EXHIBIT 4.2
EXECUTION COPY
SUBORDINATION AGREEMENT
THIS SUBORDINATION AGREEMENT dated as of July 19, 2002 (this
"Agreement") is among BANK ONE, NA, a national banking association with its main
office in Chicago, Illinois, and successor by merger to Bank One, Michigan
("Bank One"), as agent (in such capacity, the "Agent") for the Senior Lenders
(as defined below), the Subordinated Lenders (as defined below) party hereto
from time to time, and Childtime Childcare, Inc., an Illinois corporation (the
"Company").
BACKGROUND
As an inducement for Bank One to provide certain credit in favor of the
Company, the Subordinated Lenders have agreed to enter into this subordination
agreement to provide for the subordination of the "Subordinated Debt" to the
"Senior Debt", all on the terms and conditions herein set forth.
AGREEMENTS
NOW, THEREFORE, for good and valuable consideration, receipt of which
is hereby acknowledged, the parties hereto agree as follows:
1. Definitions.
1.1 General Terms. For purposes of this Agreement,
the following terms shall have the following respective meanings:
"Agreements" shall mean, collectively, the Senior
Lending Agreements and the Subordinated Lending Agreements.
"Common Stock" shall mean the common stock, no par
value, of Parent.
"Credit Agreement" shall mean the Amended and
Restated Credit Agreement, dated as of January 31, 2002, between the Company and
Bank One, as amended, supplemented, extended, modified, renewed, restated,
restructured, refinanced or replaced from time to time, and including without
limitation any agreement entered into in substitution therefor or increasing the
amount of available borrowings thereunder.
"Creditors" shall mean, collectively, Senior Lenders
and Subordinated Lenders and their respective successors and assigns.
"Distribution" shall mean any payment, whether in
cash, in kind, securities or any other property, or security for any such
Distribution.
"Event" shall have the meaning set forth in Section
2.2(c) hereof.
"Guarantor" shall mean any Person at any time
guaranteeing or otherwise contingently liable for or otherwise supporting
(including without limitation any Person granting a Lien on any of its assets to
secure) the Senior Debt or the Subordinated Debt.
"Lien" shall mean any pledge, assignment,
hypothecation, mortgage, deed of trust, security interest, deposit arrangement,
option, conditional sale or title retaining contract, sale and lease back
transaction, financing statement filing, intellectual property transfer or
assignment filing, lessor's or lessee's interest under any lease, subordination
of any claim or right, or any other type of lien, charge, assignment,
encumbrance, preferential arrangement or other claim or right.
"Obligations" shall mean all present and future
obligations for principal, premium, interest, make-whole payments, penalties,
fees, indemnifications, reimbursements, damages and other liabilities and
obligations under any of the Agreements and other documentation governing or
relating to the Senior Debt or the Subordinated Debt or otherwise owing pursuant
to the Senior Debt or the Subordinated Debt at any time.
"Obligors" shall mean, collectively, the Company and
the Guarantors, and "Obligor" shall mean any one of the Obligors.
"Parent" shall mean Childtime Learning Centers, Inc.,
a Michigan corporation.
"Person" shall mean an individual, a partnership, a
corporation (including a business trust), a joint stock company, a trust, an
unincorporated association, a joint venture, a limited liability company, a
limited liability partnership or other entity, or a government or any agency,
instrumentality or political subdivision thereof.
"Rights Offering" shall mean a rights offering by the
Company and/or Parent to shareholders of Parent to purchase Common Stock and
Rights Offering Notes with aggregate maximum net proceeds of up to $14,000,000
(including the principal amount of Subordinated Debt tendered as the purchase
price for the Common Stock and Rights Offering Notes).
"Rights Offering Notes" shall mean the Company's or
Parent's subordinated notes issued in connection with the Rights Offering, which
subordinated notes shall contain terms and provisions (including subordination
provisions) substantially similar to the Subordinated Notes and providing
subordination terms and provisions no less favorable to the Senior Lenders than
this Agreement provides with respect to the Subordinated Notes, except that all
interest payable thereunder may be payable in cash or cash equivalents.
"Senior Debt" shall mean all present and future
indebtedness, obligations and liabilities of any kind owing by the Company, any
Guarantor or any other Person to Senior Lenders or any of them from time to time
under or pursuant to any of the Senior Lending Agreements, including, without
limitation, all principal, interest accruing thereon, reimbursement and other
Obligations owing pursuant to any letters of credit or similar documents,
indemnities, charges, expenses, fees and other Obligations chargeable to the
Company, any Guarantor or any such other Person by Senior Lenders or any of them
or otherwise due and payable at any time to the Senior Lenders or any of them
(including without limitation all interest and fees and other amounts accruing
after commencement of any case, proceeding or other action relating to the
bankruptcy, insolvency or reorganization of the Company or any other Obligor,
whether or not an allowed claim). Senior Debt shall continue to constitute
Senior Debt, notwithstanding the fact that such Senior Debt or any claim for
such Senior Debt is subordinated,
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avoided or disallowed under the federal Bankruptcy Code or other applicable law.
Without limiting the foregoing, Senior Debt shall also include any indebtedness,
obligations and liabilities of the Company, any Guarantor or any such other
Person incurred in connection with a refinancing of the Senior Debt.
"Senior Lenders" shall mean the Agent, Bank One and
all other lenders now or hereafter parties to the Credit Agreement and any of
their affiliates and any other Persons at any time or in any manner acquiring
any right to or interest in any of the Senior Debt.
"Senior Lending Agreements" shall mean, collectively,
the Credit Agreement (as defined in this Agreement), and all promissory notes,
guarantees, security agreements, mortgages, pledges, collateral assignments,
financing statements and other agreements, instruments and documents from time
to time entered into by the Company, any Guarantor or any other Person to
evidence, secure or guarantee or otherwise relating in any way to, or executed
in connection with, the Senior Debt, and all agreements, devices and
arrangements providing for payments which are relating to fluctuations of
interest rates, exchange rates or forward rates (including without limitation
any interest rate swap agreements, dollar denominated or cross currency interest
rate exchange agreements, forward currency exchange agreements, interest rate
cap or collar protection agreements, forward rate currency or interest rate
options, puts and warrants) entered into by the Company with any Senior Lender
at any time, as all of the foregoing may be amended, modified, supplemented,
extended, renewed, restated or replaced from time to time.
