and/or (b) the surrender and
cancellation of all or part of the Note accompanied by a written statement
designating the unpaid principal amount of the Note to be applied to the payment
of the Exercise Price. If the Note is tendered in payment of the Exercise Price
and the unpaid principal amount of such Note exceeds the Exercise Price, the
Company shall (without charge to the Holder) immediately issue and deliver to
the exercising Holder a new Note, in exchange for the Note so tendered, at a
principal amount equal to such excess and issued in the name of such Holder or
its designated nominee or registered assignee.
The right granted by this Warrant to acquire Shares shall expire at
5:00 p.m., Denver time, on the Expiration Date, and such right shall be wholly
null and void to the extent this Warrant is not exercised before that time. The
Company shall pay all reasonable expenses, taxes and other charges payable in
connection with the preparation, execution and delivery of any certificates or
other documents evidencing the Shares under this ss.2, regardless of the name or
names in which such documents shall be registered.
2.2 Earn-Back. On the Calculation Date, the number of Underlying
Shares held by the Fund (and, if this Warrant has been exercised in whole or in
part by the Fund, the number of Shares obtained by the Fund upon exercise of
this Warrant) shall be reduced by a number of Shares (the "Earn-Back Shares")
determined on the basis of the Fund's IRR, as set forth below.
At or prior to the Calculation Date, the Company shall notify the Fund
of the Company's calculation of the number of Earn-Back Shares, and the Fund
shall provide the Company with any information reasonably requested by the
Company in connection with such calculation. If the Fund disagrees with the
Company's calculation of the number of Earn-Back Shares, the Fund shall so
notify the Company in writing within 10 days of receiving the Company's
calculation, and, if the Fund and the Company do not agree on such calculation,
then the Fund and the Company shall promptly appoint a mutually acceptable
qualified independent accountant to determine the number of Earn-Back Shares. If
such parties shall be unable to agree on such an accountant within 20 days of
the receipt by the Fund of the Company's calculation, the number of Earn-Back
Shares shall be determined by a panel of three independent accountants, one of
whom shall be selected in good faith by the Company, another of whom shall be
selected in good faith by the Fund, and the third of whom shall be selected by
such other two accountants or, if such accountants shall be unable to agree upon
a third accountant within 10 days of the selection date of the second of such
two accountant, by the American Arbitration Association; provided, that if
either party fails to select its accountant within 10 days after the expiration
of the time period for selecting a single accountant, then the number of
6
Earn-Back Shares shall be determined solely by the accountant selected by the
other party. The accountant or accountants appointed pursuant to the foregoing
procedure shall be instructed to determine the number of Earn-Back Shares within
30 days after the final appointment of all accountants, and such determination
shall be final and binding upon the parties. If three accountants shall be
appointed, then (a) if the median of the determinations of the accountants is an
amount that is equal the mean of such determinations, then such mean shall
constitute the determination of the accountants, and otherwise (b) the
determination of the accountant that shall differ most from the other two
accountants shall be excluded, the remaining two determinations shall be
averaged and such average shall constitute the number of Earn-Back Shares. Each
party shall bear its respective fees and expenses with respect to any accounting
review and one-half of the fees and expenses of the accountants participating in
any review. The Company shall cause one copy of the final determination of the
accountants to be sent directly to the Fund.
Following final determination of the number of Earn-Back Shares, the
number of Underlying Shares held by the Fund shall be reduced by a number equal
to the number of Earn-Back Shares. To the extent the number of Earn-Back Shares
exceeds the Fund's number of Underlying Shares ("Shortfall Shares"), then the
Fund shall be obligated, within 30 days following the final determination of the
Earn-Back Shares, to return to the Company, for cancellation, a number of Shares
equal to the number of Shortfall Shares. If the Fund no longer holds a number of
Shares equal to the Shortfall Shares, the Fund shall pay to the Company an
amount of cash equal to the amount received by the Fund upon disposition of such
Shortfall Shares, based on the average per Share proceeds received by the Fund
upon disposition of this Warrant and any Shares obtained upon exercise of this
Warrant.
The provisions of this ss.2.2 shall terminate following the
Calculation Date and the Fund's return of the Shortfall Shares or payment to the
Company as set forth above.
For purposes of this ss.2.2, the number of Earn-Back Shares shall be
determined based upon the Fund's IRR (after taking into account the effect of
this ss.2.2), as follows (and such numbers shall be appropriately adjusted to
reflect any adjustment in the number of Underlying Shares or the Shares obtained
upon exercise of the Warrant in connection with any Reorganization, stock split,
stock dividend or similar transaction):
IRR Earn-Back Shares
less than 30% -0-
30% - less than 32% 72,985.80
32% - less than 34% 71,160.76
34% - less than 36% 69,403.70
36% - less than 38% 67,710.93
40% or more 66,079.34
SECTION 3. RESERVATION.
At all times during the Exercise Period, the Company will reserve and
keep available the maximum number of authorized but unissued Shares, solely for
the purpose of issue upon the exercise of this Warrant, as may at any time be
issuable upon the exercise of this Warrant.
7
SECTION 4. REORGANIZATIONS.
As a condition to any Reorganization, lawful and adequate provision
shall be made so that immediately after such Reorganization, each Holder shall
have the right to receive, in lieu of each Underlying Share deemed to be held by
such Holder immediately prior to such Reorganization, such Shares, other
securities or assets as may (by virtue of such Reorganization) be issued or
payable with respect to or in exchange for a Share in connection with such
Reorganization. In any such case appropriate provisions shall be made with
respect to the rights and interests of each Holder to the end that the
provisions of this Warrant shall thereafter be applicable, as nearly as may be,
in relation to any Shares, other securities or assets obtainable upon exercise
of this Warrant after such Reorganization. The Company shall not effect any such
Reorganization unless prior to or simultaneously with the consummation of such
Reorganization, the Company or any successor entity (if other than the Company)
resulting from such transaction shall assume by written instrument executed and
mailed or delivered to each Holder, the obligation to deliver to such Holder
such Shares, other securities or assets as, in accordance with the foregoing
provisions, such Holder may be entitled to receive. Notice of any proposed
Reorganization shall be given by the Company to each Holder as promptly as
possible after such Reorganization appears likely. The Company shall also notify
each Holder promptly and in any event within 7 days of any adjustment required
to be made pursuant to this ss.4. Following any Reorganization in which assets
or securities other than Shares are obtainable upon exercise of this Warrant,
the term "Underlying Shares" shall be deemed to include such other securities
and assets.
SECTION 5. DISSOLUTION OR LIQUIDATION; DIVIDENDS AND DISTRIBUTIONS.
Upon any proposed distribution of the assets of the Company in
dissolution or liquidation, the Company shall mail notice of such distribution
to each Holder and shall make no distribution to its shareholders until the
expiration of 60 days from the date of mailing of such notice. Upon receipt of
such notice, each Holder may (a) exercise this Warrant at any time prior to the
expiration of such 60 day period and thereafter receive any distributions made
to shareholders of the Company in connection with such dissolution or
liquidation, or (b) exercise its rights under ss.10.1 of this Warrant, in which
case no dissolution or liquidation of the Company may be commenced until such
Holder has been paid in full all amounts owed pursuant to ss. 10 of this
Warrant.
Prior to the First Exercise Date, the Company shall not make or
declare any dividend or distribution on its Shares, other than in connection
with a dissolution or liquidation described above or in connection with
Reorganizations covered by ss.4. Following the First Exercise Date, the Company
shall mail notice of any dividend or distribution (other than dividend or
distributions in connection with a dissolution or liquidation described above or
in connection with Reorganizations covered by ss.4) to each Holder at least 30
days prior to the record date for such dividend or distribution or, if no record
date is set, at least 30 days prior to the payment date of such dividend or
distribution.
8
SECTION 6. SALE OF SHARES BELOW FAIR MARKET VALUE.
If the Company at any time issues or Transfers any Share (a) to the
Sellers (as defined in the Note Agreement) in connection with the Stock Purchase
Agreement (as defined in the Note Agreement), or (b) at a price per Share less
than Fair Market Value (or issues any warrant, option or other security
permitting the holder of such warrant, option or security to acquire any Share
at a price per Share less than Fair Market Value), then in each case
simultaneously with the consummation of any such Transfer, the number of
Underlying Shares shall be automatically increased such that the aggregate
Applicable Percentage of all Holders immediately prior to such Transfer is equal
to the aggregate Applicable Percentage of all Holders immediately after such
Transfer. The Company shall notify each Holder promptly and in any event within
7 days of any adjustment required to be made pursuant to this ss.6. The
provisions of this ss.6 shall not apply to Exempt Sales. For purposes of
determining Fair Market Value for this ss.6, Appraised Value shall be determined
by the Majority Holders and the Company as of the date of any such Transfer.
SECTION 7. FULLY PAID SHARES; TAXES; FRACTIONAL SHARES.
The Company covenants and agrees that the Shares to be delivered on
the exercise of this Warrant will, at the time of such delivery, be validly
issued and outstanding and be fully paid and nonassessable. The Company further
covenants and agrees that it will pay when due and payable any and all federal
and state issuance or transfer taxes that may be payable in respect of this
Warrant or any Shares or certificates issued upon the exercise of this Warrant.
The Company shall not, however, be required to pay any tax which may be payable
in respect of any Transfer involving a Transfer of Shares in the name other than
that of a Holder, and any such tax shall be paid by the Holder requiring such
Transfer. Fractional Shares shall be issued upon the exercise of this Warrant in
any case in which the Underlying Shares are not a whole number.
SECTION 8. VOTING RIGHTS.
At any time prior to the exercise in full of this Warrant, the Company
will give Purchaser prior notice of any matter submitted to the shareholders of
the Company (whether such matter is submitted to a vote, written consent or
other approval) (a "Shareholder Matter"). The notice provided pursuant to this
Section 8 will be at the same time and in the same manner as the notice provided
to shareholders of the Company. At least two days prior to the date fixed for
shareholder vote, consent, or other approval, Purchaser may inform the
Principals in writing of how Purchaser would elect to vote, whether Purchaser
would grant consent or approval, or how Purchaser would elect to act on the
Shareholder Matter. If the Shareholder Matter would be approved or rejected by a
percentage that is less than the Applicable Percentage, then the Principals
agree not to consent or vote any Shares in a manner that would be inconsistent
with Purchaser's position.
9
SECTION 9. RESTRICTIONS ON TRANSFERABILITY OF WARRANTS AND SHARES;
COMPLIANCE WITH LAWS.
9.1. In General. Neither this Warrant nor any Shares obtained upon
exercise of this Warrant shall be Transferred except upon the conditions
specified in this Warrant, which conditions are intended to insure compliance
with the provisions of the Securities Act (or any similar federal statute at the
time in effect) and any applicable state securities laws in respect of any such
Transfer.
9.2. Restrictive Legend. The Warrant and any Shares obtained upon
exercise of this Warrant shall be represented by certificates, and, unless
otherwise permitted by the provisions of thisss.9.2, shall be marked with a
legend reading substantially as follows:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS
AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR
AN EXEMPTION THEREFROM UNDER SUCH ACT AND ANY SUCH LAWS THAT MAY BE
APPLICABLE AND ARE TRANSFERABLE ONLY UPON THE CONDITIONS SPECIFIED IN THE
WARRANT PURSUANT TO WHICH SUCH SECURITIES WERE ISSUED.
If a registration statement covering this Warrant or any Shares
obtained upon exercise of this Warrant shall become effective under the
Securities Act and under any applicable state securities laws, or if the Company
shall receive an opinion of counsel reasonably satisfactory to the Company
(which shall include counsel to the Company and counsel to the original Holder
of this Warrant) that, in the opinion of such counsel, such legend is not
required (including, without limitation, because of the availability of an
exemption afforded by Rule 144 under the Securities Act), the Company shall, or
shall instruct its transfer agents and registrars to, remove such legend or
issue new Warrants or certificates without such legend. Upon the reasonable
written request of a Holder, the Company shall forthwith request counsel to
render an opinion with respect to the matters covered in this paragraph, and the
Company shall pay all expenses in connection with such matters.
SECTION 10. SALE OF WARRANT TO COMPANY.
10.1. Right to Put. At any time following the earlier of (i) the first
occurrence of a Triggering Event (as defined in the Note Agreement) or (ii) the
fifth anniversary of the initial issuance of this Warrant, each Holder shall
have the right to require the Company to purchase all of its Warrant and any
Shares obtained upon exercise of this Warrant for cash (the "Right to Put"), and
the Company agrees to make such purchase. The purchase price shall be equal to
Determined Value times the Applicable Percentage.
10.2 Closing of the Right to Put. Each Holder may exercise the Right
to Put by delivering notice of exercise (the "Notice of Sale") to the Company.
