EXHIBIT 10.11
PURCHASE AGREEMENT
DATED JUNE 30, 1995
BETWEEN CORINTHIAN SCHOOLS, INC.
AND THE PURCHASERS LISTED HEREIN
PURCHASE AGREEMENT
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THIS AGREEMENT is made as of June 30, 1995 between Corinthian Schools,
Inc., a Delaware corporation (the "Company"), and the Persons listed on the
Schedule of Purchasers attached hereto (collectively referred to herein as the
"Purchasers" and individually as a "Purchaser"). Except as otherwise indicated
herein, capitalized terms used herein are defined in Section 6 hereof.
The parties hereto agree as follows:
Section 1. Authorization and Closing.
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1.1A. Authorization of the Preferred Stock and the Common Stock.
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The Company shall authorize the issuance and sale to the Purchasers of 18,125
shares of its Class A Preferred Stock, par value $1.00 per share (the "Class A
Preferred"), 60,410 shares of its Class A Common Stock, par value $.01 per share
(the "Class A Common"), and 8,340 shares of its Class B Common Stock, par value
$.01 per share (the "Class B Common") each having the rights and preferences set
forth in Exhibit A attached hereto. The Class A Common and the Class B Common
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are collectively referred to herein as the "Investor Common Stock." Together
with the Class A Preferred, they are collectively referred to as the "Investor
Stock".
1.1B. Purchase and Sale of Investor Stock. At the Closing, the
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Company shall sell to each Purchaser and, subject to the terms and conditions
set forth herein, each Purchaser shall purchase from the Company the number of
shares of Investor Stock set forth opposite such Purchaser's name on the
Schedule of Purchasers attached hereto at the prices specified therein. The
sale of the Investor Stock to each Purchaser shall constitute a separate sale
hereunder.
1.1C. The Closing. The closing of the separate purchases and
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sales of the Investor Stock (the "Closing") shall take place at the offices of
National Education Corporation ("NEC"), 00000 Xxx Xxxxxx Xxxxxx, Xxxxxx,
Xxxxxxxxxx at 10:00 a.m. on June 30, 1995, or at such other place or on such
other date as may be mutually agreeable to the Company and each Purchaser, but
in no event later than July 7, 1995. At the Closing, the Company shall deliver
to each Purchaser stock certificates evidencing the Investor Stock to be
purchased by such Purchaser, registered in such Purchaser's or its nominee's
name, upon payment of the purchase price thereof by a cashier's or certified
check, or by wire transfer of immediately available funds to the Company's
account or such other account as may be reasonably specified in writing a
sufficient amount of time
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before Closing, in the aggregate amount set forth opposite such Purchaser's name
on the Schedule of Purchasers.
Section 2. Conditions of Each Purchaser's Obligation at the Closing.
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The obligation of each Purchaser to purchase and pay for the Investor Stock at
the Closing is subject to the satisfaction as of the Closing of the following
conditions:
2.1A. Representations and Warranties; Covenants. The
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representations and warranties contained in Section 5 hereof shall be true and
correct at and as of the Closing as though then made, except to the extent of
changes caused by the transactions expressly contemplated herein, and the
Company shall have performed all of the covenants required to be performed by it
hereunder prior to the Closing.
2.1B. Amendment of Certificate of Incorporation. The Company's
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Certificate of Incorporation (the "Certificate of Incorporation") shall have
been amended and restated as set forth in Exhibit A hereto (the "Restated
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Certificate of Incorporation"), shall be in full force and effect under the laws
of Delaware as of the Closing as so amended and shall not have been further
amended or modified.
2.1C. Amendment of the Company's Bylaws. The Company's bylaws
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shall have been duly amended to be in the form attached hereto as Exhibit B.
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The Company's bylaws shall be in full force and effect as of the Closing as so
amended and shall not have been further amended or modified.
2.1D. Registration Agreement. The Company, the Purchasers and the
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other persons specified therein shall have entered into a registration agreement
in form and substance as set forth in Exhibit C attached hereto (the
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"Registration Agreement"), and the Registration Agreement shall be in full force
and effect as of the Closing.
2.1E. Executive Stock Agreements. The Company shall have entered
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into an executive stock agreement, in form and substance substantially similar
to Exhibit D attached hereto (an "Executive Stock Agreement"), with each of
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Xxxxx X. Xxxxx, Xxxx St. Pierre, Xxxxx X. XxXxxx, Xxxxxx X. Xxxxxxxx and Xxxxx
X. Xxxxxxx and each such Executive Stock Agreement shall not have been amended
or modified and shall be in full force and effect as of the Closing.
2.1F. Sale of Investor Stock to Each Purchaser. The Company shall
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have simultaneously sold to each Purchaser the Investor Stock to be purchased by
such Purchaser hereunder at the Closing and shall have received payment therefor
in full.
2.1G. Key-Man Life Insurance. The Company shall have obtained
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key-man life insurance policies on the lives of Xxxxx X. Xxxxx and Xxxx St.
Pierre in the face amount of $1,500,000 and $1,000,000 respectively, which
policies shall be in full force and effect as of the Closing. Such insurance
policies shall name the Company as beneficiary and shall provide
that such insurance policies may not be canceled unless the insurance carrier
gives at least 30 days prior written notice of such cancellation to each
Purchaser.
2.1H. Securities Law Compliance. The Company shall have made all
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filings under all applicable federal and state securities laws necessary to
consummate the issuance of the Investor Stock pursuant to this Agreement in
compliance with such laws.
2.1I. Acquisition Agreement. The Asset Purchase Agreement, dated
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as of June 28, 1995, between the Company National Education Centers, Inc., and
NEC (the "Acquisition Agreement") shall be in full force and effect as of the
Closing and shall not have been amended or modified. The Company's closing
conditions in the Acquisition Agreement shall have been satisfied in full
(without reliance on any waiver by the Company), and the acquisition
contemplated by the Acquisition Agreement (the "Acquisition") shall have been
consummated simultaneously with the Closing hereunder in accordance with the
terms of the Acquisition Agreement.
2.1J. Borrowing Agreement. The Company and Banc One Capital
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Partners II, Limited Partnership (the "Lender") shall have entered into a loan
agreement and related documents (collectively, the "Borrowing Agreement")
providing for loans to the Company of up to $2,500,000 in form and substance
satisfactory to each Purchaser, and the Borrowing Agreement shall be in full
force and effect as of the Closing and shall not have been amended or modified.
2.1K. Opinion of the Company's Counsel. Each Purchaser shall have
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received from O'Melveney & Xxxxx, counsel for the Company, an opinion with
respect to the matters set forth in Exhibit E attached hereto, which shall be
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addressed to each Purchaser, dated the date of the Closing and in form and
substance reasonably satisfactory to each Purchaser.
2.1L. Closing Documents. The Company shall have delivered to each
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Purchaser all of the following documents:
(i) an Officer's Certificate, dated the date of the Closing,
stating that the conditions specified in Section 1 and paragraphs 2A
through 2J, inclusive, have been fully satisfied;
(ii) certified copies of (a) the resolutions duly adopted by the
Company's board of directors authorizing the execution, delivery and
performance of this Agreement, the Registration Agreement and each of the
other agreements contemplated hereby, the filing of the amendment to the
Certificate of Incorporation referred to in paragraph 2B, the amendment to
the Company's bylaws referred to in paragraph 2C, the issuance and sale of
the Investor Stock,
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and the consummation of all other transactions contemplated by this
Agreement, and (b) the resolutions duly adopted by the Company's
stockholders adopting the amendment to the Certificate of Incorporation
referred to in paragraph 2B;
(iii) certified copies of the Certificate of Incorporation, and
the Company's bylaws, each as in effect at the Closing;
(iv) certified copies of the Acquisition Agreement and the
Borrowing Agreement, each as in effect at the Closing;
(v) copies of all third party and governmental consents,
approvals and filings required in connection with the consummation of the
transactions hereunder (including, without limitation, all blue sky law
filings and waivers of all preemptive rights and rights of first refusal);
and
(vi) such other documents relating to the transactions
contemplated by this Agreement as any Purchaser or its special counsel may
reasonably request.
2.1M. Proceedings. All corporate and other proceedings taken or
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required to be taken by the Company in connection with the transactions
contemplated hereby to be consummated at or prior to the Closing and all
documents incident thereto shall be satisfactory in form and substance to each
Purchaser and its special counsel.
2.1N. Waiver. Any condition specified in this Section 2 may be
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waived if consented to by each Purchaser; provided that no such waiver shall be
effective against any Purchaser unless it is set forth in a writing executed by
such Purchaser.
2.1O. Expenses. At the Closing, the Company shall have
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reimbursed the Purchasers for the fees and expenses of their special counsel as
provided in paragraph 7A hereof.
Section 3. Covenants.