"Subordinated Debt" shall mean all present and future
indebtedness, obligations and liabilities of any kind owing by the Company, any
Guarantor or any other Person to Subordinated Lenders or any of them from time
to time under any of the Subordinated Lending Agreements, including, without
limitation, all principal, interest accruing thereon, reimbursement and other
Obligations owing pursuant to any letters of credit or similar documents,
indemnities, charges, expenses, fees and other Obligations chargeable to the
Company, any Guarantor or any such other Person by Subordinated Lenders or any
of them or otherwise due and payable at any time to the Subordinated Lenders or
any of them (including without limitation all interest and fees and other
amounts accruing after commencement of any case, proceeding or other action
relating to the bankruptcy, insolvency or reorganization of the Company or any
other Obligor, whether or not an allowed claim). Without limiting the foregoing,
Subordinated Indebtedness shall also include any indebtedness (other than the
Rights Offering Notes, which shall otherwise be so subordinate pursuant to their
own terms), obligations and liabilities of the Company, any Guarantor or any
such other Person incurred in connection with a refinancing of the Subordinated
Indebtedness.
"Subordinated Lenders" shall mean, collectively, the
Persons identified on Schedule A attached hereto, all other holders of the
Subordinated Debt, if any, and all other Persons at any time or in any manner
acquiring any right to or interest in any of the Subordinated Debt.
"Subordinated Lending Agreements" shall mean,
collectively, the Subordinated Notes (as defined in this Agreement), and all
other promissory notes, guarantees and other agreements, instruments and
documents from time to time entered into by the Company, any Guarantor or any
other Person to evidence, secure or guarantee or otherwise relating in any way
to, or executed in connection with, the Subordinated Debt, and all agreements,
devices and arrangements providing for payments which are relating to
fluctuations of interest rates, exchange rates or forward rates (including
without limitation any interest rate swap agreements, dollar denominated or
cross currency interest rate exchange agreements, forward currency exchange
agreements, interest rate cap or collar protection agreements, forward rate
currency or interest rate options, puts and warrants) entered into by the
Company with any Subordinated Lender at any time, as all of the foregoing may be
amended, modified,
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supplemented, extended, renewed, restated or replaced from time to time.
Notwithstanding the foregoing, Subordinated Lending Agreements do not include
the Rights Offering Notes.
"Subordinated Notes" shall mean the Subordinated
Promissory Notes in the aggregate principal amount of $14,000,000 dated July 19,
2002 made by the Company in favor of the Subordinated Lenders, as amended,
modified, supplemented, extended, renewed, restated, restructured, refinanced or
replaced from time to time, and including any promissory note or notes issued in
substitution therefor.
1.2 Other Terms. Capitalized terms not otherwise
defined herein shall have the respective meanings given to them in the Credit
Agreement.
1.3 Certain Matters of Construction. The terms
"herein", "hereof" and "hereunder" and other words of similar import refer to
this Agreement as a whole and not to any particular section, paragraph or
subdivision. Any pronoun used shall be deemed to cover all genders. Wherever
appropriate in the context, terms used herein in the singular also include the
plural and vice versa. All references to statutes and related regulations shall
include any amendments of same and any successor statutes and regulations. All
references to any instruments or agreements, including, without limitation,
references to any of the Senior Lending Agreements or Subordinated Lending
Agreements shall include any and all modifications or amendments thereto and any
and all extensions or renewals thereof.
2. Covenants. The Company and each Subordinated Lender hereby
covenant and agree that until the Senior Debt shall have been paid in full and
satisfied in cash and the Credit Agreement, all commitments to lend or otherwise
extend credit under the Credit Agreement and the other Senior Lending Agreements
and any and all letters of credit issued pursuant thereto shall have expired or
been irrevocably terminated, all in accordance with the terms of the Credit
Agreement and the other Senior Lending Agreements, each of them will comply with
such of the following provisions as are applicable to it:
2.1 Transfers; Etc. Each Subordinated Lender
covenants that any transferee from it of any Subordinated Debt (other than
transfers between and among existing Subordinated Lenders that are party to this
Agreement on the date hereof) shall (a) be approved in writing by the Agent in
its sole discretion prior to any transfer or assignment and (b) prior to
acquiring such interest, execute and deliver a counterpart of this Subordination
Agreement to each other party hereto. The Company covenants that any holder of
any Subordinated Debt at any time and any Guarantor shall promptly execute and
deliver a counterpart of this Subordination Agreement to each other party
hereto.