Determined Value and EBITDA Multiple in connection with the Right to Put shall
be determined as set forth in ss. 1 by such Holder and the Company as of the
10
date of the Notice of Sale. Following the determination of Determined Value and
EBITDA Multiple as set forth in ss. 1, such Holder shall select a settlement
date by notice in writing to the Company, which shall be not less than 120 days
after such determination. On such settlement date, upon surrender of this
Warrant (and any certificates evidencing Shares) by the Holder at the principal
place of business of the Company, or, at the option of the Holder, upon delivery
of this Warrant and such certificates to an escrow agent reasonably acceptable
to the Holder and the Company, the Company shall pay the purchase price to the
Holder in immediately available funds by the method specified in the Notice of
Sale.
10.3. Unlocking Proposal. If the Company or any of its shareholders
receive an Unlocking Proposal, the Company shall promptly give notice of such
proposal to each Holder, including in such notice the terms and conditions of
such proposal and any other information material to an evaluation of such
proposal. If the Company or any of its shareholders receive any Unlocking
Proposal on or after the fifth anniversary of the initial issuance of this
Warrant (provided that at least 40% of the consideration offered in such
Unlocking Proposal consists of cash or marketable securities), and, within 30
days after receipt of the Company's notice of such proposal, any Holder notifies
the Company that such Holder desires to accept the Unlocking Proposal, then
either (a) the Company (or, as appropriate, the shareholders) shall accept the
Unlocking Proposal within 30 days of receipt of such Holder's notice and shall
use good faith and commercially reasonable efforts to consummate the
transactions described in the Unlocking Proposal, or (b) if the Company fails to
accept the Unlocking Proposal within such 30-day period, then each Holder shall
have the right, exercisable by written notice to the Company within 30 days
after expiration of the first 30-day period, to require the Company to purchase
all of its Warrant and any Shares obtained upon exercise of its Warrant for cash
(the "Unlocking Put") and to require the Company to prepay the Note, and the
Company agrees to make such purchase and prepayment. The purchase price in the
Unlocking Put shall be the value of this Warrant and/or such Shares based upon
the fair market value (on a present value basis, using a discount rate equal to
the prime rate as set forth in the "Money Rates" column or similar listing in
The Wall Street Journal) of the consideration that would have been paid to such
Holder if the Unlocking Proposal had been accepted. The Holder shall select a
settlement date and set forth such date in its notice to the Company, which date
shall be not earlier than 120 after the date of such notice. On such settlement
date, upon surrender of this Warrant (and any certificates evidencing Shares) by
the Holder at the principal place of business of the Company as described in
ss.2, or, at the option of the Holder, upon delivery of this Warrant and such
certificates to an escrow agent reasonably acceptable to the Holder and the
Company, the Company shall pay the purchase price to the Holder in immediately
available funds by the method specified in the Holder's notice.
10.4. Default by the Company. If for any reason the Company shall
default on, or be otherwise unable to meet, its obligations under this ss. 10,
at any Holder's option, the Company shall promptly either (a) issue to such
Holder the Company's one year promissory note in the principal amount equal to
any unpaid amounts, bearing interest at a rate of 14%, compounded per annum,
with the Company required to use any available cash to pay any accrued interest
and unpaid principal on such note, or (b) return this Warrant and any
11
certificates evidencing Shares to such Holder, and thereafter the Holders shall
have the right to two demand registrations covering this Warrant and any Shares
held by the Holders, as more fully provided in ss. 11 below. Such rights shall
be in addition to all other rights and remedies available to the Holders upon a
breach by the Company of its obligations under this ss. 10.
SECTION 11. REGISTRATION RIGHTS.
11.1. Demand Registration Rights. The Holders shall have the right to
demand two registrations covering the Warrant and the Underlying Shares and
Shares held by the Holders. In connection with any such demand registration that
is an underwritten registration, the Majority Holders shall select an
independent underwriter. Upon the request of the Majority Holders requesting
that the Company effect registration of all or a part of such securities under
applicable federal and state securities law, the Company shall, subject to the
conditions of ss. 11.2 below, promptly endeavor in good faith to effect such
registration. The Company will not include any other securities in such
registration without the written consent of the Majority Holders requesting
registration.
The Company's actions shall include notification to or approval of any
governmental authority under any federal or state law, or listing with any
securities exchange or national securities market for the public trading of
securities, which may be reasonably required to permit the proposed sale of
securities that the Holders propose to make promptly upon the effectiveness of
such registration, and the Company shall keep effective such registration for
such period, not to exceed nine months, as may be necessary to effect such sale
and shall, if necessary, amend the registration statement and supplement the
prospectus during such period.
11.2. Delay of Demand Registration. The Company may delay any
registration required pursuant to ss. 11.1 for a period not exceeding 45 days,
provided the Company shall in good faith determine that any such registration
would adversely affect an offering or contemplated offering of other securities
by the Company or would otherwise be materially detrimental to the Company or
its shareholders.
11.3. Piggyback Registration. If at any time and from time to time the
Company proposes to register any of its Shares or other securities under the
Securities Act (other than pursuant to ss. 11.1) in connection with an
underwritten public offering of such Shares or other securities, the Company
shall promptly give notice to the Holders of its intention to do so. Upon the
request of a Holder, given within 10 days after receipt of any such notice from
the Company, the Company shall in each instance use its best efforts to cause
such Holder's Warrants, Underlying Shares or Shares to be registered under the
Securities Act and registered or qualified under any state securities law;
provided, however, that the obligation to give such notice and to use such best
efforts shall not apply to any registration (a) on Form S-8 (or any successor
form), (b) in connection with dividend reinvestment plans, or (c) for the
purpose of offering registered securities to another business entity or the
shareholders of such entity in connection with the acquisition of assets or
capital stock of such entity or in connection with a merger, consolidation,
combination or similar transaction with such entity. In connection with any
underwritten offering of securities on behalf of the Company or any holders of
the Company's securities, the Company shall not be required to include any
Underlying Shares or Shares held by a Holder unless such Holder agrees to
reasonable and customary terms of the underwriting, and the Company will include
in such registration (a) first, securities offered to be sold by the Company and
12
by any holder of demand registration rights exercising such rights, (b) second,
the Warrants, Underlying Shares and Shares held by any Holder requesting
piggyback registration rights or by Xxxx X. Xxxxxxx pursuant to the Warrant
dated March 24, 1998 (in such quantity as will not, in the written opinion of
the underwriters, jeopardize the success of the offering), and (c) third, any
other securities requested to be included in such registration (in such quantity
as will not, in the written opinion of the underwriters, jeopardize the success
of the offering). With respect to any securities included in a registration
pursuant to clause (b) of the preceding sentence, the Holders requesting
piggyback registration rights, on the one hand, and Xxxx X. Xxxxxxx, on the
other hand, shall be entitled to register an equal number of securities;
provided, however, that any limitation placed on the number of securities that
may be registered by Xxxx X. Xxxxxxx (because of his status as an insider, or
otherwise) shall not adversely affect Holders. The Company will not grant any
registration rights which conflict with the Holders' rights pursuant to this ss.
11.
11.4. Expenses. The Company shall pay all Registration Expenses in
connection with all registrations (which, for purposes of thisss.11.4
andss.11.5, shall include any qualifications, notifications and exemptions)
underss.ss.11.1 and 11.3.
11.5. Indemnification. In connection with any registration
underss.11.1 orss.11.3, the Company shall indemnify each Holder and each
underwriter, including each person, if any, who controls such Holder within the
meaning ofss.15 of the Securities Act, against all losses, claims, damages and
liabilities caused by any untrue, or alleged untrue, statement of a material
fact contained in any registration statement or prospectus or notification or
offering circular (and as amended or supplemented if the Company shall have
furnished any amendments or supplements) or any preliminary prospectus or caused
by any omission, or alleged omission, to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
except insofar as such losses, claims, damages or liabilities are caused by any
untrue statement or alleged untrue statement or omissions based upon information
furnished in writing to the Company by the Holders or, as the case may be, any
such underwriter expressly for use in such registration statement or prospectus,
and the Company and each officer, director and controlling person of the Company
shall be indemnified by each Holder for all such losses, claims, damages and
liabilities caused by any untrue, or alleged untrue, statement or omission, or
alleged omission, based upon information furnished in writing to the Company by
such Holder for any such use.
Promptly upon receipt by an indemnified party of notice of the
commencement of any action against such indemnified party in respect of which
indemnity or reimbursement may be sought against any indemnifying party under
this Warrant, the indemnified party shall notify the indemnifying party in
writing of the commencement of such action, but the failure so to notify the
indemnifying party shall not relieve it of any liability which it may have to
any indemnified party otherwise than under this ss. 11.5. In case notice of
commencement of any such action shall be given to the indemnifying party as
above provided, the indemnifying party shall be entitled to participate in and,
to the extent it may wish, jointly with any other indemnifying party similarly
notified, to assume the defense of such action at its own expense, with counsel
chosen by it and satisfactory to such indemnified party. The indemnified party
13
shall have the right to employ separate counsel in any such action and
participate in the defense of such action, but the fees and expenses of such
counsel (other than reasonable costs of investigation) shall be paid by the
indemnified party unless the indemnifying party either agrees to pay the same or
fails to assume the defense of such action with counsel satisfactory to the
indemnified party. No indemnifying party shall be liable for any settlement
entered into without its consent which consent shall not be unreasonably
withheld.
11.6. Conditional Exercise. If a Holder notifies the Company that such
Holder wishes to condition any exercise of all or part of the Warrant upon
consummation of a public offering (such that only Shares and not the Warrant
will be sold in such public offering), then the Company shall, if such public
offering is consummated, deem such exercise to have been consummated immediately
prior to such public offering (provided the applicable Exercise Price is paid in
full), and, if such public offering is not consummated, return such Warrant and
any Exercise Price paid to such Holder unless otherwise instructed by such
Holder.
SECTION 12. TAG-ALONG AND SALE ARRANGEMENTS.
12.1. Tag-Along Rights. Each Holder shall have the right to have a pro
rata portion of its Underlying Shares and any Shares obtained upon exercise of
this Warrant included in any Transfer by the Principals or their personal
representatives, heirs and assigns unless such Transfer shall be (a) of 5% or
less of the outstanding Shares, (b) between the Principals, (c) to the Company,
as long as it does not create an Event of Default under the Note Agreement, or
(d) to any family member of a Principal or a related entity, in each case
approved in advance by the Majority Holders, which approval shall not be
unreasonably withheld. Such pro rata portion shall be equal to total number of
Shares to be sold in the proposed Transfer, multiplied by a fraction equal to
the number of Underlying Shares or Shares held by the Holder divided by the
number of Underlying Shares or Shares held by the Holder plus the number of
Shares held by the Principal and other shareholders selling in the proposed
Transfer. If a Holder notifies the Company that such Holder wishes to condition
any exercise of all or part of the Warrant upon consummation of any such
Transfer (such that only Shares and not the Warrant will be sold in such
Transfer), then the Company shall, if such Transfer is consummated, deem such
exercise to have been consummated immediately prior to such Transfer (provided
the applicable Exercise Price is paid in full), and, if such Transfer is not
consummated, return such Warrant and any Exercise Price paid to such Holder
unless otherwise instructed by such Holder.
12.2. Tag-Along Notices. Promptly after becoming aware of any proposed
Transfer under ss. 12.1, the Company and the Principals shall give notice of
such transaction to each Holder, specifying the terms of the transaction,
including the date on which it is expected to occur, the number of Underlying
Shares and Shares which may be sold by such Holder, and stating any other
material information concerning such Transfer. Each Holder shall have 20 days
after the receipt of such notice (and any supplemental notice indicating any
material changes in the terms of the originally proposed transfer) in which to
respond as to whether or not it elects to be included in the proposed Transfer
on the terms set forth in the notice. If a Holder elects to be included, the
Company and the Principals shall each use its best efforts to include such
Holder's securities upon the same terms as those applicable to the proposed
Transfer.
14
12.3. Personal Gain on Sale Transaction. Neither the Company nor the
Principals shall enter into any Sale Transaction if the Company's executives,
officers or directors will receive any Excess Compensation in connection with
such Sale Transaction unless, in connection with and as a condition to such Sale
Transaction, proper provision is made such each Holder is paid, in such Sale
Transaction, an amount equal to the amount of such Excess Consideration times
such Holder's Applicable Percentage.
12.4. Termination. The provisions of thisss.12 shall terminate on the
tenth anniversary of the initial issuance of the Warrant.
SECTION 13. BOARD RIGHTS.
13.1. Notices and Right to Attend. The Fund shall receive all notices
of and shall have the right to attend (by any of the Fund's authorized
representatives) at Company's expense all meetings of (i) the board of directors
of the Company, (ii) the board of directors of any subsidiary of the Company,
and (iii) any committees of either board (collectively, the "Board"), provided
that no more than two such representatives shall attend such meetings without
the consent of the Company. The Company agrees that meetings of the Board shall
take place at least quarterly. The Fund shall be entitled to receive copies of
all minutes of such meetings along with copies of any information or other items
distributed to the members of the Board prior to or at such meeting, whether or
not the Fund's representative attends such meeting.