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3.1A. Financial Statements and Other Information. The Company
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shall deliver to each Purchaser (so long as such Purchaser holds any Class A
Preferred or any Underlying Common Stock) and to each holder of at least 5% of
the outstanding Class A Preferred and each holder of at least 5% of the
Underlying Common Stock:
(i) as soon as available but in any event within 30 days after
the end of each monthly accounting period in each fiscal year, unaudited
consolidating and consolidated statements of income and cash flows of the
Company and its Subsidiaries for such monthly period and for the period
from
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the beginning of the fiscal year to the end of such month, and unaudited
consolidating and consolidated balance sheets of the Company and its
Subsidiaries as of the end of such monthly period, setting forth in each
case comparisons to the Company's annual budget and to the corresponding
period in the preceding fiscal year, and all such statements shall be
prepared in accordance with generally accepted accounting principles,
consistently applied and shall be certified by the Company's chief
financial officer;
(ii) accompanying the financial statements referred to in
subparagraph (i) an Officer's Certificate stating that there is no Event of
Noncompliance in existence and that neither the Company nor any of its
Subsidiaries is in default under any of its other material agreements or,
if any Event of Noncompliance or any such default exists, specifying the
nature and period of existence thereof and what actions the Company and its
Subsidiaries have taken and propose to take with respect thereto;
(iii) within 90 days after the end of each fiscal year,
consolidating and consolidated statements of income and cash flows of the
Company and its Subsidiaries for such fiscal year, and consolidating and
consolidated balance sheets of the Company and its Subsidiaries as of the
end of such fiscal year, setting forth in each case comparisons to the
Company's annual budget and to the preceding fiscal year, all prepared in
accordance with generally accepted accounting principles, consistently
applied, and accompanied by (a) with respect to the consolidated portions
of such statements, an opinion containing no exceptions or qualifications
(except for qualifications regarding specified contingent liabilities) of
an independent accounting firm of recognized national standing acceptable
to the holders of a majority of the outstanding Class A Preferred and the
holders of a majority of the Underlying Common Stock, (b) a certificate
from such accounting firm, addressed to the Company's board of directors,
stating that [in the course of its examination nothing came to its
attention that caused it to believe that there was an Event of
Noncompliance in existence or that there was any other default by the
Company or any Subsidiary in the fulfillment of or compliance with any of
the terms, covenants, provisions or conditions of any other material
agreement to which the Company or any Subsidiary is a party or, if such
accountants have reason to believe any Event of Noncompliance or other
default by the Company or any Subsidiary exists, a certificate specifying
the nature and period of existence thereof,] and (c) a copy of such firm's
annual management letter to the board of directors;
(iv) promptly upon receipt thereof, any additional reports,
management letters or other detailed information concerning significant
aspects of the Company's operations
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or financial affairs given to the Company by its independent accountants
(and not otherwise contained in other materials provided hereunder);
(v) at least 30 days but not more than 90 days prior to the
beginning of each fiscal year, an annual budget prepared on a monthly basis
for the Company and its Subsidiaries for such fiscal year (displaying
anticipated statements of income and cash flows and balance sheets), except
that a budget for the period ending December 31, 1995 shall be delivered to
the Purchasers by July 31, 1995 and a budget for the six-month period
ending June 30, 1996 shall be so delivered by November 30, 1995, and
promptly upon preparation thereof any other significant budgets prepared by
the Company and any revisions of such or other budgets, and within 30 days
after any monthly period in which there is a material adverse deviation
from such budget, an Officer's Certificate explaining the deviation and
what actions the Company has taken and proposes to take with respect
thereto;
(vi) promptly (but in any event within five business days)
after the discovery or receipt of notice of any Event of Noncompliance, any
default under any material agreement to which it or any of its Subsidiaries
is a party or any other material adverse change, event or circumstance
affecting the Company or any Subsidiary (including, without limitation, the
filing of any material litigation against the Company or any Subsidiary or
the existence of any dispute with any Person which involves a reasonable
likelihood of such litigation being commenced), an Officer's Certificate
specifying the nature and period of existence thereof and what actions the
Company and its Subsidiaries have taken and propose to take with respect
thereto;
(vii) within ten days after transmission thereof, copies of all
financial statements, proxy statements, reports and any other general
written communications which the Company sends to its stockholders and
copies of all registration statements and all regular, special or periodic
reports which it files, or any of its officers or directors file with
respect to the Company, with the Securities and Exchange Commission or with
any securities exchange on which any of its securities are then listed, and
copies of all press releases and other statements made available generally
by the Company to the public concerning material developments in the
Company's and its Subsidiaries' businesses; and
(viii) with reasonable promptness, such other information and
financial data concerning the Company and its Subsidiaries as any Person
entitled to receive information under this paragraph 3A may reasonably
request.
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Each of the financial statements referred to in subparagraph (i) and (iii) shall
be true and correct in all material respects as of the dates and for the periods
stated therein, subject in the case of the unaudited financial statements to
changes resulting from normal year-end adjustments for recurring accruals (none
of which would, alone or in the aggregate, be materially adverse to the
financial condition, operating results, assets, operations or business prospects
of the Company and its Subsidiaries taken as a whole).
For purposes of this Agreement and the Registration Agreement, all
holdings of Preferred Stock and Underlying Common Stock by Persons who are
Affiliates of each other shall be aggregated for purposes of meeting any
threshold tests under this Agreement and Registration Agreement. "Affiliate"
means any Person which controls, is controlled by or is under common control
with another Person and Persons which have received distributions of securities
from a partnership holding such securities.
3.1B. Inspection Rights. The Company shall permit any
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representatives designated by any Purchaser (so long as such Purchaser holds any
Class A Preferred or Underlying Common Stock) or any holder of at least 5% of
the outstanding Class A Preferred or at least 5% of the Underlying Common Stock,
upon reasonable notice and during normal business hours, to (i) visit and
inspect any of the properties of the Company and its Subsidiaries, (ii) examine
the corporate and financial records of the Company and its Subsidiaries and make
copies thereof or extracts therefrom and (iii) discuss the affairs, finances and
accounts of any such corporations with the directors, officers, key employees
and independent accountants of the Company and its Subsidiaries. The
presentation of an executed copy of this Agreement by any Purchaser or any such
holder of Class A Preferred or Underlying Common Stock to the Company's
independent accountants shall constitute the Company's permission to its
independent accountants to participate in discussions with such Persons.
3.1C. Attendance at Board Meetings. The Company shall give each
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Purchaser (so long as such Purchaser holds any Class A Preferred or Underlying
Common Stock) and each holder of at least 10% of the outstanding Class A
Preferred or at least 10% of Underlying Common Stock written notice of each
meeting of its board of directors and each committee thereof at the same time
and in the same manner as notice is given to the directors (which notice shall
be promptly confirmed in writing to each such Person), and the Company shall
permit a representative of each such Person to attend as an observer all
meetings of its board of directors and all committees thereof; provided that in
the case of telephonic meetings conducted in accordance with the Company's
bylaws and applicable law, each such Person need receive only actual notice
thereof at least 48 hours prior to any such meeting, and each such Person's
representative shall be given the opportunity to listen to such telephonic
meetings. Each
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representative shall be entitled to receive all written materials and other
information (including, without limitation, copies of meeting minutes) given to
directors in connection with such meetings at the same time such materials and
information are given to the directors. If the Company proposes to take any
action by written consent in lieu of a meeting of its board of directors or of
any committee thereof, the Company shall give written notice thereof to each
such Person prior to the effective date of such consent describing in reasonable
detail the nature and substance of such action. The Company shall pay the
reasonable out-of-pocket expenses of each representative incurred in connection
with attending such board and committee meetings. The obligations of the Company
under paragraphs 3A, 3B and 3C shall terminate upon a Qualified Public Offering.
3.1D. Expenses of Directors. All out-of-pocket expenses of each
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board member incurred in connection with attending regular and special board
meetings and any meeting of any board committee shall be paid by the Company.
3.1E. Restrictions. The Company shall not, without the consent of
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the holders of a majority of the Preferred Stock so long as at least 5% of the
original amount thereof is outstanding or with the approval of the Board of
Directors if the approving directors include at least one director affiliated
with one of the Purchasers:
(i) directly or indirectly declare or pay any dividends or make
any distributions upon any of its capital stock or other equity securities
other than the Preferred Stock pursuant to the terms of the Certificate of
Incorporation, except for dividends payable in shares of Common Stock
issued upon the outstanding shares of Common Stock;
(ii) directly or indirectly redeem, purchase or otherwise
acquire, or permit any Subsidiary to redeem, purchase or otherwise acquire,
any of the Company's or any Subsidiary's capital stock or other equity
securities (including, without limitation, warrants, options and other
rights to acquire such capital stock or other equity securities) other than
the Preferred Stock pursuant to the terms of the Certificate of
Incorporation and other than as required by the Borrowing Agreement or this
Agreement or directly or indirectly redeem, purchase or make any payments
with respect to any stock appreciation rights, phantom stock plans or
similar rights or plans; except for repurchases of Common Stock from
employees of the Company and its Subsidiaries upon termination of
employment pursuant to arrangements approved by the Company's board of
directors so long as no Event of Noncompliance is in existence immediately
prior to or is otherwise caused by any such repurchase;
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(iii) except as expressly contemplated by this Agreement and the
Borrowing Agreement and except for stock options to be granted to key
employees and outside directors of the Company covering no more than 2,500
shares of common stock and granted on terms approved by the Board of
Directors of the Company, authorize, issue or enter into any agreement
providing for the issuance (contingent or otherwise) of, (a) any notes or
debt securities containing equity features (including, without limitation,
any notes or debt securities convertible into or exchangeable for capital
stock or other equity securities, issued in connection with the issuance of
capital stock or other equity securities or containing profit participation
features) or (b) any capital stock or other equity securities (or any
securities convertible into or exchangeable for any capital stock or other
equity securities) which are senior to or on a parity with the Class A
Preferred with respect to the payment of dividends, redemptions or
distributions upon liquidation or otherwise or (c) any additional shares of
Class A Preferred.