2.2 Subordinated Debt Subordination Provisions. To
induce Bank One to enter into the Credit Agreement and Bank One and other Senior
Lenders from time to time to make and continue to make from time to time loans
and other extensions of credit under the Credit Agreement and the other Senior
Lending Agreements, notwithstanding any other provision of the Subordinated Debt
or the Subordinated Lending Agreements to the contrary, the Subordinated Debt
and any Distribution with respect to the Subordinated Debt is and shall be
expressly junior and subordinated in right of payment to all amounts due and
owing upon all Senior Debt from time to time. Specifically, but not by way of
limitation:
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(a) Payments. Neither the Company nor any other
Obligor shall make any Distribution on the Subordinated Debt until such time as
the Senior Debt shall have been paid in full and satisfied in cash and the
Credit Agreement, all commitments to lend or otherwise extend credit under the
Credit Agreement and the other Senior Lending Agreements and any and all letters
of credit issued pursuant thereto shall have expired or been irrevocably
terminated, all in accordance with the terms of the Credit Agreement and the
other Senior Lending Agreements; provided, however, so long as no event of
default or other default in connection with any Senior Debt, including without
limitation any Event of Default or Default, shall have occurred and be
continuing or would be caused thereby, (i) the Company may pay and the
Subordinated Lenders may receive regularly scheduled payments of interest on the
Subordinated Debt in accordance with the terms of the Subordinated Lending
Agreements as in effect on the date hereof, on a non-accelerated basis and
without giving effect to any modifications of any Subordinated Lending
Agreements not permitted hereby, and (ii) in connection with the consummation of
the Rights Offering:
(x) the Company and/or the Parent may issue, and the Subordinated
Lenders may receive, Rights Offering Notes and Common Stock in consideration of
Subordinated Debt tendered by the holders thereof, and accrued and unpaid
interest on the Subordinated Debt used by the Subordinated Lenders, as payment
for the purchase price for the Rights Offering Notes and Common Stock,
(y) the Company may use the cash proceeds of the Rights Offering to
repay the outstanding principal amount of, and to pay accrued and unpaid
interest on, the Subordinated Debt that is not used to purchase Rights Offering
Notes and Common Stock in the Rights Offering and the Lenders may receive such
amounts, and
(z) to the extent that the principal of the Subordinated Debt is being
so tendered or repaid in full and the related accrued interest is not covered
under clauses (x) and (y) above, the Company may use working capital to pay
accrued interest on the Subordinated Debt that would have been payable at the
next regularly scheduled payment date and is otherwise permitted to be paid
under clause (i) above.
Notwithstanding anything to the contrary, (1) no interest in excess of a per
annum rate of return of 7% on the Subordinated Debt shall be paid pursuant to
the foregoing proviso until such time on or after March 31, 2003 at which the
Senior Debt to EBITDA Ratio (as defined in the Credit Agreement) is not greater
than 3.00 to 1.00 as of the end of the fiscal quarter of the Parent immediately
preceding such payment and would not be greater than 3.00 to 1.00 after giving
effect to such payment, and no other event of default or other default in
connection with any Senior Debt, including without limitation any Event of
Default or Default, shall have occurred and be continuing or would be caused
thereby, and (2) if the Company and/or the Parent has not cancelled Subordinated
Debt as payment solely of the purchase price for Common Stock issued pursuant to
the Rights Offering, and/or received net cash proceeds attributable solely to
Common Stock issued pursuant to the Rights Offering, in an aggregate amount of
$7,500,000 or more by July 19, 2003, then, at all times thereafter until the
Company's and/or the Parent's cancellation of Subordinated Debt as payment
solely for the purchase price of Common Stock issued pursuant to the Rights
Offering, and/or receipt of net cash proceeds attributable solely to Common
Stock issued pursuant to the Rights Offering, in an aggregate amount of
$7,500,000, only interest payable in kind with the issuance of additional
securities shall be paid on the Subordinated Debt pursuant to the above proviso
in this Section 2.2(a) and no Interest on the Subordinated Debt shall be payable
in cash or cash equivalents.
(b) No Acceleration, Exercise of Remedies, Etc.
No Subordinated Lender shall be entitled to accelerate the maturity of the
Subordinated Debt, exercise any remedies with respect to the Subordinated Debt,
commence or join with any other creditors in commencing any bankruptcy,
reorganization, receivership or insolvency proceeding against the Company or any
Obligor or commence any other action or proceeding to recover any amounts due or
to become due with respect
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to any Subordinated Debt, provided, however, the foregoing limitation on
acceleration or exercise of any remedies shall not be applicable following the
occurrence of an Event (as to which Section 2.2(c) shall apply). If,
notwithstanding the foregoing, any acceleration or exercise of any remedies of
any kind with respect to the Subordinated Debt shall occur, then such
acceleration or exercise and any Distribution on the Subordinated Debt shall be
subject to the subordination and other terms and provisions of this Section 2.2
and otherwise under this Agreement.
(c) Prior Payment of Senior Debt in Bankruptcy,
Etc. In the event of any insolvency or bankruptcy proceedings relative to the
Company or any other Obligor or any of their respective property, or any
receivership, liquidation, reorganization or other similar proceedings in
connection therewith, or, in the event of any proceedings for voluntary
liquidation, dissolution or other winding up of the Company or any other Obligor
or distribution or marshaling of its assets or any composition with creditors of
the Company or any other Obligor, whether or not involving insolvency or
bankruptcy, or if the Company or any other Obligor shall cease its operations,
call a meeting of its creditors or no longer do business as a going concern
(each individually or collectively, an "Event"), then all Senior Debt shall be
paid in full in cash and the Credit Agreement, all commitments to lend or
otherwise extend credit under the Credit Agreement and the other Senior Lending
Agreements and any and all letters of credit issued pursuant thereto irrevocably
terminated before any Distribution shall be made on account of any Subordinated
Debt, provided, however, that Subordinated Lenders may receive (and shall be
entitled to retain) securities which are subordinate to (at least to the extent
that the Subordinated Debt is subordinate to the Senior Debt pursuant to the
terms hereof) the payment of all Senior Debt. Any such Distribution which would,
but for the provisions hereof, be payable or deliverable in respect of the
Subordinated Debt, shall be paid or delivered directly to the Senior Lenders or
their representatives, in the proportions in which they hold the same, until all
amounts owing upon the Senior Debt shall have been paid in full in cash and the
Credit Agreement, all commitments to lend or otherwise extend credit under the
Credit Agreement and the other Senior Lending Agreements and any and all letters
of credit issued pursuant thereto have been irrevocably terminated, all in
accordance with the terms of the Credit Agreement and the other Senior Lending
Agreements.
(d) Power of Attorney. To enable the Senior
Lenders to assert and enforce their rights hereunder in any proceeding referred
to in Section 2.2(c) or upon the happening of any Event, if any Subordinated
Lender does not act within 30 days prior to the last day for filing claims, the
Agent or any other Person whom the Senior Lenders may designate is hereby
irrevocably appointed attorney in fact for such Subordinated Lender with full
power to act in the place and stead of such Subordinated Lender including the
right to make, present, file and vote such proofs of claim against the Company
or any other Obligor on account of all or any part of the Subordinated Debt as
Agent may deem advisable and to receive and collect any and all dividends or
other payments made thereon and to apply the same on account of the Senior Debt
and including the right to exercise voting or approvals rights. The Subordinated
Lenders will execute and deliver to the Senior Lenders such instruments as may
be required by the Senior Lenders to enforce any and all Subordinated Debt, to
effectuate the aforesaid power of attorney and to effect collection of any and
all dividends or other payments which may be made at any time on account
thereof.