13.2. Right to Board Seat. In addition to representatives as described
in ss. 13.1, the Fund shall have the right to name a representative who shall
maintain a seat on the Board, and be entitled to all benefits generally
available to members of the Board. The Principals hereby agree to vote all
Shares so as to elect any representative of the Fund selected by the Fund as a
director pursuant to this ss. 13.2. In addition to the director selected by the
Fund pursuant to this Section 13.2, the Board shall consist of not more than
three members nominated by Xxxx X. Xxxxxxx. The Company and the Principals will
use best efforts to identify and elect to the Board (a) as soon as practicable,
but in any event within six months after the Closing Date (as defined in the
Note Agreement), one member of the Board who shall be an outside director and
shall be an "independent director" as defined by the rules of the National
Association of Securities Dealers, Inc. ("Independent Director"), and (b) as
soon as practicable, but in any event within twelve months after the Closing
Date (as defined in the Note Agreement) a second member of the Board who shall
be an outside director and shall be an Independent Director.
13.3. Termination. The provisions of this ss. 13 shall terminate on
the tenth anniversary of the initial issuance of the Warrant.
SECTION 14. PURCHASE RIGHTS.
Subject to any consent required pursuant to ss. 15 of this Warrant, if
the Company authorizes the issuance or sale of any Shares or other securities
issued by the Company (including any securities containing options or rights to
acquire any Shares) ("Offered Securities"), the Company shall first offer to
sell to each Holder a portion of the Offered Securities equal to the Applicable
15
Percentage held by such Holder. Each Holder shall be entitled to purchase such
Offered Securities at the most favorable price and on the most favorable terms
as such Offered Securities are to be offered to any other person or entity. The
provisions of this ss. 14 shall not apply to Exempt Sales.
In order to exercise its purchase rights under this ss. 14, within 30
days after receipt of written notice from the Company describing in reasonable
detail the Offered Securities, the purchase price for such Offered Securities,
the payment terms and such Holder's percentage allotment, the Holder must
deliver a written notice to the Company describing its election under this
ss.14. If all of the Offered Securities offered to the Holders are not fully
subscribed, any Offered Securities not purchased by the Holders shall be
reoffered by the Company to the Holders purchasing their full allotment upon the
terms set forth in this paragraph, except that such Holders must exercise their
purchase rights within five days after receipt of such reoffer. The closing of
the purchase and sale of the Offered Securities pursuant to the provisions of
this ss.14 shall occur at a place and on a date which are agreed to by the
Company and any participating Holder, but no more than 60 days after the date of
the election by a Holder which resulted in the sale and purchase of such Offered
Securities.
If a Holder is unable to purchase such Offered Securities for cash
because of regulatory restrictions limiting the amount of the Holder's
investment in the Company, the Company will permit such Holder to pay for such
Offered Securities, at the Holder's option, by (i) the Holder's issuance of a
five year subordinated promissory note, bearing interest at the prime rate as
set forth in the "Money Rates" column or similar listing of The Wall Street
Journal, or (ii) cancellation of an amount of accrued interest and, if
necessary, principal, of the Note, in each case equal to the amount owing on
such Offered Securities.
Upon the expiration of the offering periods described above, the
Company shall be entitled to sell such Offered Securities which the Holders have
not elected to purchase during the 60 days following such expiration on terms
and conditions no more favorable to the purchasers than those offered to such
Holders. Any Shares or other securities offered or sold by the Company after
such 60-day period must be reoffered to the Holders pursuant to the terms of
this ss.14.
The provisions of this ss. 14 shall terminate on the tenth anniversary
of the initial issuance of the Warrant.
SECTION 15. COVENANTS.
15.1. In General. The provisions of Section 6 of the Note Agreement
(including any defined terms used in such Section) are hereby incorporated into
this Warrant by this reference, and the Company agrees that it will take all
action required to be taken by such Section, and omit to take any action
prohibited by such Section.
15.2. NASDAQ Listing Requirements. From and after the Closing Date (as
defined in the Note Agreement), the Company will comply with the rules of the
National Association of Securities Dealers, Inc. with respect to
non-quantitative designation criteria for NASDAQ National Market issuers.
16
15.3. Termination. The provisions of thisss.15 shall terminate on the
tenth anniversary of the initial issuance of the Warrant.
SECTION 16. LOST, STOLEN WARRANTS, ETC.
If this Warrant or any certificates evidencing Shares shall be
mutilated, lost, stolen or destroyed, the Company shall issue a new Warrant or
certificate of like date, tenor and denomination and deliver the same in
exchange and substitution for and upon surrender and cancellation of the
mutilated Warrant or certificate, or in lieu of the Warrant or certificate lost,
stolen or destroyed, upon receipt of evidence reasonably satisfactory to the
Company (an affidavit of the Holder shall be deemed sufficient) of the loss,
theft or destruction of such Warrant or certificate.
SECTION 17. MISCELLANEOUS.
17.1. Holder Not A Shareholder. Except as otherwise specifically
provided in this Warrant, prior to the exercise of this Warrant no Holder shall
be entitled to any of the rights of a shareholder of the Company.
17.2. Notices. Any notice, demand or delivery to be made pursuant to
the provisions of this Warrant shall be in writing and (a) shall be deemed to
have been given or made one day after the date sent (i) if by the Company, by
prep aid overnight delivery addressed to each Holder at its last known address
appearing on the books of the Company maintained for such purpose or (ii) if by
a Holder, by prep aid overnight delivery, addressed to the Company at the
Company's address as set forth in ss.2; and (b) if given by courier, confirmed
telegram, or confirmed facsimile transmission shall be deemed to have been made
or given when received. Each Holder and the Company may each designate a
different address by notice to the other in the manner provided in this ss.17.2.
17.3. Successors and Assigns. This Warrant and the rights evidenced by
such Warrant shall inure to the benefit of and be binding upon the successors
and assigns of the Company and each Holder. The provisions of this Warrant are
intended to be for the benefit of the Holders of this Warrant or the Shares
obtained upon exercise of this Warrant and shall be enforceable by the Holders.
17.4. Amendments. This Warrant may not be modified, supplemented,
varied or amended except by an instrument in writing signed by the Company and
the Majority Holders.
17.5. Headings; Severability. The index and the descriptive headings
of sections of this Warrant are provided solely for convenience of reference and
shall not, for any purpose, be deemed a part of this Warrant. Should any part of
this Warrant for any reason be declared invalid, such decision shall not affect
the validity of any remaining portion, which shall remain in force and effect as
if this Warrant had been executed with the invalid portion eliminated. It is the
intention of the Company and the Holders that they would have executed and
accepted the remaining portion of this Warrant without including in such
remaining portion any such part, parts or portion which may, for any reason, be
hereafter declared invalid.
17
17.6. Governing Law. This Warrant and all matters concerning this
Warrant shall be governed by the laws of the State of Colorado for contracts
entered into and to be performed in such state without regard to principles of
conflicts of laws.
17.7. Survival of Certain Provisions. Except as otherwise provided,
the provisions of ss. 8 through ss. 17 of this Warrant shall survive the
exercise of this Warrant and shall continue in full force and effect following
such exercise until all Shares obtained upon exercise of the Warrant are no
longer restricted securities under the federal securities laws.
17.8. Specific Performance. The Company acknowledges and agrees that
the Holders would be damaged irreparably in the event any of the provisions of
this Warrant are not performed in accordance with their specific terms or
otherwise are breached. Accordingly, the Company agrees that the Holders shall
be entitled to an injunction or injunctions to prevent breaches of the
provisions of this Warrant and to enforce specifically this Warrant and the
terms and provisions of this Warrant in any action instituted in any federal or
state court in the United States having jurisdiction over the parties and the
matter, in addition to any other remedy to which the Holders may be entitled, at
law or in equity.
18
ELECTION TO PURCHASE
To Xxxxxxx Educational Systems, Inc.:
The undersigned registered holder of the Warrant attached to this election
notice irrevocably exercises the Warrant, purchases pursuant to such exercise
_________ Common Shares of the Company, makes payment of $___ for such Shares,
and requests that the certificates for such Shares be issued in the name of the
undersigned holder or its nominee and delivered to such holder at holder's
address on the books of the Company.
XXXXXXX XXXXXX MEZZANINE FUND, L.P.
By: Xxxxxxx Xxxxxx Capital Partners LLP, its General Partner
By:
--------------------------------------------------------
Managing Partner
Dated: March 24, 1998
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned registered holder of the Warrant
attached to this assignment notice, sells, assigns and transfers unto
__________________ the Warrant and all rights evidenced by such Warrant and does
irrevocably constitute and appoint____________________ attorney to transfer such
Warrant on the books of the Company.
XXXXXXX XXXXXX MEZZANINE FUND, L.P.
By: Xxxxxxx Xxxxxx Capital Partners LLP, its General Partner
By:______________________________________
Managing Partner
Dated: March 24, 1998
CONSENT OF THE PRINCIPALS
The undersigned Principal (as defined in the Warrant (the "Warrant")
dated as of March 24 1998 issued by Xxxxxxx Educational Systems, Inc. to Xxxxxxx
Xxxxxx Mezzanine Fund, L.P.) hereby agrees (i) to be bound by the provisions of
ss. ss. 8, 11, 12, 13 and 17 of the Warrant as if the undersigned were a party
to such Warrant, and (ii) to use best efforts to cause the Company to comply
with all provisions of the Warrant.
-------------------------------
Xxxx X. Xxxxxxx
-------------------------------
Christian Business Advisory Services, Inc.
By:
-------------------------------------
Its:
------------------------------------
33705
GUARANTEE
March 24, 1998
Xxxxxxx Xxxxxx Mezzanine Fund, L.P.
0000 Xxxxxxxxxxx Xxxxxx, Xxxxx 0000
Xxxxxx, Xxxxxxxx 00000
Re: Xxxxxxx Educational Systems, Inc. ("Borrower")
Gentlemen:
Xxxxxxx Xxxxxx Mezzanine Fund, L.P. ("Lender") and Borrower have entered
into certain financing arrangements pursuant to which Lender will make a loan
and provide other financial accommodations to Borrower as set forth in the Note
and Security Agreement, dated as of the date of this Guarantee, by and among
Borrower, Lender and the undersigned ("Guarantors") (as the same now exists or
may hereafter be amended, modified, supplemented, extended, renewed, restated or
replaced, the "Note Agreement"), and other agreements, documents and instruments
referred to in the Note Agreement or at any time executed and/or delivered in
connection with the Note Agreement or related to the Note Agreement, including,
but not limited to, this Guarantee (all of the foregoing, together with the Note
Agreement, as the same now exist or may hereafter be amended, modified,
supplemented, extended, renewed, restated or replaced, being collectively
referred to herein as the "Financing Documents").
Due to the close business and financial relationships between Borrower and
Guarantors, in consideration of the benefits which will accrue to Guarantors and
as an inducement for and in consideration of Lender making the loan and
providing other financial accommodations to Borrower pursuant to the Note
Agreement and the other Financing Documents, Guarantors hereby agree in favor of
Lender as follows:
A. Guarantee.
1. Guarantors absolutely and unconditionally guarantee and agree to be
liable for the full and indefeasible payment and performance when due of the
following (all of which are collectively referred to herein as the "Guaranteed
Obligations"):
(a) all obligations, liabilities and indebtedness of any kind, nature
and description of Borrower to Lender and/or its affiliates, including
principal, interest, charges, fees, costs and expenses, however evidenced,
whether as principal, surety, endorser, guarantor or otherwise, arising in
connection with the Note Agreement whether now existing or hereafter
arising, whether arising before, during or after the initial or any renewal
term of the Note Agreement or after the commencement of any case with
respect to Borrower under the United States Bankruptcy Code or any similar
statute (including, without limitation, the payment of interest and other
amounts, which would accrue and become due but for the commencement of such
case and including loans, interest, fees, charges and expenses related
thereto and all other obligations of Borrower or its successors to Lender
arising after the commencement of such case), whether direct or indirect,
absolute or contingent, joint or several, due or not due, primary or
secondary, liquidated or unliquidated, secured or unsecured, and however
acquired by Lender, and
(b) all expenses (including, without limitation, attorneys' fees and
legal expenses) incurred by Lender in connection with the preparation,
execution, delivery, recording, administration, collection, liquidation,
enforcement and defense of Borrower's obligations, liabilities and
indebtedness to Lender, the rights of Lender in any collateral or under
this Guarantee and all other Financing Documents or in any way involving
claims by or against Lender directly or indirectly arising out of or
related to the relationships between Borrower, Guarantors or any other
Obligor (as hereinafter defined) and Lender, whether such expenses are
incurred before, during or after the initial or any renewal term of the
Note Agreement and the other Financing Documents or after the commencement
of any case with respect to Borrower or Guarantors under the United States
Bankruptcy Code or any similar statute.