(iv) make, or permit any Subsidiary to make, any loans or
advances to, guarantees for the benefit of, or Investments in, any Person
(other than a Wholly-Owned Subsidiary established under the laws of a
jurisdiction of the United States or any of its territorial possessions),
except for (a) reasonable advances to employees in the ordinary course of
business, (b) acquisitions permitted pursuant to subparagraph (viii) below
and (c) Investments having a stated maturity no greater than one year from
the date the Company makes such Investment in (1) obligations of the United
States government or any agency thereof or obligations guaranteed by the
United States government, (2) certificates of deposit of commercial banks
having combined capital and surplus of at least $50 million or (3)
commercial paper with a rating of at least "Prime-1" by Xxxxx'x Investors
Service, Inc.;
(v) merge or consolidate with any Person or permit any
Subsidiary to merge or consolidate with any Person (other than a
Wholly-Owned Subsidiary);
(vi) sell, lease or otherwise dispose of, or permit any
Subsidiary to sell, lease or otherwise dispose of, more than $250,000 of
the consolidated assets of the Company and its Subsidiaries (computed on
the basis of book value, determined in accordance with generally accepted
accounting principles consistently applied, or fair market value,
determined by the Company's board of directors in its reasonable good faith
judgment) in any 12-month period in any transaction or series of related
transactions (other than sales in the ordinary course of business);
(vii) liquidate, dissolve or effect a recapitalization or
reorganization in any form of transaction
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(including, without limitation, any reorganization into a limited liability
company, a partnership or any other non-corporate entity which is treated
as a partnership for federal income tax purposes);
(viii) acquire, or permit any Subsidiary to acquire, any
interest in any company or business (whether by a purchase of assets,
purchase of stock, merger or otherwise), or enter into any joint venture,
involving an aggregate consideration in excess of $250,000 (including,
without limitation, the assumption of liabilities whether direct or
indirect);
(ix) enter into, or permit any Subsidiary to enter into, the
ownership, active management or operation of any business other than the
businesses of operating and acquiring schools;
(x) become subject to, or permit any of its Subsidiaries to
become subject to, (including, without limitation, by way of amendment to
or modification of) any agreement or instrument which by its terms would
(under any circumstances) restrict (a) the right of any Subsidiary to make
loans or advances or pay dividends to, transfer property to, or repay any
Indebtedness owed to, the Company or another Subsidiary or (b) the
Company's right to perform the provisions of this Agreement, the
Registration Agreement, the Certificate of Incorporation or the Company's
bylaws (including, without limitation, provisions relating to the
declaration and payment of dividends on and the making of redemptions of
the Class A Preferred;
(xi) except as expressly contemplated by this Agreement, make
any amendment to the Certificate of Incorporation, or the Company's
bylaws, or file any resolution of the board of directors with the Delaware
Secretary of State containing any provisions, which would increase the
number of authorized shares of the Class A Preferred or adversely affect or
otherwise impair the rights or the relative preferences and priorities of
the holders of the Class A Preferred or the Underlying Common Stock under
this Agreement, the Certificate of Incorporation, the Company's bylaws or
the Registration Agreement;
(xii) enter into, amend, modify or supplement, or permit any
Subsidiary to enter into, amend, modify or supplement, any agreement,
transaction, commitment or arrangement with any of its or any Subsidiary's
officers or directors or with any individual related by blood, marriage or
adoption to any such individual or with any entity in which any such Person
or individual owns a beneficial interest, except for employment
arrangements and benefit programs approved by the Board;
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(xiii) increase any compensation (including salary, bonuses and
other forms of current and deferred compensation) payable to any officer or
director of the Company or any Subsidiary;
(xiv) establish or acquire (a) any Subsidiaries other than
Wholly-Owned Subsidiaries or (b) any Subsidiaries organized outside of the
United States and its territorial possessions;
(xv) create, incur, assume or suffer to exist, or permit any
Subsidiary to create, incur, assume or suffer to exist, Indebtedness
exceeding an aggregate principal amount of $4,500,000 outstanding at any
time on a consolidated basis;
(xvi) create, incur, assume or suffer to exist, or permit any
Subsidiary to create, incur, assume or suffer to exist, any Liens other
than Permitted Liens;
(xvii) make any capital expenditures (including, without
limitation, payments with respect to capitalized leases, as determined in
accordance with generally accepted accounting principles consistently
applied) exceeding $550,000 in the aggregate on a consolidated basis during
any twelve-month period;
(xviii) borrow against, pledge, assign, modify, cancel or
surrender any key-man life insurance policies required to be maintained
under paragraph 3F(vii) hereof; or
(xix) use the proceeds from the sale of the Investor Stock and
the Borrowing Agreement other than for the acquisition of schools pursuant
to the Acquisition Agreement and the operation thereof.
3.1F. Affirmative Covenants. So long as at least 5% of the
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authorized Class A Preferred remains outstanding, the Company shall, and shall
cause each Subsidiary to:
(i) at all times cause to be done all things necessary to
maintain, preserve and renew its corporate existence and all material
licenses, authorizations and permits necessary to the conduct of its
businesses;
(ii) maintain and keep its material properties in good repair,
working order and condition, and from time to time make all necessary or
desirable repairs, renewals and replacements, so that its businesses may be
properly and advantageously conducted in all material respects at all
times;
(iii) pay and discharge when payable all taxes, assessments and
governmental charges imposed upon its
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properties or upon the income or profits therefrom (in each case before the
same becomes delinquent and before penalties accrue thereon) and all claims
for labor, materials or supplies which if unpaid would by law become a Lien
upon any of its property unless and to the extent that the same are being
contested in good faith and by appropriate proceedings and adequate
reserves (as determined in accordance with generally accepted accounting
principles, consistently applied) have been established on its books with
respect thereto;
(iv) comply with all other material obligations which it incurs
pursuant to any contract or agreement, whether oral or written, express or
implied, as such obligations become due unless and to the extent that the
same are being contested in good faith and by appropriate proceedings and
adequate reserves (as determined in accordance with generally accepted
accounting principles, consistently applied) have been established on its
books with respect thereto;
(v) comply with all applicable laws, rules and regulations of
all governmental authorities, the violation of which would reasonably be
expected to have a material adverse effect upon the financial condition,
operating results, assets, operations or business prospects of the Company
and its Subsidiaries taken as a whole;
(vi) apply for and continue in force with good and responsible
insurance companies adequate insurance covering risks of such types and in
such amounts as are customary for corporations of similar size engaged in
similar lines of business;
(vii) maintain the key-man life insurance policies referred to
in paragraph 2G hereof; and
(viii) maintain proper books of record and account which present
fairly in all material respects its financial condition and results of
operations and make provisions on its financial statements for all such
proper reserves as in each case are required in accordance with generally
accepted accounting principles, consistently applied.
3.1G. Compliance with Agreements. The Company shall perform and
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observe (i) all of its obligations to each holder of the Class A Preferred and
all of its obligations to each holder of the Underlying Common Stock set forth
in the Certificate of Incorporation and the Company's bylaws, and (ii) all of
its obligations to each holder of Registrable Securities set forth in the
Registration Agreement.
3.1H. Current Public Information. At all times after the Company
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has filed a registration statement with the
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Securities and Exchange Commission pursuant to the requirements of either the
Securities Act or the Securities Exchange Act, the Company shall file all
reports required to be filed by it under the Securities Act and the Securities
Exchange Act and the rules and regulations adopted by the Securities and
Exchange Commission thereunder and shall take such further action as any holder
or holders of Restricted Securities may reasonably request, all to the extent
required to enable such holders to sell Restricted Securities pursuant to (i)
Rule 144 adopted by the Securities and Exchange Commission under the Securities
Act (as such rule may be amended from time to time) or any similar rule or
regulation hereafter adopted by the Securities and Exchange Commission or (ii) a
registration statement on Form S-2 or S-3 or any similar registration form
hereafter adopted by the Securities and Exchange Commission. Upon request, the
Company shall deliver to any holder of Restricted Securities a written statement
as to whether it has complied with such requirements.
3.1I. Amendment of Other Agreements. The Company shall not amend,
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modify or waive any provision of the Acquisition Agreement, the Borrowing
Agreement or any Executive Stock Agreement without the prior written consent of
the holders of a majority of the Underlying Common Stock, and the Company shall
enforce the provisions of the Acquisition Agreement, the Borrowing Agreement and
the Executive Stock Agreements and shall exercise all of its rights and remedies
thereunder (including, without limitation, any repurchase options and first
refusal rights).
3.1J. First Refusal Rights.
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(i) Except for issuances of Common Stock (a) as otherwise contemplated
herein or in the Borrowing Agreement or (b) pursuant to a public offering
registered under the Securities Act, if the Company authorizes the issuance or
sale of any shares of Common Stock or any securities containing options or
rights to acquire any shares of Common Stock (other than as a dividend on the
outstanding Common Stock), the Company shall first offer to sell to each holder
of Underlying Common Stock and Executive Stock a portion of such stock or
securities equal to the product of the aggregate amount of such stock or
securities authorized for sale multiplied by the quotient determined by dividing
(1) the number of shares of Underlying Common Stock or Executive Stock held by
such holder by (2) the sum of the total number of shares of Underlying Common
Stock and Executive Stock and the number of shares of Common Stock outstanding
which are not shares of Underlying Common Stock or Executive Stock. Each holder
of Underlying Common Stock and Executive Stock shall be entitled to purchase
such stock or securities at the most favorable price and on the most favorable
terms as such stock or securities are to be offered to any other Persons.
(ii) In order to exercise its purchase rights hereunder, a holder of
Underlying Common Stock or Executive Stock
-13-
must within 15 days after receipt of written notice from the Company describing
in reasonable detail the stock or securities being offered, the purchase price
thereof, the payment terms and such holder's percentage allotment deliver a
written notice to the Company describing its election hereunder. If all of the
stock and securities offered to the holders of Underlying Common Stock and
Executive Stock is not fully subscribed by such holders, the remaining stock and
securities 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.
(iii) Upon the expiration of the offering periods described above,
the Company shall be entitled to sell such stock or securities which the holders
of Underlying Common Stock and Executive Stock have not elected to purchase
during the 90 days following such expiration on terms and conditions no more
favorable to the purchasers thereof than those offered to such holders. Any
stock or securities offered or sold by the Company after such 90-day period must
be reoffered to the holders of Underlying Common Stock and Executive Stock
pursuant to the terms of this paragraph.
(iv) The rights under this paragraph and paragraph 3M shall terminate
upon a Qualified Public Offering.
3.1K. Regulatory Compliance Cooperation.
---------------------------------
Before the Company redeems, purchases or otherwise acquires, directly
or indirectly, or converts or takes any action with respect to the voting rights
of, any shares of any class of its capital stock or any securities convertible
into or exchange able for any shares of any class of its capital stock (other
than a redemption of Class A Preferred or a conversion of Class B Common), the
Company shall give written notice of such pending action to the Purchasers.