(e) Cross-Default. Notwithstanding anything in
the Senior Lending Agreements or the Subordinated Lending Agreements to the
contrary, any event of default under the Subordinated Lending Agreements shall
automatically constitute an event of default under the Senior Lending
Agreements.
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(f) Payments Held In Trust. Should any
Distribution or the proceeds thereof, in respect of the Subordinated Debt, be
collected or received by any Subordinated Lender or any Affiliate of any such
holder at a time when the Subordinated Lenders are not permitted, pursuant to
the terms hereof, to receive any such Distribution or proceeds thereof, then
each Subordinated Lender will forthwith deliver, or cause to be delivered, the
same to the Senior Lenders in precisely the form held by such Subordinated
Lender (plus any necessary endorsements) and, until so delivered, the same shall
be held in trust by each Subordinated Lender, or any such Affiliate, as the
property of the Senior Lenders and shall not be commingled with other property
of such Subordinated Lender or any such Affiliate.
(g) Subrogation. Subject to the prior payment in
full in cash of the Senior Debt and the irrevocable termination of the Credit
Agreement, all commitments to lend or otherwise extend credit under the Senior
Lending Agreements and any and all letters of credit issued pursuant thereto,
all in accordance with the terms of the Credit Agreement and the other Senior
Lending Agreements, to the extent that Senior Lenders have received any
Distribution on the Senior Debt which, but for this Agreement, would have been
applied to the Subordinated Debt, the Subordinated Lenders shall be subrogated
to the then or thereafter rights of the Senior Lenders including, without
limitation, the right to receive any Distribution made on the Senior Debt until
the principal of, interest on and other charges due under the Subordinated Debt
shall be paid in full; and, for the purposes of such subrogation, no
Distribution to the Senior Lenders to which the Subordinated Lenders in respect
of the Subordinated Debt would be entitled except for the provisions of this
Agreement, and no delivery to the Senior Lenders by the Subordinated Lenders
pursuant to Section 2.2(f) hereof, shall, as between the Company, its creditors
(other than the Senior Lenders) and the Subordinated Lenders, be deemed to be a
Distribution by the Company to or on account of Senior Debt, it being understood
that the provisions hereof are and are intended solely for the purpose of
defining the relative rights of the Subordinated Lenders on the one hand, and
the Senior Lenders on the other hand.
2.3 Liens. The Company, the other Obligors and the
Subordinated Lenders acknowledge, agree and represent and warrant to the Senior
Lenders that there are not and will not be any Liens on or with respect to any
assets of the Company, any Guarantor or any other Obligor at any time to secure
all or any part of the Subordinated Debt and any such Lien shall be null and
void.
3. Miscellaneous.
3.1 Scope of Subordination. The provisions of this
Agreement are solely to define the relative rights of the Subordinated Lenders
and the Senior Lenders. Nothing in this Agreement shall impair, as between the
Company and the Subordinated Lenders, the unconditional and absolute obligation
of the Company to punctually pay the principal, interest and any other amounts
and obligations owing under the Subordinated Lending Agreements in accordance
with the terms thereof, subject to the rights of the Senior Lenders under this
Agreement.
3.2 Provisions of Subordinated Lending Agreements.
From and after the date hereof, the Company, each other Obligor and the
Subordinated Lenders shall cause each Subordinated Lending Agreement to contain
a provision to the following effect:
"This [describe agreement/instrument] is subject to the
Subordination Agreement, dated as of July 19, 2002, among the
Company, the Subordinated Lenders (as defined therein) and
Bank One, NA, as agent for the Senior Lenders, under which
this [describe
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agreement/instrument] and the [Obligor's] obligations
hereunder and other rights of the [Holder] are subordinated in
the manner set forth therein to the prior payment of
obligations to the holders of Senior Debt (as defined therein)
and all collateral security therefor."
Proof of compliance with the foregoing shall be promptly given to Senior Lenders
by notice in accordance with Section 3.7 below.
3.3 Additional Agreements. In the event that the
Senior Debt is refinanced in full, each Subordinated Lender agrees at the
request of such refinancing party to enter into a subordination agreement on
terms substantially the same as this Subordination Agreement.
3.4 Survival of Rights. The right of Senior Lenders
to enforce the provisions of this Agreement shall not be prejudiced or impaired
by any act or omitted act of any Senior Lender, the Company, any Guarantor or
any other Person, including forbearance, waiver, consent, compromise, amendment,
extension, renewal, or taking or release of security in respect of any Senior
Debt or noncompliance by the Company, any Guarantor or any other Person with
such provisions, regardless of the actual or imputed knowledge of Senior
Lenders.
3.5 No Amendment of Subordinated Lending Agreements.
So long as the Credit Agreement remains in effect or any Senior Debt is
outstanding, neither the Company nor any other Obligor nor any Subordinated
Lender shall enter into any amendment to or modification of any of the
Subordinated Lending Agreements or any supplemental or other agreement or
instrument evidencing or relating to the Subordinated Debt unless agreed to by
the Agent and Senior Lenders who together hold at least two-thirds (2/3) of the
Senior Debt (or commitments to lend under the Senior Lending Agreements). The
Subordinated Lenders will not give any subordination with respect to the
Subordinated Debt to any other Person other than the Agent and the Senior
Lenders.