2. This Guarantee is a guaranty of payment and not of collection.
Guarantors agree that Lender need not attempt to collect any Guaranteed
Obligations from Borrower, Guarantors or any other Obligor or to realize upon
any collateral, but may require Guarantors to make immediate payment of all of
the Guaranteed Obligations to Lender when due, whether by maturity, acceleration
or otherwise, or at any time thereafter. Lender may apply any amounts received
in respect of the Guaranteed Obligations to any of the Guaranteed Obligations,
in whole or in part (including attorneys' fees and legal expenses incurred by
Lender with respect thereto or otherwise chargeable to Borrower or Guarantors)
and in such order as Lender may elect.
3. Payment by Guarantors shall be made to Lender at the office of Lender
from time to time on demand as Guaranteed Obligations become due. Guarantors
shall make all payments to Lender on the Guaranteed Obligations free and clear
of, and without deduction or withholding for or on account of, any setoff,
counterclaim, defense, duties, taxes, levies, imposts, fees, deductions,
withholding, restrictions or conditions of any kind. One or more successive or
concurrent actions may be brought hereon against Guarantors either in the same
action in which Borrower or any other Obligor is sued or in separate actions. In
the event any claim or action, or action on any judgment, based on this
Guarantee is brought against Guarantors, Guarantors agree not to deduct,
set-off, or seek any counterclaim for or recoup any amounts which are or may be
owed by Lender to Guarantors.
2
B. Waivers and Consents.
1. Notice of acceptance of this Guarantee, the making of a loan and advance
and providing other financial accommodations to Borrower and presentment,
demand, protest, notice of protest, notice of nonpayment or default and all
other notices to which Borrower or Guarantors are entitled are hereby waived by
Guarantors. Guarantors also waive notice of and hereby consent to, (i) any
amendment, modification, supplement, extension, renewal, or restatement of the
Note Agreement and any of the other Financing Documents, including, without
limitation, extensions of time of payment of or increase or decrease in the
amount of any of the Guaranteed Obligations or any collateral, and the guarantee
made herein shall apply to the Note Agreement and the other Financing Documents
and the Guaranteed Obligations as so amended, modified, supplemented, renewed,
restated or extended, increased or decreased, (ii) the taking, exchange,
surrender and releasing of collateral or guarantees now or at any time held by
or available to Lender for the obligations of Borrower or any other party at any
time liable on or in respect of the Guaranteed Obligations or who is the owner
of any property which is security for the Guaranteed Obligations (individually,
an "Obligor" and collectively, the "Obligors"), (iii) the exercise of, or
refraining from the exercise of any rights against Borrower or any other Obligor
or any collateral, (iv) the settlement, compromise or release of, or the waiver
of any default with respect to, any of the Guaranteed Obligations and (iv) any
financing by Lender of Borrower under Section 364 of the United States
Bankruptcy Code or consent to the use of cash collateral by Lender under Xxxxxxx
000 xx xxx Xxxxxx Xxxxxx Bankruptcy Code. Guarantors agree that the amount of
the Guaranteed Obligations shall not be diminished and the liability of
Guarantors hereunder shall not be otherwise impaired or affected by any of the
foregoing.
2. No invalidity, irregularity or unenforceability of all or any part of
the Guaranteed Obligations shall affect, impair or be a defense to this
Guarantee, nor shall any other circumstance which might otherwise constitute a
defense available to or legal or equitable discharge of Borrower in respect of
any of the Guaranteed Obligations, or Guarantors in respect of this Guarantee,
affect, impair or be a defense to this Guarantee. Without limitation of the
foregoing, the liability of Guarantors hereunder shall not be discharged or
impaired in any respect by reason of any failure by Lender to perfect or
continue perfection of any lien or security interest in any collateral or any
delay by Lender in perfecting any such lien or security interest. As to
interest, fees and expenses, whether arising before or after the commencement of
any case with respect to Borrower under the United States Bankruptcy Code or any
similar statute, Guarantors shall be liable therefor, even if Borrower'
liability for such amounts does not, or ceases to, exist by operation of law.
3
3. Guarantors hereby irrevocably and unconditionally waive and relinquish
all statutory, contractual, common law, equitable and all other claims against
Borrower, any collateral for the Guaranteed Obligations or other assets of
Borrower or any other Obligor, for subrogation, reimbursement, exoneration,
contribution, indemnification, setoff or other recourse in respect to sums paid
or payable to Lender by Guarantors hereunder, and Guarantors hereby further
irrevocably and unconditionally waive and relinquish any and all other benefits
which Guarantors might otherwise directly or indirectly receive or be entitled
to receive by reason of any amounts paid by or collected or due from Guarantors,
Borrower or any other Obligor upon the Guaranteed Obligations or realized from
their property.
C. Acceleration. Notwithstanding anything to the contrary contained herein or
any of the terms of any of the other Financing Documents, the liability of
Guarantors for the entire Guaranteed Obligations shall mature and become
immediately due and payable, even if the liability of Borrower or any other
Obligor therefor does not, upon the occurrence of any act, condition or event
which constitutes an Event of Default as such term is defined in the Note
Agreement.
D. Account Stated. The books and records of Lender showing the account between
Lender and Borrower shall be admissible in evidence in any action or proceeding
against or involving Guarantors as prima facie proof of the items therein set
forth, and any statements of Lender rendered to Borrower, to the extent to which
no written objection is made within thirty (30) days from the date of sending
thereof to Borrower, shall be deemed conclusively correct and constitute an
account stated between Lender and Borrower and be binding on Guarantors.
E. Termination. This Guarantee is continuing, absolute and unconditional. All
Guaranteed Obligations shall be conclusively presumed to have been created in
reliance on this Guarantee. This Guarantee may not be terminated and shall
continue so long as the Note Agreement shall be in effect (whether during its
original term or any renewal, substitution or extension thereof).
F. Reinstatement. If after receipt of any payment of, or proceeds of collateral
applied to the payment of, any of the Guaranteed Obligations, Lender is legally
required to surrender or return such payment or proceeds to any Person for any
reason, then the Guaranteed Obligations intended to be satisfied by such payment
or proceeds shall be reinstated and continue and this Guarantee shall continue
in full force and effect (and if otherwise terminated, this Guarantee shall be
reinstated) as if such payment or proceeds had not been received by Lender. This
Section F shall remain effective notwithstanding any contrary action that may be
taken by Lender in reliance upon such payment or proceeds. This Section F shall
survive the termination or revocation of this Guarantee.
G. Amendments and Waivers. Neither this Guarantee nor any provision hereof shall
be amended, modified, waived or discharged orally or by course of conduct, but
only by a written agreement signed by an authorized officer of Lender. Lender
shall not, by any act, delay, omission or otherwise be deemed to have expressly
or impliedly waived any of its rights, powers and/or remedies unless such waiver
shall in writing and signed by an authorized officer of Lender. Any such waiver
4
shall be enforceable only to the extent specifically set forth therein. A waiver
by Lender of any right, power and/or remedy on any one occasion shall not be
construed as a bar to or waiver of any such right, power and/or remedy which
Lender would otherwise have on any future occasion, whether similar in kind or
otherwise.
H. Power and Authority. Guarantors have the legal capacity to enter into this
Guarantee, and the execution, delivery and performance of this Guarantee is
within the power of Guarantors, has been duly executed and delivered and is not
in contravention of law, or any indenture, agreement or undertaking to which any
of the Guarantors is a party or by which Guarantors or any of Guarantors'
property are bound. This Guarantee constitutes the legal, valid and binding
obligation of Guarantors enforceable in accordance with its terms.
I. Governing Law; Choice of Forum; Service of Process; Jury Trial Waiver.
1. The validity, interpretation and enforcement of this Guarantee and any
dispute arising out of the relationship between Guarantors and Lender, whether
in contract, tort, equity or otherwise, shall be governed by the internal laws
of the State of Colorado (without giving effect to principles of conflicts of
law).
2. Guarantors hereby irrevocably consent and submit to the non-exclusive
jurisdiction of the courts of the State of Colorado located in Denver, Colorado
and the United States District Court for the District of Colorado and waive any
objection based on venue or forum non conveniens with respect to any action
instituted therein arising under this Guarantee or any of the other Financing
Documents or in any way connected with or related or incidental to the dealings
of Guarantors and Lender in respect of this Guarantee or any of the other
Financing Documents or the transactions related hereto or thereto, in each case
whether now existing or hereafter arising and whether in contract, tort, equity
or otherwise, and agree that any dispute arising out of the relationship between
Guarantors or Borrower and Lender or the conduct of any such persons in
connection with this Guarantee, the other Financing Documents or otherwise shall
be heard only in the courts described above (except that Lender shall have the
right to bring any action or proceeding against Guarantors or any of Guarantors'
property in the courts of any other jurisdiction which Lender deems necessary or
appropriate in order to realize on any collateral at any time granted by
Borrower or Guarantors to Lender or to otherwise enforce its rights against
Guarantors or any of Guarantors' property).
3. Guarantors hereby waive personal service of any and all process upon any
Guarantor and consent that all such service of process may be made by certified
mail (return receipt requested) directed to Guarantors' addresses set forth on
the signature pages hereof and service so made shall be deemed to be completed
five (5) days after the same shall have been so deposited in the U.S. mails, or,
at Lender's option, by service upon Guarantors in any other manner provided
under the rules of any such courts. Within thirty (30) days after such service,
Guarantors shall appear in answer to such process, failing which Guarantors
shall be deemed in default and judgment may be entered by Lender against
Guarantors for the amount of the claim and other relief requested.
5
4. GUARANTORS HEREBY WAIVE ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND,
ACTION OR CAUSE OF ACTION (i) ARISING UNDER THIS GUARANTEE OR ANY OF THE OTHER
FINANCING DOCUMENTS OR (ii) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL
TO THE DEALINGS OF GUARANTORS AND LENDER IN RESPECT OF THIS GUARANTEE OR ANY OF
THE OTHER FINANCING DOCUMENTS OR THE TRANSACTIONS RELATED HERETO OR THERETO, IN
EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER IN CONTRACT,
TORT, EQUITY OR OTHERWISE. GUARANTORS HEREBY AGREE AND CONSENT THAT ANY SUCH
CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY BENCH TRIAL WITHOUT
A JURY AND THAT GUARANTORS OR LENDER MAY FILE AN ORIGINAL COUNTERPART OF A COPY
OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF
GUARANTORS AND LENDER TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
5. Lender shall not have any liability to Guarantors (whether in tort,
contract, equity or otherwise) for losses suffered by Guarantors in connection
with, arising out of, or in any way related to the transactions or relationships
contemplated by this Guarantee, or any act, omission or event occurring in
connection herewith, unless it is determined by a final and non-appealable
judgment or court order binding on Lender that the losses were the result of
acts or omissions constituting gross negligence or willful misconduct. In any
such litigation, Lender shall be entitled to the benefit of the rebuttable
presumption that it acted in good faith and with the exercise of ordinary care
in the performance by it of the terms of the Note Agreement and the other
Financing Documents.
J. Notices. All notices, requests and demands hereunder shall be in writing and
(i) made to Lender at its address set forth above and to Guarantors at their
addresses set forth below, or to such other address as any party may designate
by written notice to the others in accordance with this provision, and (ii)
deemed to have been given or made: if delivered in person, immediately upon
delivery; if by facsimile transmission, immediately upon sending and upon
confirmation of receipt; if by nationally recognized overnight courier service
with instructions to deliver the next business day, one (1) business day after
sending; and if by certified mail, return receipt requested, five (5) days after
mailing.
K. Partial Invalidity. If any provision of this Guarantee is held to be invalid
or unenforceable, such invalidity or unenforceability shall not invalidate this
Guarantee as a whole, but this Guarantee shall be construed as though it did not
contain the particular provision held to be invalid or unenforceable and the
rights and obligations of the parties shall be construed and enforced only to
such extent as shall be permitted by applicable law.
6
L. Entire Agreement. This Guarantee represents the entire agreement and
understanding of the parties concerning the subject matter hereof, and
supersedes all other prior agreements, understandings, negotiations and
discussions, representations, warranties, commitments, proposals, offers and
contracts concerning the subject matter hereof, whether oral or written.
M. Successors and Assigns. This Guarantee shall be binding upon Guarantors and
their respective successors and assigns and shall inure to the benefit of Lender
and its successors, endorsees, transferees and assigns.
N. Construction. All references to the term "Guarantors" wherever used herein
shall mean Guarantors and their respective successors and assigns (including,
without limitation, any guardian, receiver, trustee or custodian for Guarantors
or any of Guarantors' assets or Guarantors in their capacity as debtor or
debtor-in-possession under the United States Bankruptcy Code). All references to
the term "Lender" wherever used herein shall mean Lender and its successors and
assigns and all references to the term "Borrower" wherever used herein shall
mean Borrower and their respective successors and assigns (including, without
limitation, any receiver, trustee or custodian for Borrower or any of their
assets or Borrower in its capacity as debtor or debtor-in-possession under the
United States Bankruptcy Code). All references to the term "Person" or "person"
wherever used herein shall mean any individual, sole proprietorship,
partnership, limited liability company, corporation (including, without
limitation, any corporation which elects subchapter S status under the Internal
Revenue Code of 1986, as amended), business trust, unincorporated association,
joint stock corporation, trust, joint venture or other entity or any government
or any agency or instrumentality or political subdivision thereof. All
references to the plural shall also mean the singular and to the singular shall
also mean the plural.