Upon the written request of any Purchaser made within 10 days after its receipt
of any such notice stating that after giving effect to such action such
Purchaser would have a Regulatory Problem, the Company shall defer taking such
action for such period (not to extend beyond 45 days after such Purchaser's
receipt of the Company's original notice) as such Purchaser requests to permit
it and its Affiliates to reduce the quantity of the Company's securities they
own in order to avoid the Regulatory Problem. In addition, the Company shall not
be a party to any merger, consolidation, recapitalization or other transaction
pursuant to which any Purchaser would be required to take any voting securities,
or any securities convertible into voting securities, which might reasonably be
expected to cause such Purchaser to have a Regulatory Problem. For purposes of
this paragraph, a Person shall be deemed to have a "Regulatory Problem" when
such Person and such Person's Affiliates would own, control or have power over a
greater quantity of securities of any kind issued by the
-14-
Company or any other entity than are permitted under any requirement of any
governmental authority.
3.1L. Public Disclosures. The Company shall not, nor shall it permit
------------------
any Subsidiary to, disclose any Purchaser's name or identity as an investor in
the Company in any press release or other public announcement or in any document
or material filed with any governmental entity, without the prior written
consent of such Purchaser, unless such disclosure is required by applicable law
or governmental regulations or by order of a court of competent jurisdiction, in
which case prior to making such disclosure the Company shall give written notice
to such Purchaser describing in reasonable detail the proposed content of such
disclosure and shall permit the Purchaser to review and comment upon the form
and substance of such disclosure.
3.1M. Put. Subject to paragraph 3L(iv), at any time after June 30,
---
2001, each holder of Underlying Common Stock shall have the right, so long as
the Underlying Common Stock represents less than 50% of the Company's Common
Stock (of all classes) outstanding and then required to be issued upon exercise
of any option, warrant, conversion privilege or similar right, to sell to the
Company any or all of its Underlying Common Stock for an amount in cash equal to
its fair market value upon thirty days' prior written notice to the Company.
The Company shall take all such actions, including selling assets, borrowing
funds and giving liens in connection therewith, determining its capital surplus
based upon appraisals or valuations of its assets and obtaining assets of its
lenders, as may be required to permit it to purchase any shares so requested to
be purchased. The closing of any such purchase and sale shall take place at
such time and place as the holder electing to make such sale shall reasonably
determine. In the event that, notwithstanding compliance with its obligations
hereunder the Company is legally prohibited from completing such purchase, the
Company shall unless waived by the selling holder, purchase the maximum number
of shares then legally permitted, thereafter conduct its affairs so as to
purchase any remaining shares as quickly as possible and offer to purchase any
shares which cannot be purchased for cash for promissory notes which bear the
highest interest rate, have the shortest maturity rate and are secured by the
most collateral as is then or subsequently permitted. "Fair market value" means
for purposes of this paragraph the value determined in accordance with the
definition thereof in the Executive Stock Agreements or such higher value as may
be determined by an investment banking firm selected by the seller, with the
consent of the Company which shall not be unreasonably withheld, the fees of
which firm shall be equally shared by the Company and the seller.
3.1N. Exchange of Class A Common for Class B Common. Whenever Class A
---------------------------------------------
Common may be exchanged for Class B Common, under the Warrants, the same shall
be done, to the extent permitted under the Warrants, at the request of holders
of Class B Common issued hereunder.
-15-
Section 4. Transfer of Restricted Securities.
---------------------------------
4.1A. General Provisions. Restricted Securities are transferable
------------------
only pursuant to (i) public offerings registered under the Securities Act, (ii)
Rule 144 or Rule 144A of the Securities and Exchange Commission (or any similar
rule or rules then in force) if such rule is available and (iii) subject to the
conditions specified in paragraph 4B below, any other legally available means of
transfer.
4.1B. Opinion Delivery. In connection with the transfer of any
----------------
Restricted Securities (other than a transfer described in paragraph 4A(i) or
(ii) above), the holder thereof shall deliver written notice to the Company
describing in reasonable detail the transfer or proposed transfer, together with
an opinion of Xxxxxxxx & Xxxxx or other counsel which (to the Company's
reasonable satisfaction) is knowledgeable in securities law matters to the
effect that such transfer of Restricted Securities may be effected without
registration of such Restricted Securities under the Securities Act. In
addition, if the holder of the Restricted Securities delivers to the Company an
opinion of Xxxxxxxx & Xxxxx or such other counsel that no subsequent transfer of
such Restricted Securities shall require registration under the Securities Act,
the Company shall promptly upon such contemplated transfer deliver new
certificates for such Restricted Securities which do not bear the Securities Act
legend set forth in paragraph 7C. If the Company is not required to deliver new
certificates for such Restricted Securities not bearing such legend, the holder
thereof shall not transfer the same until the prospective transferee has
confirmed to the Company in writing its agreement to be bound by the conditions
contained in this paragraph and paragraph 7C.
4.1C. Rule 144A. Upon the request of any Purchaser, the Company
---------
shall promptly supply to such Purchaser or its prospective transferees all
information regarding the Company required to be delivered in connection with a
transfer pursuant to Rule 144A of the Securities and Exchange Commission.
4.1D. Legend Removal. If any Restricted Securities become eligible
--------------
for sale pursuant to Rule 144(k), the Company shall, upon the request of the
holder of such Restricted Securities, remove the legend set forth in paragraph
7C from the certificates for such Restricted Securities.
Section 5. Representations and Warranties of the Company. As a
---------------------------------------------
material inducement to the Purchasers to enter into this Agreement and purchase
the Investor Stock hereunder, the Company hereby represents and warrants that
(such representations and warranties assume that the transactions contemplated
in this Acquisition Agreement and hereby have been consummated):
-16-
5.1A. Organization, Corporate Power and Licenses. The Company is a
------------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of Delaware and is qualified to do business in every jurisdiction in which its
ownership of property or conduct of business requires it to qualify. The
Company possesses all requisite corporate power and authority and all material
licenses, permits and authorizations necessary to own and operate its
properties, to carry on its businesses as now conducted and presently proposed
to be conducted and to carry out the transactions contemplated by this
Agreement. The copies of the Company's and each Subsidiary's charter documents
and bylaws which have been furnished to the Purchasers' special counsel reflect
all amendments made thereto at any time prior to the date of this Agreement and
are correct and complete.
5.1B. Capital Stock and Related Matters.
---------------------------------
(i) As of the Closing and immediately thereafter, the authorized
capital stock of the Company shall consist of (a) 500,000 shares of preferred
stock, of which 18,125 shares shall be designated as Class A Preferred (all of
which shall be issued and outstanding), (b) 9,000,000 shares of Class A Common,
of which 110,410 shares shall be issued and outstanding and 33,340 shares shall
be reserved for issuance upon exchange of the Class B Common issued hereunder
and issuable upon exchange of the Warrants and 1,250 shares shall be reserved
for issuance upon exercise of the Warrants, (c) 500,000 shares of Class B
Common, of which 27,090 shares shall be issued and outstanding and 5,000 shares
shall be reserved for issuance upon exercise of the Warrants. Except as set
forth on the "Capitalization Schedule," as of the Closing, neither the Company
nor any Subsidiary shall have outstanding any stock or securities convertible or
exchangeable for any shares of its capital stock or containing any profit
participation features, nor shall it have outstanding any rights or options to
subscribe for or to purchase its capital stock or any stock or securities
convertible into or exchangeable for its capital stock or any stock appreciation
rights or phantom stock plans, except for the Class B Common and the Warrants.
As of the Closing, neither the Company nor any Subsidiary shall be subject to
any obligation (contingent or otherwise) to repurchase or otherwise acquire or
retire any shares of its capital stock or any warrants, options or other rights
to acquire its capital stock, except pursuant to this Agreement, the Certificate
of Incorporation, the Executive Stock Agreements and the Borrowing Agreement. As
of the Closing, all of the outstanding shares of the Company's capital stock
shall be validly issued, fully paid and nonassessable.
(ii) There are no statutory or, to the best of the Company's knowledge,
contractual stockholders' preemptive rights or rights of refusal with respect to
the issuance of the Investor Stock hereunder or the issuance of the Class A
Common upon conversion of the Class B Common or upon exercise of the Warrants.
The Company has not violated any applicable federal or
-17-
state securities laws in connection with the offer, sale or issuance of any of
its capital stock, and the offer, sale and issuance of the Investor Stock do not
require registration under the Securities Act or any applicable state securities
laws. To the best of the Company's knowledge, there are no agreements between
the Company's stockholders with respect to the voting or transfer of the
Company's capital stock or with respect to any other aspect of the Company's
affairs, except as contemplated herein.
5.1C. Subsidiaries; Investments. The Company does not own or hold
-------------------------
any rights to acquire any shares of stock or any other security or interest in
any other Person, and the Company has never had any Subsidiary.
5.1D. Authorization; No Breach. The execution, delivery and
------------------------
performance of this Agreement, the Registration Agreement, the Acquisition
Agreement, the Borrowing Agreement and all other agreements contemplated hereby
to which the Company is a party, the amendment of the Certificate of
Incorporation and the amendment of the Company's bylaws have been duly
authorized by the Company. This Agreement, the Registration Agreement, the
Acquisition Agreement, the Borrowing Agreement, the preferred stock provisions
of the Certificate of Incorporation and all other agreements contemplated hereby
to which the Company is a party each constitutes a valid and binding obligation
of the Company, enforceable in accordance with its terms. The execution and
delivery by the Company of this Agreement, the Registration Agreement, the
Acquisition Agreement, the Borrowing Agreement and all other agreements
contemplated hereby to which the Company is a party, the offering, sale and
issuance of the Investor Stock hereunder and the Warrants under the Borrowing
Agreement, the issuance of the Class A Common upon conversion of the Class B
Common, the amendment of the Certificate of Incorporation and the Company's
bylaws and the fulfillment of and compliance with the respective terms hereof
and thereof by the Company, do not and shall not (i) conflict with or result in
a breach of the terms, conditions or provisions of, (ii) constitute a default
under, (iii) result in the creation of any lien, security interest, charge or
encumbrance upon the Company's capital stock or assets pursuant to, (iv) give
any third party the right to modify, terminate or accelerate any obligation
under, (v) result in a violation of, or (vi) require any authorization, consent,
approval, exemption or other action by or notice or declaration to, or filing
with, any court or administrative or governmental body or agency pursuant to,
the charter or bylaws of the Company or any law, statute, rule or regulation to
which the Company is subject, or any agreement, instrument, order, judgment or
decree to which the Company or any Subsidiary is subject.