3.6 Amendments to Senior Lending Agreements. Nothing
contained in this Agreement, or in any other agreement or instrument binding
upon any of the parties hereto, shall in any manner limit or restrict the
ability of the Senior Lenders from increasing or changing the terms of the
Senior Debt under the Senior Lending Agreements, or to otherwise waive, amend or
modify the terms and conditions of the Senior Lending Agreements, in such manner
as the Senior Lenders and the Company shall mutually determine. Each
Subordinated Lender hereby consents to any and all such waivers, amendments,
modifications and compromises, and any other renewals, extensions, indulgences,
releases of collateral or other accommodations granted by the Senior Lenders to
the Company or any other Obligor from time to time, and agrees that none of such
actions shall in any manner affect or impair the subordination established by
this Subordination Agreement in respect of the Subordinated Debt.
3.7 Notices.Any notice or other communication
required or permitted pursuant to this Agreement shall be deemed given (a) when
personally delivered to any officer of the party to whom it is addressed, (b) on
the earlier of actual receipt thereof or three (3) days following posting
thereof by certified or registered mail, postage prepaid, (c) upon actual
receipt thereof when sent by a recognized overnight delivery service or (d) upon
actual receipt thereof when sent by telecopier to the number set forth below
with electronic confirmation of receipt, in each case addressed to each party at
its address set forth below or at such other address as has been furnished in
writing by a party to the other by like notice:
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If to Senior Lenders: c/o Bank One, NA
00000 Xxxxxxxxxxxx Xxxxxxx
XX0-0000
Xxxxxxxxxx, Xxxxxxxx 00000
Attention: Xxxxxxx X. Xxxxx
Telephone: (000) 000-0000
Telecopier: (000) 000-0000
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If to Subordinated Lenders: c/o Jacobson Partners
000 Xxxxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxxxx Xxxxxxxx
Telephone: (000) 000-0000
Telecopier: (000) 000-0000
If to Company: Childtime Childcare, Inc.
00000 Xxxx 00 Xxxx Xxxx, Xxxxx 000
Xxxxxxxxxx Xxxxx, Xxxxxxxx 00000
Attention: Chief Financial Officer
Telephone: (000) 000-0000
Telecopier: (000) 000-0000
3.8 Representations. Each party hereto represents and
warrants to the other parties that (a) the execution, delivery and performance
of this Agreement are within such party's powers, have been duly authorized and
are not in contravention of law or of the terms of such party's charter
documents or of any law, order, judgment, decree, contract or undertaking to
which such party is a party or by which such party or any of such party's
properties is bound or affected; (b) this Agreement constitutes the legal, valid
and binding obligation of such party, enforceable against such party in
accordance with its terms; and (c) such party has not heretofore assigned or
transferred, or given any subordination in respect of, any of the Subordinated
Debt.
3.9 Additional Representations of the Subordinated
Lenders and the Company. The Subordinated Lenders and the Company hereby
represent and warrant to the Senior Lenders that: (a) attached hereto as
Schedule B are true, correct and complete copies of the forms of all
Subordinated Lending Agreements, and the sole originals of all promissory notes
or other instruments evidencing any Subordinated Debt have been conspicuously
imprinted with the legend required by Section 3.2 hereof, (b) as of the date
hereof, the total principal balance of the Subordinated Debt is $14,000,000, and
the Subordinated Lenders have made such Subordinated Debt available to the
Company in cash on the date hereof; (c) the Subordinated Lenders have not relied
and will not rely on any representation or information of any nature made by or
received from any Senior Lender relative to the Company; (d) the Subordinated
Lenders have not heretofore assigned or transferred any of the Subordinated Debt
or any interest therein or any rights pertaining thereto; (e) the Subordinated
Lenders have not heretofore given any subordination in respect of the
Subordinated Debt and will not hereafter give any subordination with respect
thereto at any time; and (f) there is no interest, fees or other compensation
paid or payable by the Company, the Parent or any of its Subsidiaries to the
Subordinated Lenders with respect to the Subordinated Debt except as described
in the Subordinated Lending Agreements.
3.10 Governing Law. This Agreement shall be governed
by and construed in accordance with the laws of the State of Michigan, without
giving effect to the choice of law principles of such State.
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3.11 Counterparts. This Agreement may be executed in
any number of counterparts, all of which taken together shall constitute one in
the same instrument and any of the parties hereto may execute this Agreement by
signing any such counterpart.
3.12 Amendments; Successors and Assigns. No provision
of this Agreement may be modified or waived except by an instrument or
instruments in writing signed by the Senior Lenders (or the requisite number of
Senior Lenders as may be required pursuant to the Senior Lending Agreements),
the Subordinated Lenders (or the requisite number of Subordinated Lenders as may
be required under the Subordinated Lending Agreements) and the Company. This
Agreement shall bind the parties hereto and their respective successors and
assigns, and shall inure to the benefit of their respective successors and
assigns.
3.13 This Agreement Controls. The subordination and
related provisions contained in this Agreement are in addition to and supplement
all debt subordination and other provisions contained in the Subordinated
Lending Agreements and any other instruments or agreements evidencing or
relating to the Subordinated Debt in favor of or for the benefit of the Senior
Lenders; provided that, in the event of any conflict between this Agreement and
the Subordinated Lending Agreements or such other instruments and agreements,
the terms of this Agreement shall control.
[The remainder of this page intentionally left blank.]
-11-
WITNESS the due execution of this Agreement as of the day and
year first above written.
BANK ONE, NA, as agent for the Senior
Lenders
By: /s/ Xxxx X. Xxxxxx
--------------------------------------------------
Its: Senior Vice President
---------------------------------------------
CHILDTIME CHILDCARE, INC.
By: /s/ Xxxxx Xxxxxx
--------------------------------------------------
Its: VP of Operations
---------------------------------------------
CHILDTIME CHILDCARE, INC., AS ATTORNEY-IN-FACT FOR
EACH SUBORDINATED LENDER LISTED ON SCHEDULE A HERETO
By: /s/ Xxxxx Xxxxxx
--------------------------------------------------
Its: VP of Operations
---------------------------------------------
-12-
SCHEDULE A
SUBORDINATED LENDERS
Amcito Partners, L.P.