O. Expenses; Interest. Guarantors will pay to Lender the amount of all
reasonable expenses, including without limitation, the reasonable fees, expenses
and disbursements of its counsel (including allocated costs of inside counsel),
of any investment banking firm, business broker or other selling agent and of
any other experts and agents retained by Lender, which Lender may incur in
connection with (i) the administration of the Guarantee Documents, (ii) the
custody or preservation of, or the sale of, collection from, or other
realization upon, any of the Collateral (as defined in the Note Agreement),
(iii) the exercise or enforcement of any of the rights of Lender under the
Guarantee Documents or (iv) the failure of any party other than Lender to
perform or observe any of the provisions of any of the Guarantee Documents. All
amounts owing under this Section O. shall be paid upon demand. Any and all
amounts payable under or pursuant to this Agreement (whether pursuant to Section
A hereof, this Section O or otherwise) which are not paid when due shall bear
interest (which shall be payable upon demand) at a rate equal to the default
rate as set forth in the Note Agreement.
7
IN WITNESS WHEREOF, Data Processing Trainers Co. has executed and delivered
this Guarantee as of the day and year first above written.
ATTEST: DATA PROCESSING TRAINERS CO.
000-00 Xxxxx 0xx Xx.
Xxxxxxxxxxxx, XX 00000
/s/ Xxxxxxx Xxxxxxx By: /s/ Xxxx X. Xxxxxxx
------------------------------ ---------------------------------
Its: President
--------------------------------
STATE OF COLORADO )
) ss.:
COUNTY OF ARAPAHOE )
On this ___ day of March1998, before me personally came _________________,
to me known as the person who executed the foregoing instrument; and that he
signed his name thereto.
My Commission Expires: 6/30/2001 /s/ Xxxxxx X. Xxxxx
-----------------------------------
Notary Public
8
IN WITNESS WHEREOF, Denver Automotive & Diesel College, Inc. has executed
and delivered this Guarantee as of the day and year first above written.
ATTEST: DENVER AUTOMOTIVE & DIESEL COLLEGE, INC.
000 Xxxxx Xxxxx
Xxxxxx, Xxxxxxxx 00000
/s/ Xxxxxxx Xxxxxxx By: /s/ Xxxx X. Xxxxxxx
------------------------------ -------------------------------------
Its: President
------------------------------------
STATE OF COLORADO )
) ss.:
COUNTY OF ARAPAHOE )
On this ___ day of March1998, before me personally came _________________,
to me known as the person who executed the foregoing instrument; and that he
signed his name thereto.
/s/ Xxxxxx X. Xxxxx
My Commission Expires: 6/30/2001 ------------------------------------
Notary Public
33730
Xxxxxxx Xxxxxx Mezzanine Fund, L.P.
March 24, 1998
Xxxxxxx Educational Systems, Inc.
000 Xxxxx Xxxxxx Xxxxx Xxxxx
Xxxxx 0X
Xxxxxx, Xxxxxxxx 00000
Ladies and Gentlemen:
Reference is made to that certain (i) Note and Security Agreement (the
"Note Agreement"), dated as of the date hereof, by and among Xxxxxxx Educational
Systems, Inc., a Colorado corporation (the "Company") and Xxxxxxx Xxxxxx
Mezzanine Fund, L.P., a Colorado partnership ("Lender"), and (ii) Warrant (the
"Warrant" and together with the Note Agreement (the "Purchase Agreements"),
dated as of the date hereof, by and among the Company and the Lender) pursuant
to which the Lender is purchasing subordinated notes and warrants issued by the
Company. The subordinated notes and warrants issued by the Company to Lender are
sometimes collectively referred to herein as the "Securities."
Lender is a Small Business Investment Company ("SBIC") licensed by the
United States Small Business Administration ("SBA"). In order for Lender to
acquire and hold the Securities, it must obtain from the Company certain
representations and rights as set forth below. As a material inducement to
Lender to enter into the Purchase Agreements and to purchase the Securities, the
Company hereby makes the following representations and warranties and agrees to
comply with the following covenants:
1. Small Business Matters.
(a) The Company, together with its "affiliates" (as that term is defined in
Title 13, Code of Federal Regulations, (0)121.103), is a "small business
concern" within the meaning of the Small Business Investment Act of 1958, as
amended ("SBIA"), and the regulations thereunder, including Title 13, Code of
Federal Regulations, (0)121.301(c). The information set forth in the Small
Business Administration Forms 480, 652 and Part A of Form 1031 regarding the
Company and its affiliates, when delivered to Lender, will be accurate and
complete and will be in form and substance acceptable to Lender. Copies of such
forms shall be completed and executed by the Company and delivered to Lender at
the closing of the sale of the Securities under the Purchase Agreements (the
"Closing").
(b) The proceeds from the sale of the Securities will be used by the
Company (1) for the purposes described in Section 17 of Exhibit D of the Note
Agreement, and (2) pay expenses related to the transactions contemplated by the
Purchase Agreements. No portion of such proceeds (i) will be used to provide
capital to a corporation licensed under the SBIA, (ii) will be used to acquire
farm land, (iii) will be used to fund production of a single item or defined
limited number of items, generally over a defined production period, and such
production will constitute the majority of the activities of the Company and its
Subsidiaries (examples include motion pictures and electric generating plants),
or (iv) will be used for any purpose contrary to the public interest (including,
but not limited to, activities which are in violation of law) or inconsistent
with free competitive enterprise, in each case, within the meaning of 13 C.F.R.
(0) 107.720.
(c) Neither the Company's nor any of its Subsidiaries' primary business
activity involves, directly or indirectly, providing funds to others, the
purchase or discounting of debt obligations, factoring or longoterm leasing of
equipment with no provision for maintenance or repair, and neither the Company
nor any of its Subsidiaries is classified under Major Group 65 (Real Estate) of
the SIC Manual. The assets of the business of the Company and its Subsidiaries
(the "Business") will not be reduced or consumed, generally without replacement,
as the life of the Business progresses, and the nature of the Business does not
require that a stream of cash payments be made to the Business's Financing
sources, on a basis associated with the continuing sale of assets (examples of
such businesses would include real estate development projects and oil and gas
xxxxx). (See 13 C.F.R. (0) 107.720)
(d) The proceeds from the sale of the Securities will not be used
substantially for a foreign operation; and at Closing or within one year
thereafter, no more than 49 percent of the employees or tangible assets of the
Company and its Subsidiaries will be located outside the United States (unless
the Company can show, to SBA's satisfaction, that the proceeds from the sale of
the Securities will be used for a specific domestic purpose). This subsection
(d) does not prohibit such proceeds from being used to acquire foreign materials
and equipment or foreign property rights for use or sale in the United States.
2. Regulatory Compliance Cooperation.
(a) In the event that Lender determines that it has a Regulatory Problem,
the Company agrees to take all such actions as are reasonably requested by
Lender in order to (i) permit Lender to convert its voting Securities into
nonovoting Securities which are convertible back into such voting Securities
upon such conditions as Lender specifies or (ii) effectuate and facilitate any
transfer by Lender of any Securities of the Company than held by Lender to any
Person designated by Lender.
(b) In the event that any Subsidiary of the Company offers to sell any of
its Securities to Lender, then the Company will cause such Subsidiary to enter
into agreements with Lender substantially similar to this Section 2.
2
(c) Promptly after the end of each fiscal year (but in any event prior to
February 28 of each year), the Company shall provide to Lender a written
assessment, in form and substance reasonably satisfactory to Lender, of the
economic impact of Lender's financing hereunder, specifying the fullotime
equivalent jobs created or retained, the impact of the financing on the
consolidated revenues and profits of the Business and on taxes paid by the
Business and its employees (See 13 C.F.R. (0) 107.630(e)).
(d) For a period of one year following the date hereof, neither the Company
nor any of its Subsidiaries will change its business activity if such change
would render the Company ineligible to receive financial assistance from an SBIC
under the SBIA and the regulations thereunder (within the meanings of 13 C.F.R.
(0)(0) 107.720 and 107.760(b)).
(e) The Company will at all times comply with the nonodiscrimination
requirements of 13 C.F.R., Parts 112, 113 and 117.
(f) The Company will notify Lender whenever the number of record holders of
the Company's voting securities increases to 50 or more or falls below 50 (see,
13 C.F.R. (0) 107.785).
3. Remedies.
The Company understands that its violation of this letter agreement may
result in Lender being required by the SBA to sell Securities, and such sale may
be at depressed prices due to the circumstances and timing of the sale.
Therefore, in addition to all other remedies available to Lender for the
Company's violation of this letter agreement, the Company agrees that Lender
shall be entitled to seek specific enforcement or other equitable relief to
prevent a violation by the Company of this letter agreement, and the Company
waives any requirement that Lender post any bond as a condition to seeking or
obtaining equitable relief.
4. Definitions.
"Affiliate" means, with respect to any Person, (i) a director, officer or
stockholder of such Person, (ii) a spouse, parent, sibling or descendant of such
Person (or spouse, parent, sibling or descendant of any director or executive
officer of such Person), and (iii) any other Person that, directly or indirectly
through one or more intermediaries, Controls, or is Controlled by, or is under
common Control with, such Person.
"Control" means, with respect to any Person, the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of a Person, whether through the ownership of voting securities, by
contract or otherwise.
"Person" shall be construed broadly and shall include an individual, a
partnership, a corporation, a limited liability company, an association, a joint
stock company, a trust, a joint venture, an unincorporated organization or a
governmental entity (or any department, agency or political subdivision
thereof).
3
"Regulatory Problem" means, (i) any set of facts or circumstances wherein it has
been asserted by any governmental regulatory agency (or Lender believes that
there is a significant risk of such assertion) that such Person is not entitled
to hold, or exercise any material right with respect to, all or any portion of
the Securities of the Company which such Person holds or (ii) when such Person
and its Affiliates would own, control or have power (including voting rights)
over a greater quantity of Securities of the Company than is permitted under any
law or regulation or any requirement of any governmental authority applicable to
such Person or to which such Person is subject.
"Securities" means, with respect to any Person, such Person's capital stock or
any options, warrants or other Securities that are directly or indirectly
convertible into, or exercisable or exchangeable for, such Person's capital
stock (whether or not such derivative Securities are issued by the Company).
Whenever a reference herein to Securities refers to any derivative Securities,
the rights of Lender shall apply to such derivative Securities and all
underlying Securities directly or indirectly issuable upon conversion, exchange
or exercise of such derivative Securities.
"Subsidiary" means, with respect to any Person, any other Person of which the
securities having a majority of the ordinary voting power in electing the board
of directors (or other governing body), at the time as of which any
determination is being made, are owned by such first Person either directly or
through one or more of its Subsidiaries.
4
Please indicate your acceptance of the terms of this letter agreement by
returning a signed copy to the undersigned.
XXXXXXX XXXXXX MEZZANINE FUND, L.P.
By: Xxxxxxx Xxxxxx Capital Partners LLP,
Its General Partner
By: Xxxxxx X. Xxxxx
-----------------------------------------
Name: Xxxxxx X. Xxxxx,
Title: Managing Partner
Agreed as of the date first
set forth above.
Xxxxxxx Educational Systems, Inc.
By: /s/ Xxxx X. Xxxxxxx
----------------------------------
Name:
Title: President
-------------------------------
33752
5
Intercreditor And Subordination Agreement
-----------------------------------------
This Intercreditor and Subordination Agreement (this "Agreement") dated as
of the 24th day of March, 1998, by and among XXXXXXX XXXXXX MEZZANINE FUND,
L.P., a Colorado limited partnership ("Lender"), and XXXX X. XXXXXXX
("Subordinated Creditor") has reference to the following facts and
circumstances:
X. XXXXXXX EDUCATIONAL SYSTEMS, INC., a Colorado corporation
("Borrower") has requested and Lender has agreed to make certain loans
and/or other financial accommodations (collectively the "Senior Loans") to
or for the benefit of Borrower upon the terms and conditions set forth in
that certain Note and Security Agreement dated as of the date of this
Agreement (as amended, modified or supplemented from time to time, the
"Senior Loan Agreement", and, together with any other agreements or
documents executed or delivered in connection therewith, being the "Senior
Loan Documents");
B. The Borrower is indebted to Subordinated Creditor pursuant to
certain promissory notes in the aggregate principal amount of $2,410,307,
and a subsidiary of the Borrower is obligated to Subordinated Creditor
pursuant to the terms of a real estate lease (such notes and lease and any
other agreements or documents executed or delivered in connection therewith
being the "Subordinated Loan Documents");
C. It will be to the Subordinated Creditor's interest and financial
advantage to enable Borrower to obtain the Senior Loans; and
D. Lender, as a condition precedent to making the Senior Loans, is
requiring that the Subordinated Creditor execute and deliver this Agreement
in favor of Lender.