5.1E. [Intentionally Blank]
5.1F. Absence of Undisclosed Liabilities. Except as set forth on
----------------------------------
the attached "Liabilities Schedule," the Company
-18-
and its Subsidiaries do not have any material obligation or liability (whether
accrued, absolute, contingent, unliquidated or otherwise, whether or not known
to the Company or any Subsidiary, whether due or to become due and regardless of
when asserted) arising out of transactions entered into at or prior to the
Closing, or any action or inaction at or prior to the Closing, or any state of
facts existing at or prior to the Closing other than: (i) liabilities set forth
on the Latest Balance Sheet (including any notes thereto), (ii) liabilities and
obligations which have arisen after the date of the Latest Balance Sheet in the
ordinary course of business (none of which is a liability resulting from breach
of contract, breach of warranty, tort, infringement, claim or lawsuit) and (iii)
other liabilities and obligations expressly disclosed in the other Schedules to
this Agreement.
5.1G. No Material Adverse Change. Since the date of the Latest
--------------------------
Balance Sheet, there has been no material adverse change in the financial
condition, operating results, assets, operations, business prospects, employee
relations or customer or supplier relations of the Company.
5.1H. Absence of Certain Developments.
-------------------------------
(i) Except as expressly contemplated by this Agreement or as set forth
on the attached "Developments Schedule," since the date of the Latest Balance
Sheet, the Company has not:
(a) issued any notes, bonds or other debt securities or any
capital stock or other equity securities or any securities convertible,
exchangeable or exercisable into any capital stock or other equity
securities;
(b) borrowed any amount or incurred or become subject to any
material liabilities, except current liabilities incurred in the ordinary
course of business and liabilities under contracts entered into in the
ordinary course of business;
(c) discharged or satisfied any material Lien or paid any material
obligation or liability, other than current liabilities paid in the
ordinary course of business;
(d) declared or made any payment or distribution of cash or other
property to its stockholders with respect to its capital stock or other
equity securities or purchased or redeemed any shares of its capital stock
or other equity securities (including, without limitation, any warrants,
options or other rights to acquire its capital stock or other equity
securities);
(e) mortgaged or pledged any of its properties or assets or
subjected them to any Lien, except Liens for current property taxes not yet
due and payable;
-19-
(f) sold, assigned or transferred any of its tangible assets,
except in the ordinary course of business, or canceled any material debts
or claims;
(g) sold, assigned or transferred any patents or patent
applications, trademarks, service marks, trade names, corporate names,
copyrights or copyright registrations, trade secrets or other intangible
assets;
(h) suffered any extraordinary losses or waived any rights of
material value, whether or not in the ordinary course of business or
consistent with past practice;
(i) made capital expenditures or commitments therefor that
aggregate in excess of $75,000;
(j) made any loans or advances to, guarantees for the benefit of,
or any Investments in, any Persons in excess of $5,000 in the aggregate;
(k) made any charitable contributions or pledges in excess of
$5,000 in the aggregate;
(l) suffered any damage, destruction or casualty loss exceeding
in the aggregate $50,000, whether or not covered by insurance;
(m) made any Investment in or taken steps to incorporate any
Subsidiary; or
(n) entered into any other material transaction, whether or not
in the ordinary course of business.
(ii) The Company has not at any time made any payments for political
contributions or made any bribes, kickback payments or other illegal payments.
5.1I. Assets. The Company has good and marketable title to, or a
------
valid leasehold interest in, the properties and assets used by it, located on
its premises or shown on the Latest Balance Sheet or acquired thereafter, free
and clear of all Liens, except for properties and assets disposed of in the
ordinary course of business since the date of the Latest Balance Sheet and
except for Liens disclosed on the Latest Balance Sheet (including any notes
thereto) and Liens for current property taxes not yet due and payable, except
for liens created by the Acquisition Agreement created or permitted by the
Borrowing Agreement and except for Permitted Liens. Except as described on the
Assets Schedule, the Company's buildings, equipment and other tangible assets
are in good operating condition in all material respects and are fit for use in
the ordinary course of business. The Company owns, or have a valid leasehold
interest in, all assets necessary for the conduct of their respective businesses
as presently conducted and as presently proposed to be conducted.
-20-
5.1J. Tax Matters.
-----------
(i) The Company has filed all Tax Returns which they are required to
file under applicable laws and regulations; all such Tax Returns are complete
and correct in all material respects and have been prepared in compliance with
all applicable laws and regulations in all material respects; the Company in all
material respects has paid all Taxes due and owing by them (whether or not such
Taxes are required to be shown on a Tax Return) and have withheld and paid over
to the appropriate taxing authority all Taxes which it is required to withhold
from amounts paid or owing to any employee, stockholder, creditor or other third
party; the Company has not waived any statute of limitations with respect to any
Taxes or agreed to any extension of time with respect to any Tax assessment or
deficiency; the accrual for Taxes on the Latest Balance Sheet would be adequate
to pay all Tax liabilities of the Company if their current tax year were treated
as ending on the date of the Latest Balance Sheet (excluding any amount recorded
which is attributable solely to timing differences between book and Tax income);
since the date of the Latest Balance Sheet, the Company has not incurred any
material liability for Taxes other than in the ordinary course of business; the
assessment of any additional Taxes for periods for which Tax Returns have been
filed by the Company is not expected to exceed the recorded liability therefor
on the Latest Balance Sheet (excluding any amount recorded which is attributable
solely to timing differences between book and Tax income); no foreign, federal,
state or local tax audits or administrative or judicial proceedings are pending
or being conducted with respect to the Company, no information related to Tax
matters has been requested by any foreign, federal, state or local taxing
authority and no written notice indicating an intent to open an audit or other
review has been received by the Company from any foreign, federal, state or
local taxing authority; and there are no material unresolved questions or claims
concerning the Company's Tax liability.
(ii) "Tax" or "Taxes" means federal, state, county, local, foreign or
other income, gross receipts, ad valorem, franchise, profits, sales or use,
transfer, registration, excise, utility, environmental, communications, real or
personal property, capital stock, license, payroll, wage or other withholding,
employment, social security, severance, stamp, occupation, alternative or add-on
minimum, estimated and other taxes of any kind whatsoever (including, without
limitation, deficiencies, penalties, additions to tax, and interest attributable
thereto) whether disputed or not. "Tax Return" means any return, information
report or filing with respect to Taxes, including any schedules attached thereto
and including any amendment thereof.
-21-
5.1K. Contracts and Commitments.
-------------------------
(i) Except as expressly contemplated by this Agreement or as set forth
on the attached "Contracts Schedule" or the attached "Employee Benefits
Schedule," the Company is not a party to or bound by any written or oral:
(a) pension, profit sharing, stock option, employee stock purchase
or other plan or arrangement providing for deferred or other compensation
to employees or any other employee benefit plan or arrangement, or any
collective bargaining agreement or any other contract with any labor union,
or severance agreements, programs, policies or arrangements;
(b) written contract for the employment of any officer, individual
employee or other Person on a full-time, part-time, consulting or other
basis or contract relating to loans to officers, directors or Affiliates;
(c) contract under which the Company has advanced or loaned any
other Person amounts in the aggregate exceeding $25,000;
(d) agreement or indenture relating to borrowed money or other
Indebtedness or the mortgaging, pledging or otherwise placing a Lien on any
material asset or material group of assets of the Company;
(e) guarantee of any obligation in excess of $5,000;
(f) lease or agreement under which the Company is lessee of or
holds or operates any property, real or personal, owned by any other party,
except for any lease of real or personal property under which the aggregate
annual rental payments do not exceed $20,000;
(g) lease or agreement under which the Company is lessor of or
permits any third party to hold or operate any property, real or personal,
owned or controlled by the Company;
(h) contract or group of related contracts with the same party or
group of affiliated parties the performance of which involves consideration
in excess of $30,000;
(i) assignment, license, indemnification or agreement with respect
to any intangible property (including, without limitation, any Intellectual
Property);
-22-
(j) warranty agreement with respect to its services rendered or its
products sold or leased except in the ordinary course of business;
(k) agreement under which it has granted any Person any
registration rights (including, without limitation, demand and piggyback
registration rights);
(l) sales, distribution or franchise agreement;
(m) agreement with a term of more than six months which is not
terminable by the Company or any Subsidiary upon less than 30 days notice
without penalty;
(n) contract or agreement prohibiting it from freely engaging in
any business or competing anywhere in the world; or
(o) any other agreement which is material to its operations and
business prospects or involves a consideration in excess of $100,000
annually.
(ii) All of the contracts, agreements and instruments set forth on the
Contracts Schedule are valid, binding and enforceable in accordance with their
respective terms. The Company has performed all material obligations required
to be performed by it and is not in default under or in breach of nor in receipt
of any claim of default or breach under any contract, agreement or instrument to
which the Company is subject; no event has occurred which with the passage of
time or the giving of notice or both would result in a material default, breach
or event of noncompliance by the Company under any contract, agreement or
instrument to which the Company is subject; the Company does not have any
present expectation or intention of not fully performing all such obligations;
the Company does not have knowledge of any breach or anticipated breach by the
other parties to any contract, agreement, instrument or commitment to which it
is a party; and the Company is not a party to any materially adverse contract or
commitment.
5.1L. Intellectual Property Rights.