Xxxxxxx X. Xxxxxxxx
Barcam Holdings, Inc.
Xxxxx Xxxx
Xxxxxx Xxxxxxx
Xxxxxxx X. Xxxxx
Xxxx Xxxxxxxxx and Xxxxxxx Xxxxxxxxx, JTWROS
Xxxxxx Xxxxxxx
Xxxxxx Xxxxxxxx
Xxxxx X. Xxxxxxxx
X. X. Xxxxxx, Xx.
Xxxxxxxxxxx X. Xxxxx
Xxxxxxxx X. Xxxxx
HVS Boxers LLC
Xxxxxxxx X. Xxxxxxxx
Xxxx X. Xxxxxxxx Trust, Xxxxxxx Xxxxx, Trustee
JP Acquisition Fund II, L.P.
JP Acquisition Fund III, L.P.
Xxxxxxxx Xxxxxxx
Xxxxxxx Xxxxxxx Trust, Xxxxxxx Xxxxx, Trustee
Xxxxxx X. Xxxxxxx
Xxxxx X. Xxxxxx
QFG Ventures, L.P.
Xxxxxx X. Xxxxxx
Xxxxx and Xxxxxxx Xxxxx, JTWROS
Xxxxxxx Xxxxxxxx and Xxxx X. Xxxxxxxx, JTWROS
Xxxx Xxxxxxxxxx
Xxxxxxx X. Xxxxxx
SCHEDULE B
LIST OF ALL SUBORDINATED LENDING AGREEMENTS:
Complete copies of the forms of all Subordinated Lending Agreements are
attached
-14-
SCHEDULE B
THIS SUBORDINATED PROMISSORY NOTE IS SUBJECT TO THE SUBORDINATION AGREEMENT,
DATED AS OF JULY 19, 2002, AMONG THE COMPANY, THE SUBORDINATED LENDERS (AS
DEFINED THEREIN) AND BANK ONE, NA, AS AGENT FOR THE SENIOR LENDERS (THE
"SUBORDINATION AGREEMENT") UNDER WHICH THIS SUBORDINATED PROMISSORY NOTE AND THE
COMPANY'S OBLIGATIONS HEREUNDER AND OTHER RIGHTS OF THE PROMISEE ARE
SUBORDINATED IN THE MANNER SET FORTH THEREIN TO THE PRIOR PAYMENT OF OBLIGATIONS
TO THE HOLDERS OF SENIOR DEBT (AS DEFINED THEREIN) AND ALL COLLATERAL SECURITY
THEREFOR.
SUBORDINATED PROMISSORY NOTE
$ July 19, 2002
--------------
FOR VALUE RECEIVED, the undersigned, Childtime Childcare, Inc., an Illinois
corporation (the "Company"), hereby promises to pay to the order of
______________________________ (the "Promisee," which term shall include any
subsequent holder or transferee of this Subordinated Promissory Note (this
"Subordinated Note")), c/o Jacobson Partners, 000 Xxxxxxx Xxxxxx, Xxx Xxxx, Xxx
Xxxx 00000, in lawful money of the United States, on December 31, 2004 (the
"Maturity Date"), the principal sum of _________________________
___________________________________________ ($_________) together with interest
on the principal amount outstanding hereunder from time to time, from the date
hereof to and including the date such principal sum is paid in full at the rate
of fifteen percent (15%) per annum; provided, however, that (i) subject to the
terms and conditions of clause (ii) of this proviso, prior to December 31, 2004,
(A) the amount of such interest payable in cash shall equal a per annum rate of
seven percent (7%) and (B) all other interest payable hereunder (i.e., other
than in cash) shall be payable only in kind with the issuance by the Company to
the Promisee of additional subordinated notes in substantially the same form as
is attached hereto as Exhibit 1 (the "Additional Subordinated Notes"); and (ii)
if, on or before July 19, 2003, the Company and/or its parent, Childtime
Learning Centers, Inc., a Michigan corporation (the "Parent"), has failed to
consummate a rights offering to shareholders of the Parent's common stock to
purchase common stock of the Parent and subordinated debt of the Company or the
Parent (the "Rights Offering"), in which Rights Offering the Company and/or the
Parent has cancelled Subordinated Notes as payment solely of the purchase price
for common stock of the Parent and/or received net cash proceeds attributable
solely to common stock in an aggregate amount of at least $7,500,000 (the
"Minimum Net Proceeds"), then at all times thereafter until the earlier of (A)
December 31, 2004 and (B) the date on which the Company and/or the Parent has
received, in the aggregate, the Minimum Net Proceeds, all interest payable
hereunder shall be payable only in kind with the issuance of Additional
Subordinated Notes, each in the principal amount equal to the amount of accrued
and unpaid interest that would have been payable in cash but for the provisions
of this clause (ii). All cash interest payable hereunder shall be due and
payable in arrears on the last day of each calendar quarter commencing on
September 30, 2002 (which shall be the first scheduled interest payment date).
The Company shall issue any Additional Subordinated Notes required to be issued
hereunder on the last day
of each calendar quarter commencing September 30, 2002. All interest payable
hereunder shall be computed on the basis of a year of 360 days for the actual
number of days elapsed. If the Company shall fail to pay any principal of or
interest on this Subordinated Note when due, such unpaid amount shall bear
interest, payable on demand, at a rate of eighteen percent (18%) per annum.
Notwithstanding anything to the contrary contained herein, in no event shall the
total of all charges payable under this Subordinated Note, which are or could be
held to be in the nature of interest, exceed the maximum rate permitted to be
charged under applicable law. Should the Promisee receive any payment, which is
or would be in excess of that permitted to be charged under any such applicable
usury law, such payment shall have been, and shall be deemed to have been, made
in error and shall automatically be applied to reduce the principal balance
outstanding on this Subordinated Note or refunded if such principal has already
been paid in full.
If any payment of this Subordinated Note becomes due and payable on a Saturday,
Sunday or business holiday in the State of Michigan, the maturity thereof shall
be extended to the next succeeding business day, and interest shall be payable
thereon at the rate herein specified during such extension.