NOW, THEREFORE, in consideration of the foregoing, and the mutual promises
and agreements set forth herein, Subordinated Creditor and Lender hereby agree
as follows:
1. Preambles. The preambles to this Agreement are true and correct, and are
incorporated herein by this reference.
2. Definitions. In addition to other capitalized terms defined herein, the
following capitalized terms shall have the following meanings herein:
(a) "Junior Default" or "Junior Defaults" shall mean any and/or all
defaults in the payment and/or performance of any of Borrower's liabilities
and obligations under the Subordinated Loan Documents;
(b) "Senior Debt" shall mean all obligations and liabilities
(including without limitation, all principal, prepayment premium, interest,
reimbursement, fees, expenses, indemnities, commissions and other amounts
payable by Borrower) of Borrower now and/or from time to time after the
date of this Agreement owing, due or payable to Lender, whether pursuant
to: (i) the Senior Loans; (ii) any other obligations or liabilities of
Borrower pursuant to the Senior Loan Documents (including without
limitation all interest accruing after a petition in bankruptcy is filed by
or against Borrower, whether or not such interest is allowed); (iii) any
other agreement, instrument or document executed or delivered by Borrower
to Lender with respect to any other loans, advances or other financial
accommodations made by Lender to or on behalf of Borrower after the date
hereof; or (iv) operation of law;
(c) "Senior Default" shall mean a default in the payment of the Senior
Debt or the occurrence of any "Event of Default" (as defined in the Senior
Loan Agreement);
(d) "Subordinated Debt" shall mean any and all obligations and
liabilities of Borrower and its subsidiaries now and/or from time to time
hereafter owing, due or payable to the Subordinated Creditor (including,
without limitation, obligations arising pursuant to any notes, leases,
royalty arrangements, license obligations, noncompete obligations or
otherwise), whether pursuant to: (i) any of the Subordinated Loan
Documents; (ii) any other agreement, instrument or document executed or
delivered by Borrower to, or for the benefit of, the Subordinated Creditor
at any time; or (iii) operation of law; and
(e) Capitalized terms used herein and not otherwise defined in this
Agreement shall have the meanings given to such terms in the Senior Loan
Agreement.
3. Representations, Warranties and Covenants of Subordinated Creditor.
3.1 General Representations and Warranties of Lender. Lender represents and
warrants to the Subordinated Creditor that: (a) as of the date hereof, Lender
has not assigned or transferred any of the Senior Loan Documents or any interest
in any of the foregoing, to any unaffiliated third party; (b) Lender has the
right, power and capacity to enter into, execute, deliver and perform this
Agreement; (c) this Agreement is the legal, valid and binding agreement of
Lender, enforceable in accordance with its terms except as enforceability may be
limited by bankruptcy, moratorium and similar laws affecting creditors' rights
generally and general principles of equity. Notwithstanding anything herein to
the contrary, Lender specifically reserves any and all rights to assign,
participate or otherwise transfer any of the Senior Loan Documents or any
interest therein or thereunder, whether pursuant to the Senior Loan Agreement or
otherwise, to any person or entity after the date hereof.
3.2 General Representations and Warranties of Subordinated Creditor. The
Subordinated Creditor represents and warrants to Lender that: (a) the
obligations of Borrower set forth in the Recitals to this Agreement sets forth
all indebtedness and liabilities outstanding on the date of this Agreement which
are due or may become due to the Subordinated Creditor from Borrower and there
are no other financial obligations of Borrower to the Subordinated Creditor as
2
of the date of this Agreement; (b) Subordinated Creditor has not assigned or
transferred any of the Subordinated Loan Documents or any interest in any of the
foregoing, to any person, firm, association, corporation or other entity; (c)
Subordinated Creditor has the right, power and capacity to enter into, execute,
deliver and perform this Agreement; (d) the execution, delivery and/or
performance by Subordinated Creditor of this Agreement shall not, by the lapse
of time, the giving of notice or otherwise, constitute a violation of any
applicable law or breach of any provision contained in any agreement, instrument
or document to which Subordinated Creditor is a party; (e) this Agreement is the
legal, valid and binding agreement of Subordinated Creditor, enforceable in
accordance with its terms except as enforceability may be limited by bankruptcy,
moratorium and similar laws affecting creditors' rights generally and general
principles of equity; (f) Borrower is not now in default in any material respect
under the Subordinated Loan Documents or any other instruments or agreements
made by Borrower to Subordinated Creditor relating thereto, provided, however,
that nothing contained in this clause (f) shall constitute a waiver by
Subordinated Creditor of any such default; and (g) that Subordinated Creditor
does not, as of the date of this Agreement hold any pledge, mortgage, grant,
security interest or other lien in or on any of the Collateral.
3.3 General Covenants of Subordinated Creditor. Subordinated Creditor
covenants with, and for the exclusive benefit of, Lender and any subsequent
holders of the Senior Debt that: (a) for so long as any portion of the Senior
Debt remains outstanding and unpaid, Subordinated Creditor shall not hold any
pledge, mortgage, grant, security interest or other lien in or on any of the
Collateral; (b) Subordinated Creditor shall not permit, consent to or otherwise
suffer any amendment, modification or change to the terms and conditions of any
of the Subordinated Loan Documents without the prior written consent of Lender;
and (c) Subordinated Creditor shall not in any manner or respect assert or seek
to enforce by legal proceedings or otherwise, any rights which Subordinated
Creditor may have against Borrower under the Subordinated Debt, except as
otherwise permitted herein.
4. Subordination Provisions.
4.1 Subordination of Subordinated Debt. The Subordinated Debt shall be, and
the same hereby is, subordinated and junior in right of payment to all Senior
Debt to the extent and in the manner provided in this Agreement and Subordinated
Creditor (including on behalf of any heirs, successors or assigns), as holder or
beneficiary of any Subordinated Loan Documents, by acceptance hereof,
individually and collectively agrees to be bound by the provisions of this
Agreement.
4.2 Priorities In Collateral. Notwithstanding any provision contained in
the Senior Loan Documents or the Subordinated Loan Documents to the contrary,
and notwithstanding the time, order or method of attachment or perfection of any
security interests or liens granted thereby or the time or order of filing or
lien notation or recording of financing statements, mortgages, or other evidence
of liens or security interests, and notwithstanding anything contained in any
3
such filing, lien notation, recorded instrument or agreement to which
Subordinated Creditor or Lender may now or hereafter be a party, and
notwithstanding any provision of the Uniform Commercial Code or other applicable
law, Subordinated Creditor hereby agrees that the security interests and liens
in the Collateral in favor of Lender now have and shall continue to have
priority over the security interests and liens, if any, upon the Collateral held
by Subordinated Creditor to the full extent of the Senior Debt outstanding at
any time and from time to time.
4.3 Subordination in Event of Insolvency, Etc. In the event of any
insolvency, bankruptcy, receivership, assignment for the benefit of creditors,
judicially supervised reorganization pursuant to, or in the nature of, a
proceeding under Title 11 of the United States Code, as amended from time to
time, and any successor statute (the "Bankruptcy Code"), or arrangement with
creditors of Borrower whether or not pursuant to bankruptcy laws, or any
dissolution, liquidation or other marshaling of the assets and liabilities of
Borrower (a "Bankruptcy Default"), then all such Senior Debt shall be paid in
full in cash or cash equivalents before any payment or distribution of any
character, whether in cash, securities or other property shall be made for or on
account of any principal of or premium, if any, or interest or other amounts on
the Subordinated Debt. In the event of any Bankruptcy Default, any payment or
distribution of any character, whether in cash, securities or other property,
which would otherwise, but for these subordination provisions, be payable or
distributable for or on account of any principal of or premium, if any, or
interest on the Subordinated Debt, shall be paid or distributed directly to or
for the account of Lender, until all Senior Debt shall have been indefeasibly
paid in full in cash or cash equivalents, after giving effect to any and all
other payments and distributions in respect of the Senior Debt.
4.4 Standstill Periods in the Event of Senior Defaults.
(a) In the event there shall occur a Senior Default, Lender may elect,
in its sole and absolute discretion, to declare a "Standstill Period" (as
defined below). Lender shall give the Subordinated Creditor notice of each such
declaration (the "Standstill Notice").
(b) During the period (the "Standstill Period") commencing upon the
Lender giving the Subordinated Creditor a Standstill Notice and expiring as
provided in this Section 4.4(b), Subordinated Creditor shall not be entitled to
receive any payment or distribution of any character, whether in cash,
securities or other property, for or on account of the principal of, interest
on, or premium (if any) with respect to the Subordinated Debt, nor shall the
Subordinated Creditor be entitled to exercise any rights or remedies against
Borrower with respect to the Subordinated Debt, whether pursuant to the
Subordinated Loan Documents or otherwise, whether at law or in equity, including
without limitation, the right to accelerate the maturity of the Subordinated
Debt. The Standstill Period and the prohibitions contained in the foregoing
sentence shall expire upon the earliest to occur of any of the following:
(i) the occurrence of any Bankruptcy Default, in which event the
provisions of Section 4.3 above shall govern and control;
4
(ii) the election by Lender to accelerate the maturity of the Senior
Debt as a result of any then existing Senior Default, in which event
the provisions of Section 4.5 below shall govern and control unless
such acceleration is otherwise rescinded;
(iii) the waiver or cure of any and all previously existing Senior
Defaults; and
(iv) the expiration of 360 days after the Subordinated Creditor's
receipt of such Standstill Notice (unless any Junior Default is cured
prior to the end of such period).
Subject to Sections 4.5 and 4.8 of this Agreement, upon the expiration of the
Standstill Period pursuant to clause (iii) or clause (iv) above, the
Subordinated Creditor shall be entitled to receive all payments and
distributions otherwise prohibited by this Section 4.4(b) and to exercise any
rights against Borrower with respect to the Subordinated Debt other than any
right to accelerate the maturity date of the Subordinated Debt based upon the
occurrence of any Junior Default which is cured or otherwise remedied during or
within one business day following such expiration of the Standstill Period.
Lender may declare any number of Standstill Periods.
4.5 Subordination at Maturity of Senior Debt. In the event that any Senior
Debt shall become due and payable, whether at its stated maturity or as a result
of acceleration by Lender or otherwise, Lender shall be entitled to receive
payment in full of all Senior Debt then due and payable before Subordinated
Creditor shall be entitled to receive any payment or distribution of any
character, whether in cash, securities or other property for or on account of
the principal of, interest on, premium, if any, or other amounts with respect to
the Subordinated Debt.
4.6 Subrogation. Upon payment in full of the Senior Debt by the
Subordinated Creditor, the Subordinated Creditor shall be subrogated to the
rights of the holder of such Senior Debt to receive payments or distributions of
assets of Borrower made on such Senior Debt until the Subordinated Debt shall be
paid in full in cash or cash equivalents; and, for purposes of such subrogation,
no payments or distributions to the holder of such Senior Debt of any cash,
property or securities to which Subordinated Creditor would be entitled, except
for the provisions of this Agreement, and no payment pursuant to the provisions
of this Agreement to holders of such Senior Debt by Subordinated Creditor,
shall, as between Borrower, its creditors other than holders of such Senior Debt
and Subordinated Creditor, be deemed to be a payment by Borrower to or on
account of such Senior Debt, it being understood that the provisions of this
Agreement are solely for the purpose of defining the relative rights of the
holder of the Senior Debt, on the one hand, and Subordinated Creditor, on the
other hand. If any payment or distribution to which Subordinated Creditor would
otherwise have been entitled, but for the provisions of this Agreement, shall
have been applied, pursuant to the provisions of this Agreement, to the payment
of all amounts then due on the Senior Debt, then and in each case, Subordinated
Creditor shall be entitled to receive from the holders of such Senior Debt at
the time outstanding any payments or distributions received by the holders of
such Senior Debt in excess of the amount sufficient to pay the Senior Debt in
full.
5
4.7 No Prejudice or Impairment. The provisions of this Agreement are solely
for the purposes of defining the relative rights of Lender on the one hand and
Subordinated Creditor on the other hand. Lender shall not be prejudiced in the
right to enforce subordination of the Subordinated Debt by any act or failure to
act by Borrower or anyone in custody of its assets or property. Except as
provided to the contrary in this Agreement, nothing herein shall impair, as
between Borrower and Subordinated Creditor, the obligation of Borrower, which is
unconditional and absolute, to pay to Subordinated Creditor the principal of,
premium, if any, interest and other amounts on the Subordinated Debt as and when
the same shall become due in accordance with their terms, nor shall anything
herein prevent the holders of the Subordinated Debt from exercising all remedies
otherwise permitted by applicable law upon default under the Subordinated Loan
Documents, subject however, to the provisions of this Agreement and the rights
of Lender under this Agreement.