----------------------------
(i) The attached "Intellectual Property Schedule" contains a complete
and accurate list of all (a) patented or registered Intellectual Property Rights
owned or used by the Company, (b) pending patent applications and applications
for registrations of other Intellectual Property Rights filed by the Company,
(c) unregistered trade names and corporate names owned or used by the Company
and (d) unregistered trademarks, service marks, copyrights, mask works and
computer software owned or used by the Company. The Intellectual Property
Schedule also contains a complete and accurate list of all licenses and other
rights granted by the Company to any third party with respect to any
Intellectual Property Rights and all licenses and other rights
-23-
granted by any third party to the Company with respect to any Intellectual
Property Rights, in each case identifying the subject Intellectual Property
Rights. The Company owns all right, title and interest to, or has the right to
use pursuant to a valid license, all Intellectual Property Rights necessary for
the operation of the businesses of the Company as presently conducted. The loss
or expiration of any Intellectual Property Right or related group of
Intellectual Property Rights owned or used by the Company would not reasonably
be expected to have a material adverse effect on the conduct of the Company's
businesses, and no such loss or expiration is threatened, pending or reasonably
foreseeable.
(ii) Except as set forth on the Intellectual Property Schedule, (a)
the Company owns all right, title and interest in and to all of the Intellectual
Property Rights listed on such schedule, (b) there have been no claims made
against the Company asserting the invalidity, misuse or unenforceability of any
of such Intellectual Property Rights, and, to the best of the Company's
knowledge, there are no grounds for the same, (c) the Company has not received
any notices of, and is not aware of any facts which indicate a likelihood of,
any infringement or misappropriation by, or conflict with, any third party with
respect to such Intellectual Property Rights (including, without limitation, any
demand or request that the Company license any rights from a third party), and
(d) the conduct of the Company's business has not infringed, misappropriated or
conflicted with and does not infringe, misappropriate or conflict with any
Intellectual Property Rights of other Persons, nor would any future conduct as
presently contemplated infringe, misappropriate or conflict with any
Intellectual Property Rights of other Persons, with the possible exception of
certain of the schools being acquired from Seller using similar names to other
NEC schools in the same area.
5.1M. Litigation, etc. Except as set forth on the attached
---------------
"Litigation Schedule," there are no actions, suits, proceedings, orders,
investigations or claims pending or, to the best of the Company's knowledge,
threatened against or affecting the Company (or to the best of the Company's
knowledge, pending or threatened against or affecting any of the officers,
directors or employees of the Company with respect to their businesses or
proposed business activities), or pending or threatened by the Company or any
Subsidiary against any third party, at law or in equity, or before or by any
governmental department, commission, board, bureau, agency or instrumentality
(including, without limitation, any actions, suits, proceedings or
investigations with respect to the transactions contemplated by this Agreement);
the Company is not subject to any arbitration proceedings under collective
bargaining agreements or otherwise or, to the best of the Company's knowledge,
any governmental investigations or inquiries; and, to the best of the Company's
knowledge, there is no basis for any of the foregoing. Except as set forth in
the "Litigation Schedule," the Company is not subject to any
-24-
judgment, order or decree of any court or other governmental agency, and the
Company has not received any opinion or memorandum or legal advice from legal
counsel to the effect that it is exposed, from a legal standpoint, to any
liability or disadvantage which may be material to its business.
5.1N. Brokerage. Except as set forth on the attached "Brokerage
---------
Schedule," there are no claims for brokerage commissions, finders' fees or
similar compensation in connection with the transactions contemplated by this
Agreement based on any arrangement or agreement binding upon the Company. The
Company shall pay, and hold each Purchaser harmless against, any liability, loss
or expense (including, without limitation, reasonable attorneys' fees and out-
of-pocket expenses) arising in connection with any such claim.
5.1O. Governmental Consent, etc. Except as contemplated in the
-------------------------
Acquisition Agreement, no permit, consent, approval or authorization of, or
declaration to or filing with, any governmental authority is required in
connection with the execution, delivery and performance by the Company of this
Agreement or the other agreements contemplated hereby, or the consummation by
the Company of any other transactions contemplated hereby or thereby.
5.1P. Employees. The Company is not aware that any executive or key
---------
employee of the Company or any group of employees of the Company has any plans
to terminate employment with the Company. The Company has complied in all
material respects with all laws relating to the employment of labor (including,
without limitation, provisions thereof relating to wages, hours, equal
opportunity, collective bargaining and the payment of social security and other
taxes), and the Company is not aware that it has any material labor relations
problems (including, without limitation, any union organization activities,
threatened or actual strikes or work stoppages or material grievances). Neither
the Company, nor to the best of the Company's knowledge, any of its employees is
subject to any noncompete, nondisclosure, confidentiality, employment,
consulting or similar agreements relating to, affecting or in conflict with the
present or proposed business activities of the Company, except for agreements
between the Company and its present and former employees.
5.1Q. ERISA.
-----
(i) Multiemployer Plans. The Company does not have any obligation to
-------------------
contribute to (or any other liability, including current or potential withdrawal
liability, with respect to) any "multiemployer plan" (as defined in Section
3(37) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")).
-25-
(ii) Retiree Welfare Plans. The Company does not maintain or have
---------------------
any obligation to contribute to (or any other liability with respect to) any
plan or arrangement whether or not terminated, which provides medical, health,
life insurance or other welfare-type benefits for current or future retired or
terminated employees (except for limited continued medical benefit coverage
required to be provided under Section 4980B of the IRC or as required under
applicable state law).
(iii) Defined Benefit Plans. Except as set forth on the "Employee
---------------------
Benefits Schedule," the Company does not maintain, contribute to or have any
liability under (or with respect to) any employee plan which is a tax-qualified
"defined benefit plan" (as defined in Section 3(35) of ERISA), whether or not
terminated (any such plans, collectively with the Other Plans defined below, the
"Plans").
(iv) Defined Contribution Plans. The Company does not maintain,
--------------------------
contribute to or have any liability under (or with respect to) any employee plan
which is a tax-qualified "defined contribution plan" (as defined in Section
3(34) of ERISA), whether or not terminated.
(v) Other Plans. Except as set forth in the "Employee Benefits
-----------
Schedule," the Company does not maintain, contribute to or have any liability
under (or with respect to) any plan or arrangement providing benefits to current
or former employees, including any bonus plan, plan for deferred compensation,
employee health or other welfare benefit plan or other arrangement, whether or
not terminated. Such plans and other arrangements are referred to as the "Other
Plans."
(vi) The Company. For purposes of this paragraph, the term "Company"
-----------
includes all organizations under common control with the Company pursuant to
Section 414(b) or (c) of the IRC.
(vii) Compliance. The Plans and all related trusts, insurance contracts
----------
and funds have been maintained, funded and administered in compliance in all
material respects with the applicable provisions of ERISA, the IRC and other
applicable laws. Neither the Company nor any trustee or administrator of any
Plan has engaged in any transaction with respect to the Plans which could
subject the Company or any trustee or administrator or the Plans, or any party
dealing with any such Plan, nor do the transactions contemplated by this
Agreement constitute transactions which could subject any such party, to either
a civil penalty assessed pursuant to Section 502(i) of ERISA or the tax or
penalty on prohibited transactions imposed by Section 4975 of the IRC. No
actions, suits or claims with respect to the assets of the Plans (other than
routine claims for benefits) are pending or threatened which could result in or
subject the Company to any material liability, and there are no circumstances
which could give rise to or be expected to give rise to any such actions, suits
or claims.
-26-
5.1R. Compliance with Laws. The Company has not violated any law or
--------------------
any governmental regulation or requirement which violation has had or would
reasonably be expected to have a material adverse effect upon the financial
condition, operating results, assets, operations or business prospects of the
Company, and the Company has not received notice of any such violation. The
Company is not subject to, or has no reason to believe it may become subject to,
any liability (contingent or otherwise) or corrective or remedial obligation
arising under any federal, state, local or foreign law, rule or regulation
(including the common law) relating to or regulating health, safety, pollution
or the protection of the environment ("Environmental Laws").
5.1S. Environmental and Safety Matters.
--------------------------------
(i) For purposes of this Agreement, the term "Environmental and
Safety Requirements" shall mean all federal, state, local and foreign statutes,
regulations, ordinances and other provisions having the force or effect of law,
all judicial and administrative orders and determinations, all contractual
obligations and all common law, in each case concerning public health and
safety, worker health and safety and pollution or protection of the environment
(including, without limitation, all those relating to the presence, use,
production, generation, handling, transport, treatment, storage, disposal,
distribution, labeling, testing, processing, discharge, Release, threatened
Release, control or cleanup of any hazardous or otherwise regulated materials,
substances or wastes, chemical substances or mixtures, pesticides, pollutants,
contaminants, toxic chemicals, petroleum products or byproducts, asbestos,
polychlorinated biphenyls, noise or radiation); "Release" shall have the meaning
set forth in CERCLA (as defined below); and "Environmental Lien" shall mean any
Lien, whether recorded or unrecorded, in favor of any governmental entity,
relating to any liability of the Company arising under any Environmental and
Safety Requirements.
(ii) Except as set forth on the attached "Environmental Schedule":
(a) The Company has complied with and is currently in
compliance with all Environmental and Safety Requirements, and the Company
has not received any oral or written notice, report or information
regarding any liabilities (whether accrued, absolute, contingent, unliqui-
dated or otherwise) or any corrective, investigatory or remedial
obligations arising under Environmental and Safety Requirements which
relate to the Company or any of its properties or facilities.
(b) Without limiting the generality of the foregoing, the
Company has obtained and complied with, and is currently in compliance
with, all permits, licenses and other authorizations that may be required
pursuant to any Environmental and Safety Requirements for the occupancy of
-27-
its properties or facilities or the operation of their businesses.
(c) Neither this Agreement nor the consummation of the
transactions contemplated by this Agreement shall impose any obligations on
the Company for site investigation or cleanup, or notification to or
consent of any government agencies or third parties under any Environmental
and Safety Requirements (including, without limitation, any so called
"transaction-triggered" or "responsible property transfer" laws and
regulations).
(d) None of the following exists at any property or facility
owned, occupied or operated by the Company:
(1) underground storage tanks or surface impoundments;
(2) asbestos-containing materials in any form or condition; or
(3) materials or equipment containing polychlorinated
biphenyls.