Except as otherwise provided in this Subordinated Note, this Subordinated Note
may be prepaid in whole at any time or from time to time in part, with accrued
interest to the date of such prepayment on the amount prepaid, without premium
or penalty.
All payments hereunder shall be applied first to the payment of interest accrued
and unpaid, then to the repayment of principal outstanding and unpaid.
If: (i) the Company fails to pay any of its obligations under this Subordinated
Note when due hereunder and such failure is not cured within three business days
thereafter; (ii) the Company shall (a) commence any case, proceeding or other
action under any existing or future law of any jurisdiction, domestic or
foreign, relating to bankruptcy, insolvency, reorganization, or relief of
debtors, seeking to have an order for relief entered with respect to it, or
seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization,
arrangement, adjustment, winding-up, liquidation, dissolution, composition, or
other relief with respect to it or its debts, or (b) commence any case,
proceeding, or other action seeking appointment of a receiver, trustee,
custodian, or other similar official for it or for all or any substantial part
of its assets, or (c) make a general assignment for the benefit of its
creditors; (iii) there shall be commenced against the Company any case,
proceeding or other action of a nature referred to in clause (ii) above that (a)
results in the entry of an order for relief or any such adjudication or
appointment, and (b) remains undismissed, undischarged, or unbonded for a period
of ninety (90) days; or (iv) there shall be commenced against the Company any
case, proceeding or other action seeking issuance of a warrant of attachment,
execution, distraint, or similar process against all or any substantial part of
its assets that results in the entry of an order for any such relief that shall
not have been vacated, discharged, or stayed or bonded pending appeal within
ninety (90) days after the entry thereof; then, upon two (2) days' notice of
such occurrence by the Promisee to the Company, the Promisee hereof may declare
the outstanding unpaid principal balance hereof and all accrued and unpaid
interest thereon immediately due and payable (provided that
-2-
no such notice shall be required with respect to an event described in clauses
(ii) or (iii), in which cases the unpaid principal balance hereof and all
accrued interest thereon shall become immediately due and payable) and the
Company shall immediately pay to the holder all such amounts, with interest
accrued but unpaid thereon to the date of payment in full at the applicable rate
provided herein.
The Company agrees to pay all collection expenses, court costs, and reasonable
attorney fees and disbursements (whether or not litigation is commenced) that
may be incurred in connection with the collection or enforcement of this
Subordinated Note.
The Promisee, by acceptance of this Subordinated Note, agrees that payment of
the principal and interest evidenced by this Subordinated Note and the Company's
other obligations hereunder is subordinated in the manner and to the extent
referred to in the Subordination Agreement entered into by the Promisee (or by
the Company on behalf of the Promisee) in accordance with the Subscription
Agreement executed by the Promisee.
Any subsequent holder or transferee of this Subordinated Note, by its acceptance
hereof, agrees that it shall execute instruments confirming that it is bound by
the foregoing subordination provisions, including any agreement evidencing such
subordination.
The Company hereby waives presentment, demand for payment, notice of dishonor,
protest and notice of protest of this Subordinated Note, and agrees to pay all
costs of collection when incurred, including reasonable attorneys' fees, whether
suit be brought or not. No alteration, amendment or waiver of any provision of
this Subordinated Note made by agreement of the Promisee and any other person or
party shall constitute a waiver of any other term hereof, or otherwise release
or discharge the liability of the Company under this Subordinated Note. This
Subordinated Note may not be changed or terminated orally.
Time is of the essence as to all dates set forth herein.
This Subordinated Note shall be governed by and construed in accordance with the
laws of the State of Michigan applicable to contracts made and to be performed
therein.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
-3-
This Subordinated Note has not been registered under the Securities Act of 1933,
as amended (the "Act"), or any state securities law, and may not be sold,
mortgaged, pledged, hypothecated or otherwise transferred in the absence of such
registration or an exemption therefrom under the Act and applicable state
securities law.
CHILDTIME CHILDCARE, INC.
By:
---------------------------------
Name:
Title:
-4-
EXHIBIT 1
THIS SUBORDINATED PROMISSORY NOTE IS SUBJECT TO THE SUBORDINATION AGREEMENT,
DATED AS OF JULY 19, 2002, AMONG THE COMPANY, THE SUBORDINATED LENDERS (AS
DEFINED THEREIN) AND BANK ONE, NA, AS AGENT FOR THE SENIOR LENDERS (THE
"SUBORDINATION AGREEMENT") UNDER WHICH THIS SUBORDINATED PROMISSORY NOTE AND THE
COMPANY'S OBLIGATIONS HEREUNDER AND OTHER RIGHTS OF THE PROMISEE ARE
SUBORDINATED IN THE MANNER SET FORTH THEREIN TO THE PRIOR PAYMENT OF OBLIGATIONS
TO THE HOLDERS OF SENIOR DEBT (AS DEFINED THEREIN) AND ALL COLLATERAL SECURITY
THEREFOR.