4.8 Turnover of Payments. Subordinated Creditor shall forthwith deliver to
Lender every payment, distribution or security, or the proceeds of any thereof,
collected or received by Subordinated Creditor in respect of any Subordinated
Debt in violation of the terms of this Agreement, to the extent necessary to pay
all then outstanding Senior Debt in full, and until so delivered, the same shall
be held in trust by Subordinated Creditor as the property of Lender.
4.9 Notice of Certain Events. Borrower shall give prompt written notice to
Subordinated Creditor and to Lender of any fact known to Borrower which would
prohibit the making of any payment to the Subordinated Creditor in respect of
the Subordinated Debt pursuant to the provisions of this Agreement. In the event
there shall occur a Junior Default which permits Subordinated Creditor to
accelerate the maturity of any Subordinated Debt, then: (i) Subordinated
Creditor shall give immediate written notice thereof to Lender; and (ii)
Subordinated Creditor shall give Lender not less than 60 days prior notice of
any intention to exercise any remedy with respect to the Subordinated Debt
(other than automatic acceleration upon the occurrence of an event similar to
the events described in Section 4.3).
4.10 Reliance. Upon payment or distribution of the character referred to in
Section 4.3, Subordinated Creditor shall be entitled to rely upon any order or
decree made by any court of competent jurisdiction in which any dissolution,
winding up, liquidation or reorganization proceeding affecting the affairs of
the Borrower is pending or upon a certificate of any liquidating trustee,
receiver, agency, custodian or other person making such payment or distribution
for the purpose of determining the persons entitled to participate in such
payment or distribution, the holder of Senior Debt, the amount thereof or
payable thereon, an amount or amounts paid or distributed in respect thereof,
and all other facts pertinent thereto and to this Agreement.
4.11 Consent to Asset Dispositions. etc. Subordinated Creditor agrees,
unless and until all of the Senior Debt has been fully paid, (i) to release or
otherwise terminate any security interest and lien he may have in and upon the
Collateral which may be sold or otherwise disposed of either by Lender, its
agents, or by Borrower with Lender's consent, whether in the ordinary course of
business or after the declaration of an Event of Default pursuant to the Senior
Loan Documents immediately upon Lender's written notice that the Collateral may
be sold or otherwise disposed of, and (ii) to immediately deliver satisfactions
of mortgages, Uniform Commercial Code partial releases or termination statements
and such other documents as Lender may require in connection with such release
or termination.
6
4.12 Other Restrictions During a Monetary Default. Upon the occurrence and
during the continuance of any monetary Senior Default by Borrower, no payment or
distribution of any character, whether in cash, securities or other property,
for or on account of the principal of, interest on, premium (if any) or other
amounts with respect to the Subordinated Debt shall be made until such monetary
Senior Default has been cured or waived.
4.13 Right to Receive Payments. Except as provided to the contrary (or as
otherwise limited or conditioned) by this Agreement or applicable law,
Subordinated Creditor shall be entitled to receive and keep payments of interest
properly received by Subordinated Creditor from Borrower pursuant to
Subordinated Creditor's $2,000,000 promissory note of the Borrower. Subordinated
Creditor shall not be entitled to receive or keep any other payments from
Borrower pursuant to the Subordinated Loan Documents.
4.14 Certain Information. Except as waived by Lender, Subordinated Creditor
shall deliver to Lender all notices or other communications sent to or received
from the Borrower pursuant to the requirements of Subordinated Creditor's
Subordinated Loan Documents.
4.15 Restrictions on Establishing and Maintaining Financial Covenants. The
Subordinated Loan Documents shall not contain, and shall not be amended or
modified to contain, any financial covenants with respect to Borrower.
5. Waivers and Notices
5.1 Waiver of Notices. Subordinated Creditor hereby waives notice of the
following events or occurrences:
(a) Lender's now or at any time or times hereafter lending monies or
extending credit or other financial assistance to or for the benefit of
Borrower, whether pursuant to the Senior Loan Documents or otherwise;
(b) the amendment, modification, alteration or substitution of any of the
Senior Loan Documents or other agreements or documents evidencing the
making of any other loans, advances or other financial accommodations by
Lender to or on behalf of Borrower after the date hereof; and
7
(c) Lender's now or at any time or times hereafter granting to Borrower any
indulgences or extensions of time of payment.
5.2 Consent to Amendments. Notwithstanding anything in this Agreement to
the contrary, Subordinated Creditor hereby agrees and consents to and approves
any amendment, waiver, modification, alteration or substitution of any of the
Senior Loan Documents or other agreements or documents evidencing the making of
any other loans, advances or other financial accommodations by Lender to or on
behalf of Borrower after the date hereof (including, without limitation, any
such action or actions by Lender which accelerates the maturity of the Senior
Loans, decreases the interest rate payable on the Senior Loans, increases the
principal amount of the Senior Loans, or changes the amortization schedule for
the Senior Loans or modifies or amends the covenants or negative pledge sections
of the Senior Loan Documents) and hereby waives any rights, actions, defenses,
remedies or claims Subordinated Creditor might have with respect to such future
action or actions by Lender, provided, however, that Subordinated Creditor shall
not be deemed to have consented or agreed to any such amendment, modification,
alteration or substitution which: (a) is entered into or occurs when no Senior
Default exists; and (b) increases the interest rate payable on the Senior Loans
by more than 3 percentage points, increases the principal amount of the Senior
Loans to an amount in excess of $5,800,000, or extends the scheduled maturity
date of the Senior Loans by more than two years. At Lender's request,
Subordinated Creditor will provide Lender with a written confirmation and
acknowledgment of Subordinated Creditor's approval of any amendment,
modification, alteration or substitution of or to the Senior Loan Documents
initialed by or agreed to by Lender and permitted under this Agreement. If
Lender amends, modifies, alters or waives any provisions of the Senior Loan
Document as permitted in this Agreement, the Subordinated Creditor shall be
deemed to have similarly amended, modified, altered or waived any provisions in
the Subordinated Loan Documents that would otherwise then be inconsistent with
or more onerous on Borrower than the terms and provisions of the Senior Loan
Documents as so amended, modified, altered or waived.
5.3 Consent to Notice of Disposition of Collateral. Notwithstanding
anything in this Agreement to the contrary, Subordinated Creditor hereby
represents, warrants and agrees that, as to Subordinated Creditor, any
notification of intended disposition of any of the Collateral by Lender required
by law shall be deemed adequately, reasonably and properly given if given at
least ten (10) calendar days before such disposition. With respect to any
Collateral, Lender shall have the sole right to take action after any default,
including but not limited to exercising LenderAEs rights and remedies as a
secured party under the Colorado Uniform Commercial Code or under other
applicable law. Lender shall give written notice to the Subordinated Creditor of
at least thirty days prior to exercising any remedy with respect to the
Collateral (as defined in the Senior Loan Agreement), other than following an
oEvent of Defaulto (as defined in the Senior Loan Agreement) specified in
(0)7.1(h) through (j), inclusive.
5.4 Authorization. Subordinated Creditor hereby irrevocably authorizes,
empowers and directs: (i) any debtor, debtor in possession, receiver,
liquidator, custodian, conservator, trustee or other person having authority to
pay to Lender any amounts owing with respect to any of the Subordinated Debt;
(ii) Lender, in the name of Subordinated Creditor or other holder of the
8
Subordinated Debt, to demand, xxx for, collect and receive any amounts owing
with respect to any of the Subordinated Debt; and (iii) Lender to file (and vote
with respect to) any appropriate claim, proof of claim, amendment of proof of
claim, petition or other document for and on behalf of Subordinated Creditor or
other holder of the Subordinated Debt in any instance or event of a type
described in Section 7.1(h), 7.1(i) or 7.1(j) of the Senior Loan Agreement
(provided, however, that nothing set forth herein shall be deemed to create any
obligation or other duty of Lender to take any action on behalf of Subordinated
Creditor).
6. Further Assurances. In furtherance of the various agreements and
covenants of Subordinated Creditor under this Agreement, Subordinated Creditor
shall produce all of the Subordinated Loan Documents and any other agreement,
instrument or document evidencing any liabilities or obligations of Borrower to
Subordinated Creditor in respect of the Subordinated Debt, whether existing now
or hereafter during the term of this Agreement and shall permit Lender to xxxx
same with a legend clearly indicating that the exercise of any rights or
remedies thereunder with respect to the Subordinated Debt is subject to the
terms and conditions of this Agreement.
7. Invalidity. If any provision of this Agreement or the application
thereof to any party or circumstance is held invalid or unenforceable, the
remainder of this Agreement and the application of such provision to other
parties or circumstances will not be affected thereby, the provisions of this
Agreement being severable in any such instance.
8. Survival. This Agreement shall continue in full force and effect until
the Senior Debt is fully performed, discharged and satisfied and Lender has no
outstanding commitments under the Senior Loan Agreement, and shall automatically
be reinstated if such performance, discharge or satisfaction is avoided (for any
reason) or the Senior Debt is subordinated upon the insolvency, bankruptcy or
reorganization of Borrower or otherwise. This Agreement shall be binding upon
Lender and Subordinated Creditor and inure to the benefit of Lender and
Subordinated Creditor and their respective successors and assigns.
9. Notices. Except as otherwise expressly provided herein, any notice
hereunder to Subordinated Creditor or Lender shall be in writing (including
telegraphic, or facsimile communication) and shall be given to Subordinated
Creditor or Lender at the address or facsimile number set forth on the signature
pages hereof or at such other address or facsimile number as Subordinated
Creditor or Lender may, by written notice, designate as its address or facsimile
number for purposes of notices under this Agreement. All such notices shall be
deemed to be given when transmitted by facsimile, delivered to the telegraph
office, delivered by overnight delivery service or courier, personally delivered
or, in the case of notice by mail, three (3) business days following deposit in
the United States mails, properly addressed as provided in this Agreement, with
proper postage prepaid. Subordinated Creditor shall use good faith efforts to
provide Lender with copies of notices of actual or threatened Events of Default
under the Subordinated Loan Documents, concurrently with mailing any such
notices to Borrower.
9
10. Governing Law and Jurisdiction. This Agreement and all matters
concerning this Agreement shall be governed by the laws of the State of Colorado
for contracts entered into and to be performed in such state without regard to
principles of conflicts of laws. To induce Lender to accept this Agreement,
Subordinated Creditor agrees irrevocably that, subject to Lender's sole and
absolute election, ALL ACTIONS OR PROCEEDINGS IN ANY WAY, MANNER OR RESPECT,
ARISING OUT OF OR FROM OR RELATED TO THIS AGREEMENT OR ANY AGREEMENT RELATED
HERETO OR UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR
WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH, SHALL BE LITIGATED
IN COURTS HAVING SITUS WITHIN THE CITY OF DENVER, STATE OF COLORADO.
SUBORDINATED CREDITOR HEREBY CONSENTS AND SUBMITS TO THE JURISDICTION OF ANY
LOCAL, STATE OR FEDERAL COURT LOCATED WITHIN SAID CITY AND STATE AND WAIVES
PERSONAL SERVICE OF ANY AND ALL PROCESS UPON SUBORDINATED CREDITOR AND AGREES
THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE BY REGISTERED MAIL DIRECTED TO
SUBORDINATED CREDITOR AT THE ADDRESS STATED ON THE SIGNATURE PAGE HEREOF AND
SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED UPON ACTUAL RECEIPT THEREOF.
11. Waiver of Jury Trial. SUBORDINATED CREDITOR WAIVES ANY RIGHT TO A TRIAL
BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS (i) UNDER
THIS AGREEMENT OR ANY AGREEMENT RELATED HERETO OR UNDER ANY AMENDMENT,
INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE
DELIVERED IN CONNECTION HEREWITH OR (ii) ARISING FROM ANY RELATIONSHIP EXISTING
IN CONNECTION WITH THIS AGREEMENT, AND AGREES THAT ANY SUCH ACTION OR PROCEEDING
SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.
12. Marshaling. Subordinated Creditor hereby waives any rights Subordinated
Creditor has or may have in the future to require the Lender to xxxxxxxx any
Collateral, and agrees that the Lender may proceed against the Collateral in any
order that it deems appropriate in the exercise of its absolute discretion.
13. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be effective and all of which shall constitute
one and the same document.
14. Other. The Lender's failure to exercise any right hereunder shall not
be construed as a waiver of the right to exercise the same or any other right at
any other time and from time to time thereafter, and such rights shall be
cumulative and not exclusive.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered by their duly authorized representatives as of the day
and year first above written.
XXXXXXX XXXXXX MEZZANINE FUND L.P.,
a Colorado limited partnership
By: Xxxxxxx Xxxxxx Capital Partners LLP
as General Partner
By: /s/ Xxxxxx X. Xxxxx
---------------------------------------
Xxxxxx X. Xxxxx
Managing Partner
c/x Xxxxxxx Xxxxxx Capital Partners LLP
0000 00xx Xxxxxx, Xxxxx 0000
Xxxxxx, Xxxxxxxx 00000
Attn: Xxxxxx X. Xxxxx
Telecopy: 000-000-0000
XXXX XXXXXXX
/s/ Xxxx X. Xxxxxxx
------------------------------------------
Xxxx Xxxxxxx
c/x Xxxxxxx Educational Systems, Inc.