(e) The Company has not treated, stored, disposed of, arranged
for or permitted the disposal of, transported, handled or Released any
substance (including, without limitation, any hazardous substance) or
owned, occupied or operated any facility or property, so as to give rise to
liabilities of the Company for response costs, natural resource damages or
attorneys fees pursuant to the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 ("CERCLA"), as amended, or any other
Environmental and Safety Requirements.
(f) Without limiting the generality of the foregoing, no facts,
events or conditions relating to the past or present properties, facilities
or operations of the Company or its Subsidiaries shall prevent, hinder or
limit continued compliance with Environmental and Safety Requirements,
give rise to any corrective, investigatory or remedial obligations pursuant
to Environmental and Safety Requirements or give rise to any other
liabilities (whether accrued, absolute, contingent, unliquidated or
otherwise) pursuant to Environmental and Safety Requirements (including,
without limitation, those liabilities relating to onsite or offsite
Releases or threatened Releases of hazardous materials, substances or
wastes, personal injury, property damage or natural resources damage.
5.1T. Affiliated Transactions. Except as set forth on the
-----------------------
attached "Affiliated Transactions Schedule," no officer or director of the
Company or any individual related by blood, marriage or adoption to any such
individual or any entity in
-28-
which any such Person or individual owns any beneficial interest, is a party to
any agreement, contract, commitment or transaction with the Company has any
material interest in any material property used by the Company.
5.1U. Disclosure. Neither this Agreement nor any of the exhibits,
----------
schedules, attachments, written statements, documents, certificates or other
items prepared or supplied to any Purchaser by or on behalf of the Company with
respect to the transactions contemplated hereby contain any untrue statement of
a material fact or omit a material fact necessary to make each statement
contained herein or therein not misleading. There is no fact which the Company
has not disclosed to the Purchasers in writing and of which any of its officers,
directors or executive employees is aware (other than general economic
conditions) and which has had or would reasonably be expected to have a material
adverse effect upon the existing or expected financial condition, operating
results, assets, customer or supplier relations, employee relations or business
prospects of the Company.
5.1V. Closing Date. The representations and warranties of the
------------
Company contained in this Section 5 and elsewhere in this Agreement and all
information contained in any exhibit, schedule or attachment hereto or in any
certificate or other writing delivered by, or on behalf of, the Company to any
Purchaser shall be true and correct in all material respects on the date of the
Closing as though then made, except as affected by the transactions expressly
contemplated by this Agreement, the Acquisition Agreement and the Borrowing
Agreement.
5.1W. Acquisition Agreement Representations. To the best of the
-------------------------------------
Company's knowledge after due inquiry, the representations and warranties made
by Seller and NEC in the Acquisition Agreement are true and correct in all
material respects.
5.1X. Projections and Pro Forma Financial Statements. The
----------------------------------------------
projected financial statements and financial information of the Company included
in the Company's Private Placement Memorandum for a $2.5 million Equity
Investment, dated April 21, 1995, are based on fair and reasonable assumptions
in light of the historical performance of the business to be acquired, the plans
to change the operations thereof and reasonably forseeable business conditions.
5.1Y. Knowledge. As used in this Section 5, the terms "knowledge"
---------
or "aware" shall mean the actual knowledge or awareness of the Company (which
shall include the actual knowledge and awareness of the officers, directors and
key employees of the Company.
-29-
Section 6. Definitions.
-----------
6.1A. Definitions. For the purposes of this Agreement, the
-----------
following terms have the meanings set forth below:
"Affiliate" of any particular Person means any other Person
---------
controlling, controlled by or under common control with such particular Person,
where "control" means the possession, directly or indirectly, of the power to
direct the management and policies of a Person whether through the ownership of
voting securities, contract or otherwise.
"Borrowing Agreement" means the loan agreement and the related
-------------------
agreements between the Company and the Lender referred to in paragraph 2G, as
such agreements are in effect at the closing and amended, modified or waived
from time to time as permitted by paragraph.
"Executive Stock" means all shares of Class A Common and all shares
---------------
of vested Class B Common held by each executive party to an Executive Stock
Agreement who, at the time in question, is employed by the Company or one of its
Subsidiaries.
"Event of Noncompliance" has the meaning set forth in the Certificate
----------------------
of Incorporation.
"Indebtedness" means all indebtedness for borrowed money (including
-------------
purchase money obligations) maturing one year or more from the date of creation
or incurrence thereof or renewable or extendible at the option of the debtor to
a date one year or more from the date of creation or incurrence thereof, all
indebtedness under revolving credit arrangements extending over a year or more,
all capitalized lease obligations and all guarantees of any of the foregoing.
"Intellectual Property Rights" means all (i) patents, patent
----------------------------
applications, patent disclosures and inventions, (ii) trademarks, service marks,
trade dress, trade names, logos and corporate names and registrations and
applications for registration thereof together with all of the goodwill
associated therewith, (iii) copyrights (registered or unregistered) and
copyrightable works and registrations and applications for registration thereof,
(iv) mask works and registrations and applications for registration thereof, (v)
computer software, data, data bases and documentation thereof, (vi) trade
secrets and other confidential information (including, without limitation,
ideas, formulas, compositions, inventions (whether patentable or unpatentable
and whether or not reduced to practice), know-how, manufacturing and production
processes and techniques, research and development information, drawings,
specifications, designs, plans, proposals, technical data, copyrightable works,
financial and marketing plans and customer and supplier lists and information),
(vii) other intellectual
-30-
property rights and (viii) copies and tangible embodiments thereof (in whatever
form or medium).
"Investment" as applied to any Person means (i) any direct or indirect
----------
purchase or other acquisition by such Person of any notes, obligations,
instruments, stock, securities or ownership interest (including partnership
interests and joint venture interests) of any other Person and (ii) any capital
contribution by such Person to any other Person.
"IRC" means the Internal Revenue Code of 1986, as amended, and any
---
reference to any particular IRC section shall be interpreted to include any
revision of or successor to that section regardless of how numbered or
classified.
"IRS" means the United States Internal Revenue Service.
---
"Liens" means any mortgage, pledge, security interest, encumbrance,
-----
lien or charge of any kind (including, without limitation, any conditional sale
or other title retention agreement or lease in the nature thereof), any sale of
receivables with recourse against the Company, any Subsidiary or any Affiliate,
any filing or agreement to file a financing statement as debtor under the
Uniform Commercial Code or any similar statute other than to reflect ownership
by a third party of property leased to the Company or any Subsidiaries under a
lease which is not in the nature of a conditional sale or title retention
agreement, or any subordination arrangement in favor of another Person (other
than any subordination arising in the ordinary course of business).
"Officer's Certificate" means a certificate signed by the Company's
---------------------
president or its chief financial officer, stating that (i) the officer signing
such certificate has made or has caused to be made such investigations as are
reasonably necessary in order to permit him to verify the accuracy of the
information set forth in such certificate and (ii) to the best of such officer's
knowledge, such certificate does not misstate any material fact and does not
omit to state any fact necessary to make the certificate not misleading.
"Permitted Liens" means:
---------------
(i) tax liens with respect to taxes not yet due and payable or
which are being contested in good faith by appropriate proceedings and for
which appropriate reserves have been established in accordance with
generally accepted accounting principles, consistently applied;
(ii) deposits or pledges made in connection with, or to secure
payment of, utilities or similar services, workers' compensation,
unemployment insurance, old age pensions or other social security
obligations;
-31-
(iii) purchase money security interests in any property acquired
by the Company or any Subsidiary to the extent permitted by this Agreement;
(iv) interests or title of a lessor under any lease permitted
by this Agreement;
(v) mechanics', materialmen's or contractors' liens or
encumbrances or any similar lien or restriction for amounts not yet due and
payable;
(vi) easements, rights-of-way, restrictions and other similar
charges and encumbrances not interfering with the ordinary conduct of the
business of the Company and its Subsidiaries or detracting from the value
of the assets of the Company and its Subsidiaries;
(vii) liens outstanding on the date hereof which secure
Indebtedness and which are described in the schedules to this Agreement;
and
(viii) liens assumed by the Company or a Subsidiary in connection
with the Acquisition permitted by this Agreement, and liens created under
or contemplated by the Acquisition Agreement and the Borrowing Agreement.
"Person" means an individual, a partnership, a corporation, a
------
limited liability company, an association, a joint stock company, a trust, a
joint venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
"Qualified Public Offering" has the meaning specified in the
-------------------------
Executive Stock Agreements.
"Restricted Securities" means (i) the Investor Stock issued
---------------------
hereunder, (ii) the Class A Common issued upon exchange of Class B Common and
(iii) any securities issued with respect to the securities referred to in
clauses (i) or (ii) above by way of a stock dividend or stock split or in
connection with a combination of shares, recapitalization, merger, consolidation
or other reorganization. As to any particular Restricted Securities, such
securities shall cease to be Restricted Securities when they have (a) been
effectively registered under the Securities Act and disposed of in accordance
with the registration statement covering them, (b) been distributed to the
public through a broker, dealer or market maker pursuant to Rule 144 (or any
similar provision then in force) under the Securities Act or become eligible for
sale pursuant to Rule 144 (or any similar provision then in force) under the
Securities Act or (c) been otherwise transferred and new certificates for them
not bearing the Securities Act legend set forth in paragraph 7C have been
delivered by the Company in accordance with paragraph 4. Whenever any particular
securities cease to be Restricted
-32-
Securities, the holder thereof shall be entitled to receive from the Company,
without expense, new securities of like tenor not bearing a Securities Act
legend of the character set forth in paragraph 7C.
"Securities Act" means the Securities Act of 1933, as amended, or any
--------------
similar federal law then in force.
"Securities and Exchange Commission" includes any governmental body or
----------------------------------
agency succeeding to the functions thereof.
"Securities Exchange Act" means the Securities Exchange Act of 1934,
-----------------------
as amended, or any similar federal law then in force.
"Subsidiary" means any corporation of which the securities having a
----------
majority of the ordinary voting power in electing the board of directors are, at
the time as of which any determination is being made, owned by the Company
either directly or through one or more Subsidiaries.