SUBORDINATED PROMISSORY NOTE
$ , 200
------------ ------------ -
FOR VALUE RECEIVED, the undersigned, Childtime Childcare, Inc., an Illinois
corporation (the "Company"), hereby promises to pay to the order of
_______________________________ (the "Promisee," which term shall include any
subsequent holder or transferee of this Subordinated Promissory Note (this
"Subordinated Note")), c/o Jacobson Partners, 000 Xxxxxxx Xxxxxx, Xxx Xxxx, Xxx
Xxxx 00000, in lawful money of the United States, on December 31, 2004 or such
earlier date as provided below (the "Maturity Date"), the principal sum of
____________________________________ ($_________) together with interest on the
principal amount outstanding hereunder from time to time, from the date hereof
to and including the date such principal sum is paid in full at the rate of
fifteen percent (15%) per annum. All interest payable hereunder shall be due and
payable on the Maturity Date. If the Company and/or its parent, Childtime
Learning Centers, Inc., a Michigan corporation (the "Parent"), consummates a
rights offering to shareholders of the Parent's common stock to purchase common
stock of the Parent and subordinated debt of the Company or the Parent (the
"Rights Offering"), such that the Company and/or the Parent cancels subordinated
notes as payment solely of the purchase price for common stock of the Parent
and/or receives net cash proceeds attributable solely to common stock in an
aggregate amount of at least $7,500,000 (the "Minimum Net Proceeds"), then the
principal amount hereof and all accrued interest payable hereunder shall be
payable in cash on the later of (A) March 31, 2003 and (B) if on March 31, 2003,
the Senior Debt to EBITDA Ratio (as each such term is defined in the Second
Amended and Restated Credit Agreement between the Company and Bank One, NA,
dated as of January 31, 2002, as amended (the "Credit Agreement")) is greater
than 3.00 to 1.00 as of the end of the fiscal quarter of the Parent immediately
preceding such payment or would be greater than 3.00 to 1.00 after giving effect
to such payment, such later date on which the Senior Debt to EBITDA Ratio is
3.00 to 1.00 or less. Interest shall be compounded quarterly and shall be
computed on the basis of a year of 360 days for the actual number of days
elapsed. If the Company shall fail to pay any principal of or interest on this
Subordinated Note when due, such unpaid amount shall bear interest, payable on
demand, at a rate of eighteen percent (18%) per annum.
Notwithstanding anything to the contrary contained herein, in no event shall the
total of all charges payable under this Subordinated Note, which are or could be
held to be in the nature of interest, exceed the maximum rate permitted to be
charged under applicable law. Should the Promisee receive any payment, which is
or would be in excess of that permitted to be charged under any such applicable
usury law, such payment shall have been, and shall be deemed to have been, made
in error and shall automatically be applied to reduce the principal balance
outstanding on this Subordinated Note or refunded if such principal has already
been paid in full.
If any payment of this Subordinated Note becomes due and payable on a Saturday,
Sunday or business holiday in the State of Michigan, the maturity thereof shall
be extended to the next succeeding business day, and interest shall be payable
thereon at the rate herein specified during such extension.
Except as otherwise provided in this Subordinated Note, this Subordinated Note
may be prepaid in whole at any time or from time to time in part, with accrued
interest to the date of such prepayment on the amount prepaid, without premium
or penalty.
All payments hereunder shall be applied first to the payment of interest accrued
and unpaid, then to the repayment of principal outstanding and unpaid.
If: (i) the Company fails to pay any of its obligations under this Subordinated
Note when due hereunder and such failure is not cured within three business days
thereafter; (ii) the Company shall (a) commence any case, proceeding or other
action under any existing or future law of any jurisdiction, domestic or
foreign, relating to bankruptcy, insolvency, reorganization, or relief of
debtors, seeking to have an order for relief entered with respect to it, or
seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization,
arrangement, adjustment, winding-up, liquidation, dissolution, composition, or
other relief with respect to it or its debts, or (b) commence any case,
proceeding, or other action seeking appointment of a receiver, trustee,
custodian, or other similar official for it or for all or any substantial part
of its assets, or (c) make a general assignment for the benefit of its
creditors; (iii) there shall be commenced against the Company any case,
proceeding or other action of a nature referred to in clause (ii) above that (a)
results in the entry of an order for relief or any such adjudication or
appointment, and (b) remains undismissed, undischarged, or unbonded for a period
of ninety (90) days; or (iv) there shall be commenced against the Company any
case, proceeding or other action seeking issuance of a warrant of attachment,
execution, distraint, or similar process against all or any substantial part of
its assets that results in the entry of an order for any such relief that shall
not have been vacated, discharged, or stayed or bonded pending appeal within
ninety (90) days after the entry thereof; then, upon two (2) days' notice of
such occurrence by the Promisee to the Company, the Promisee hereof may declare
the outstanding unpaid principal balance hereof and all accrued and unpaid
interest thereon immediately due and payable (provided that no such notice shall
be required with respect to an event described in clauses (ii) or (iii), in
which cases the unpaid principal balance hereof and all accrued interest thereon
shall become immediately due and payable) and the Company shall immediately pay
to the holder all such amounts, with interest accrued but unpaid thereon to the
date of payment in full at the applicable rate provided herein.
2
The Company agrees to pay all collection expenses, court costs, and reasonable
attorney fees and disbursements (whether or not litigation is commenced) that
may be incurred in connection with the collection or enforcement of this
Subordinated Note.
The Promisee, by acceptance of this Subordinated Note, agrees that payment of
the principal and interest evidenced by this Subordinated Note and the Company's
other obligations hereunder is subordinated in the manner and to the extent
referred to in the Subordination Agreement entered into by the Promisee (or by
the Company on behalf of the Promisee) in accordance with the Subscription
Agreement executed by the Promisee.
Any subsequent holder or transferee of this Subordinated Note, by its acceptance
hereof, agrees that it shall execute instruments confirming that it is bound by
the foregoing subordination provisions, including any agreement evidencing such
subordination.
The Company hereby waives presentment, demand for payment, notice of dishonor,
protest and notice of protest of this Subordinated Note, and agrees to pay all
costs of collection when incurred, including reasonable attorneys' fees, whether
suit be brought or not. No alteration, amendment or waiver of any provision of
this Subordinated Note made by agreement of the Promisee and any other person or
party shall constitute a waiver of any other term hereof, or otherwise release
or discharge the liability of the Company under this Subordinated Note. This
Subordinated Note may not be changed or terminated orally.
Time is of the essence as to all dates set forth herein.
This Subordinated Note shall be governed by and construed in accordance with the
laws of the State of Michigan applicable to contracts made and to be performed
therein.
This Subordinated Note has not been registered under the Securities Act of 1933,
as amended (the "Act"), or any state securities law, and may not be sold,
mortgaged, pledged, hypothecated or otherwise transferred in the absence of such
registration or an exemption therefrom under the Act and applicable state
securities law.
CHILDTIME CHILDCARE, INC.
By:
---------------------------------
Name:
Title:
3