000 X. Xxxxxx Xxxxx Xxxxx, Xxxxx 0X
Xxxxxx, XX 00000
Attn: Xxxx X. Xxxxxxx
Telecopy: (000) 000-0000
33719
11
Borrower hereby consents to the foregoing Intercreditor and Subordination
Agreement (and the terms thereof) and agrees to abide and to keep, observe and
perform the several matters and things therein intended to be kept, observed and
performed by it, and specifically agrees not to make any payments contrary to
the intention of said Agreement.
XXXXXXX EDUCATIONAL SYSTEMS, INC.,
a Colorado corporation
By: /s/ Xxxx X. Xxxxxxx
-----------------------------------
Its: President
----------------------------------
33719
12
Intercreditor Agreement
This Intercreditor Agreement ("Agreement") is made and entered into this
24th day of March, 1998 by and between Xxxxxxx Xxxxxx Mezzanine Fund, L.P. (the
oFundo) and Xxxx Xxxxxxxxxx (the "Seller").
WHEREAS, the Fund is entering into a Note and Security Agreement dated
as of the date of this Agreement (the "Note Agreement") pursuant to which
the Fund will loan $2,900,000 to Xxxxxxx Educational Systems, Inc.
("Borrower"). A true and correct copy of the Note Agreement is attached as
Attachment A hereto;
WHEREAS, in connection with the Borrower's purchase of Seller's
capital stock in Data Processing Trainers Co. ("DPT") pursuant to a Stock
Purchase Agreement dated as of the date of this Agreement (the "Purchase
Agreement"), Borrower has executed and delivered to Seller a promissory
note dated as of the date of this Agreement in the principal amount of
$4,340,000 (the "Seller Note");
WHEREAS, to secure the payment and performance of Borrower's
obligations and indebtedness to each of the Fund and Seller, Borrower has
granted and has caused DPT to grant to each of the Fund and Seller security
interests in certain assets of Borrower and of DPT;
WHEREAS, the Seller Note is secured, by certain collateral pursuant to
the Security Agreement and Stock Pledge dated as of the date of this
Agreement between the Borrower and Seller and by that certain Guaranty and
Security Agreement executed by DPT (collectively, the "Security
Agreement"). A true and correct copy of the Purchase Agreement, the Seller
Note, and the Security Agreement is attached as Attachment B hereto; and
WHEREAS, the Fund and Seller desire to confirm their agreement
regarding their respective interests in the assets and stock of Borrower
and DPT.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. Definitions. The following terms shall have the meanings set forth
below:
"Fund Collateral" means the assets, stock and property of Borrower and
DPT pledged to the Fund to secure Borrower's indebtedness to the Fund
pursuant to the Note Agreement.
"Seller Collateral" means the assets, stock and property of Borrower
and DPT pledged to the Seller to secure the indebtedness evidenced by the
Seller Note and BorrowerAEs obligations to Seller under the Purchase
Agreement.
2. Subordination. Except as set forth below, the Fund will not ask, demand,
xxx for, take or receive from Borrower or DPT by setoff or in any other manner
the whole or any part of any indebtedness to the Fund pursuant to the Note
Agreement including the principal thereof and interest thereon (all of the
indebtedness, obligations and liabilities described above being hereinafter
referred to as the "Subordinated Debt"), owed by Borrower or DPT or any of their
respective successors or assigns, including, without limitation, a receiver,
trustee or debtor in possession (the term "Borrower" and "DPT" hereinafter shall
include any such successor or assign of Borrower or DPT), unless and until all
obligations, liabilities, and indebtedness of Borrower and DPT to Seller
pursuant to the Seller Note shall have been fully paid and satisfied (all such
obligations, indebtedness and liabilities of Borrower and DPT to Seller pursuant
to the Seller Note, being hereinafter referred to as the "Senior Debt").
Notwithstanding the preceding sentence, provided that no payment default under
the Seller Note has occurred and is continuing (herein referred to as a
oDefaulto) Borrower and DPT may continue to pay to the Fund (i) all regularly
scheduled payments due to the Fund pursuant to the Note Agreement, as such
scheduled payments are in effect as of the date of this Agreement, and (ii) may
prepay any such obligations to the Fund from proceeds of (a) public offerings of
equity securities placed by Borrower, or (b) additional paid-in capital paid to
Borrower ("Permitted Payments").
3. Collateral Priorities. Notwithstanding the time or manner of perfection
of the respective security interests of the Fund and Seller, the Fund and Seller
agree that, as between the Seller and the Fund, the security interest of the
Seller under the Security Agreement in all items of Seller Collateral shall be
deemed superior, senior and prior (provided that such senior priority shall not
exceed the principal amount of the Seller Note plus interest thereon and costs
and expenses incurred, due or allowed under the Security Agreement and all
obligations due Seller under the Purchase Agreement) to the security interest of
the Fund in such Seller Collateral. As between the Fund and the Seller, the Fund
shall have a junior and inferior priority security interest in all items of
Seller Collateral. To the extent necessary to give effect to such priority, the
Fund hereby subordinates its security interest in the Fund Collateral to the
security interest of Seller under the Security Agreement and, upon the request
of Seller shall exercise and deliver any further documentation necessary by
Seller to maintain the superior and senior security interest of Seller in such
collateral.
The Fund agrees to release or otherwise terminate any security interest and
lien the Fund may have directly or indirectly in and upon the Seller Collateral
which may be sold or otherwise disposed of either by Seller, his agents, or by
Borrower, after the declaration of an Event of Default pursuant to the Security
Agreement effective upon consummation of such sale. Such release shall include,
without limitation, the release by the Fund of any claim against DPT (or its
assets) for the repayment of the Subordinated Debt, including the release of any
lien or claim against the assets of DPT securing the repayment of the
Subordinated Debt, in the event of any such sale of the capital stock of DPT.
Such release shall not include the Fund's security interest in any proceeds of
the sale of any such assets in excess of the amount regained to satisfy the
Senior Debt. Upon payment in full of the Seller Note and all amounts due under
the Security Agreement, the Seller agrees to deliver to the Fund any items of
Seller Collateral held by the Seller, including without limitation any
certificates representing stock of DPT or Borrower pledged to secure the Seller
Note.
4. Seller Priority. In the event the Seller Note becomes due and payable,
whether at maturity or upon acceleration, then (i) Seller shall be entitled to
receive payment in full of any and all of the Senior Debt then owing prior to
the payment of all or any part of the Subordinated Debt; and (ii) any payment or
distribution of any kind or character, whether in cash, securities or other
property, which shall be payable or deliverable upon or with respect to any or
all of the Subordinated Debt, shall be paid or delivered directly to Seller for
application to any of the Senior Debt, until such Senior Debt shall have first
been fully paid and satisfied. Upon such delivery, the Fund shall be subrogated
to all rights of the Seller under the Senior Debt.
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5. Payments Received by the Fund. If any payment, distribution, security or
instrument, or any proceeds thereof (except Permitted Payments) is received by
the Fund upon or with respect to the Subordinated Debt prior to the satisfaction
of all of the Senior Debt, the Fund shall receive and hold the same in trust, as
trustee, for the benefit of Seller and shall forthwith deliver the same to
Seller for application on any of the Senior Debt, due or not due, and, until so
delivered, the same shall be held in trust by the Fund as the property of
Seller.
6. Modification of Seller Note. Borrower and Seller shall obtain the
consent of the Fund before effecting any increase in the amount of the Seller
Note or in any other indebtedness or obligation of Borrower to Seller, or in
making any other change in the terms and conditions of the Seller Note and
related agreements. Any obligations of Borrower arising from an additional
extension of credit made by the Seller without consent of the Fund shall be
unsecured and subordinate to the rights of the Fund.
7. Notification of Default. Each of the Fund and the Seller shall notify
the other immediately by telephone, confirmed in writing, of any action which
either shall take to cause or declare the payment of any of Borrower's
obligations to be immediately due and payable (an "acceleration"). Any
notification required by this paragraph need not be sent or received prior to
acceleration, provided that the party receiving notice shall have the right, but
not the obligation, to exercise any cure rights otherwise available to the
Borrower.
8. Legend on Note Agreement. The note issued to the Fund pursuant to the
Note Agreement shall be inscribed with a legend conspicuously indicating that
payment thereof is subordinated to the claims of Seller pursuant to the terms of
this Agreement, and a copy thereof will be delivered to Seller on the date
hereof. Any document or instrument replacing the Note or any portion thereof,
which is executed by Borrower or DPT prior to the termination of this Agreement,
will, on the date thereof, be inscribed with the aforesaid legend and a copy
thereof, will be delivered to Seller on the date of its execution or within five
(5) business days thereafter.
9. Foreclosure. With respect to any Seller Collateral, the Seller shall
have the sole right to take action after acceleration of the Seller Note,
including but not limited to exercising the Seller's rights and remedies as a
secured party under the Pennsylvania Uniform Commercial Code or under other
applicable law. The Seller shall promptly consult and confer with the Fund
regarding the actions to be taken with respect to the Seller Collateral and
shall give written notice to the Fund of at least thirty days prior to
exercising any remedy with respect to the Seller Collateral.
10. Limited Liability. In connection with taking action with respect to the
Fund Collateral or Seller Collateral, respectively, neither the Fund nor the
Seller shall incur any liability to the other by acting upon any notice,
certificate, warranty or other document or instrument believed by it to be
genuine or authentic or to be signed by the proper party or parties, or with
respect to anything which it may do or refrain from doing in the reasonable
exercise of its judgment to the extent such action is consistent with the terms
and intent of this Agreement.
11. Termination. This Agreement shall terminate upon the first to occur of
the repayment in full of all obligations owed by the Borrower or its
shareholders to the Fund under the Note Agreement in compliance with the terms
of this Agreement or to the Seller under the Seller Note.
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12. Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto with regard to the subject matter contained herein.
13. Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of Colorado.
14. Attorney's Fees. The Fund and the Seller agree that in the event any
legal proceeding is brought by either party with respect to this Agreement, the
prevailing party shall be entitled to collect its reasonable attorney's fees and
expenses incurred in such proceeding.
15. Notices. Except as otherwise provided in this Agreement, any notice or
other communication provided or permitted to be given may be given by personal
delivery, telecopy or by mailing the same, postage prepaid, in the United States
mail, addressed to the other party at the address set forth below. Notice shall
be deemed given on the date personally delivered, telecopied or three (3) days
after the date of deposit thereof in the United States mail.
To: Xxxx Xxxxxxxxxx
C/x Xxxxxxxxxx & Associates
000 Xxxxxxxxx Xxxxxx, Xxxxx 000
Xxxxx, XX 00000
With a copy to: Xxxxxx Xxxxxxxxxx
Xxxxxxxxxx & Associates
000 Xxxxxxxxx Xxxxxx, Xxxxx 000
Xxxxx, Xxxxxxxxxxxx 00000
Telephone: [To be supplied.]
Facsimile: 000-000-0000
To: Xxxxxxx Xxxxxx Mezzanine Fund, L.P.
0000 00xx Xxxxxx, Xxxxx 0000
Xxxxxx, XX 00000
Attn: Xx Xxxxx, Managing Director
Telephone: 000-000-0000
Facsimile: 000-000-0000
16. Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the successors and assigns of the parties hereto. No other
person or entity, including Borrower, is intended to be a third party
beneficiary of this Agreement.
17. Waiver of Jury Trial. THE FUND AND THE SELLER EACH HEREBY WAIVE THE
RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF,
OR IN ANY WAY RELATING TO THIS AGREEMENT. THIS WAIVER IS IRREVOCABLE, MEANING
THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THE WAIVER SHALL
APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO
THIS AGREEMENT. THE FUND AND THE SELLER WARRANT AND REPRESENT THAT EACH HAS
REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL, AND THAT EACH KNOWINGLY AND
VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL
COUNSEL. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN
CONSENT TO A TRIAL BY THE COURT.
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IN WITNESS WHEREOF, the parties hereto, through their duly authorized
representatives, have executed this Agreement as of the day and year first-above
written.
XXXXXXX XXXXXX MEZZANINE FUND, L.P.
By Xxxxxxx Xxxxxx Capital Partners LLP, its General Partner
/s/ Xxxxxx X. Xxxxx
--------------------------------------
By: Xxxxxx X. Xxxxx
Title: Managing Partner
/s/ Xxxx Xxxxxxxxxx
-------------------------------------
By: Xxxx Xxxxxxxxxx
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IN WITNESS WHEREOF, intending to be legally bound hereby Borrower and DPT
acknowledge and consent to the foregoing as of the day and year first above
written.
Xxxxxxx Educational Systems, Inc.
Attest:
By: /s/ Xxxx X. Xxxxxxx
-------------------------------- -----------------------------------------
Attest: Data Processing Trainers Co.
/s/ Xxxx X. Xxxxxxx
-------------------------------- ---------------------------------------------
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