"Underlying Common Stock" means (i) the Class A Common issued
-----------------------
hereunder, (ii) the Class A Common issued or issuable upon exchange of the Class
B Common and (iii) any Common Stock issued or issuable with respect to the
securities referred to in clause (i) or (ii) above by way of stock dividend or
stock split or in connection with a combination of shares, recapitalization,
merger, consolidation or other reorganization. As to any particular shares of
Underlying Common Stock, such shares shall cease to be Underlying Common Stock
when they have been (a) effectively registered under the Securities Act and
disposed of in accordance with the registration statement covering them, (b)
distributed to the public through a broker, dealer or market maker pursuant to
Rule 144 under the Securities Act (or any similar provision then in force) or
(c) repurchased by the Company or any Subsidiary.
"Warrants" means the warrants to be issued under the Borrowing
--------
Agreement.
"Wholly-Owned Subsidiary" means, with respect to any Person, a
-----------------------
Subsidiary of which all of the outstanding capital stock or other ownership
interests are owned by such Person or another Wholly-Owned Subsidiary of such
Person.
Section 7. Miscellaneous.
-------------
7.1A. Expenses. The Company shall pay, and hold each Purchaser
--------
and all holders of Class A Preferred and Underlying Common Stock harmless
against liability for the payment of, (i) the reasonable fees and expenses of
their special counsel arising in connection with the negotiation and execution
of this Agreement and the consummation of the transactions contemplated by this
Agreement which shall be payable at the Closing or, if
-33-
the Closing does not occur, payable upon demand, (ii) the reasonable fees and
expenses incurred with respect to any amendments or waivers (whether or not the
same become effective) under or in respect of this Agreement, the agreements
contemplated hereby, the Certificate of Incorporation, (iii) stamp and other
taxes which may be payable in respect of the execution and delivery of this
Agreement or the issuance, delivery or acquisition of any shares of Investor
Stock or any shares of Class A Common issuable upon conversion of Class B
Common, (iv) the reasonable fees and expenses incurred with respect to the
enforcement of the rights granted under this Agreement, the agreements
contemplated hereby and, the Certificate of Incorporation and (v) the reasonable
fees and expenses incurred by each such Person in any filing with any
governmental agency with respect to its investment in the Company or in any
other filing with any governmental agency with respect to the Company which
mentions such Person.
7.1B. Remedies. Each holder of Class A Preferred and Underlying
--------
Common Stock shall have all rights and remedies set forth in this Agreement, the
Certificate of Incorporation and all rights and remedies which such holders have
been granted at any time under any other agreement or contract and all of the
rights which such holders have under any law. Any Person having any rights under
any provision of this Agreement shall be entitled to enforce such rights
specifically (without posting a bond or other security), to recover damages by
reason of any breach of any provision of this Agreement and to exercise all
other rights granted by law.
7.1C. Purchaser's Investment Representations. Each Purchaser
--------------------------------------
hereby represents that it is acquiring the Restricted Securities purchased
hereunder or acquired pursuant hereto for its own account with the present
intention of holding such securities for purposes of investment, 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; provided
that nothing contained herein shall prevent any Purchaser and subsequent holders
of Restricted Securities from transferring such securities in compliance with
the provisions of Section 4 hereof. Each certificate or instrument representing
Restricted Securities shall be imprinted with a legend in substantially the
following form:
"The securities represented by this certificate were originally issued on
June 30, 1995, and have not been registered under the Securities Act of
1933, as amended. The transfer of the securities represented by this
certificate is subject to the conditions specified in the Purchase
Agreement, dated as of June 30, 1995 and as amended and modified from time
to time, between the issuer (the "Company") and certain investors, and the
Company reserves the right to refuse the transfer of such securities until
such conditions have been
-34-
fulfilled with respect to such transfer. A copy of such conditions shall be
furnished by the Company to the holder hereof upon written request and
without charge."
7.1D. Treatment of the Preferred Stock. The Company covenants and
--------------------------------
agrees that (i) so long as federal income tax laws prohibit a deduction for
distributions made by the Company with respect to preferred stock, it shall
treat all distributions paid by it on the Preferred Stock as non-deductible
dividends on all of its tax returns and (ii) it shall treat the Preferred Stock
as preferred stock in all of its financial statements and other reports and
shall treat all distributions paid by it on the Preferred Stock as dividends on
preferred stock in such statements and reports. The Company acknowledges and
agrees that the increased dividend rate on the Preferred Stock provided for in
the Certificate of Incorporation upon the occurrence of certain Events of
Noncompliance has been negotiated by (and is intended by) the Company and the
Purchasers as a reasonable increase in yield necessitated by the increased risk
to the holders of the Preferred Stock which would arise upon any such
occurrence.
7.1E. Consent to Amendments. Except as otherwise expressly provided
---------------------
herein, the provisions of this Agreement may be amended and the Company may take
any action herein prohibited, or omit to perform any act herein required to be
performed by it, only if the Company has obtained the written consent of the
holders of a majority of the outstanding Class A Preferred; pro vided that if
there is no Class A Preferred outstanding, the provisions of this Agreement may
be amended and the Company may take any action herein prohibited, only if the
Company has obtained the written consent of the holders of a majority of the
Underlying Common Stock. No other course of dealing between the Company and the
holder of any Class A Preferred or Underlying Common Stock or any delay in
exercising any rights hereunder or under the Certificate of Incorporation shall
operate as a waiver of any rights of any such holders. For purposes of this
Agreement, shares of Class A Preferred or Underlying Common Stock held by the
Company shall not be deemed to be outstanding. If the Company pays any
consideration to any holder of Class A Preferred or Underlying Common Stock for
such holder's consent to any amendment, modification or waiver hereunder, the
Company shall also pay each other holder granting its consent hereunder
equivalent consideration computed on a pro rata basis.
7.1F. Survival of Representations and Warranties. All
------------------------------------------
representations and warranties contained herein or made in writing by any party
in connection herewith shall survive the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby,
regardless of any investigation made by any Purchaser or on its behalf.
-35-
7.1G. Successors and Assigns. Except as otherwise expressly
----------------------
provided herein, all covenants and agreements contained in this Agreement by or
on behalf of any of the parties hereto shall bind and inure to the benefit of
the respective successors and assigns of the parties hereto whether so expressed
or not. In addition, and whether or not any express assignment has been made,
the provisions of this Agreement which are for any Purchaser's benefit as a
purchaser or holder of Class A Preferred or Underlying Common Stock are also for
the benefit of, and enforceable by, any subsequent holder of such Class A
Preferred or such Underlying Common Stock.
7.1H. Capital and Surplus; Special Reserves. The Company agrees
-------------------------------------
that the capital of the Company (as such term is used in Section 154 of the
General Corporation Law of Delaware) in respect of the Class A Preferred issued
pursuant to this Agreement shall be equal to the aggregate par value of such
shares and that it shall not increase the capital of the Company with respect to
any shares of the Company's capital stock at any time on or after the date of
this Agreement. The Company also agrees that it shall not create any special
reserves under Section 171 of the General Corporation Law of Delaware without
the prior written consent of the holders of a majority of the outstanding Class
A Preferred except as may be required by law.
7.1I. Generally Accepted Accounting Principles. Where any
----------------------------------------
accounting determination or calculation is required to be made under this
Agreement or the exhibits hereto, such determination or calculation (unless
otherwise provided) shall be made in accordance with generally accepted
accounting principles, consistently applied, except that if because of a change
in generally accepted accounting principles the Company would have to alter a
previously utilized accounting method or policy in order to remain in compliance
with generally accepted accounting principles, such determination or calculation
shall continue to be made in accordance with the Company's previous accounting
methods and policies.
7.1J. Severability. Whenever possible, each provision of this
------------
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement.
7.1K. Counterparts. This Agreement may be executed simultaneously
------------
in two or more counterparts, any one of which need not contain the signatures of
more than one party, but all such counterparts taken together shall constitute
one and the same Agreement.
7.1L. Descriptive Headings; Interpretation. The descriptive
------------------------------------
headings of this Agreement are inserted for
-36-
convenience only and do not constitute a substantive part of this Agreement. The
use of the word "including" in this Agreement shall be by way of example rather
than by limitation.
7.1M. Governing Law. The corporate law of the State of Delaware
-------------
shall govern all issues and questions concerning the relative rights and
obligations of the Company and its stockholders. All other issues and questions
concerning the construction, validity, enforcement and interpretation of this
Agreement and the exhibits and schedules hereto shall be governed by, and
construed in accordance with, the laws of the State of California, without
giving effect to any choice of law or conflict of law rules or provisions
(whether of the State of California or any other jurisdiction) that would cause
the application of the laws of any jurisdiction other than the State of
California. In furtherance of the foregoing, the internal law of the State of
California shall control the interpretation and construction of this Agreement
(and all schedules and exhibits hereto), even though under that jurisdiction's
choice of law or conflict of law analysis, the substantive law of some other
jurisdiction would ordinarily apply.
7.1N. Notices. All notices, demands or other communications to be
-------
given or delivered under or by reason of the provisions of this Agreement shall
be in writing and shall be deemed to have been given when delivered personally
to the recipient, sent to the recipient by reputable overnight courier service
(charges prepaid) or mailed to the recipient by certified or registered mail,
return receipt requested and postage prepaid. Such notices, demands and other
communications shall be sent to each Purchaser at the address indicated on the
Schedule of Purchasers and to the Company at the address indicated below:
0000 Xxxxxxxx Xxxxxx
Xxxxxx, XX 00000
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.
7.1O. Understanding Among the Purchasers. The determination of
----- ----------------------------------
each Purchaser to purchase the Investor Stock pursuant to this Agreement has
been made by such Purchaser independent of any other Purchaser and independent
of any statements or opinions as to the advisability of such purchase or as to
the properties, business, prospects or condition (financial or otherwise) of the
Company and its Subsidiaries which may have been made or given by any other
Purchaser or by any agent or employee of any other Purchaser.
7.1P. No Strict Construction. The parties hereto have
----------------------
participated jointly in the negotiation and drafting of this Agreement. In the
event an ambiguity or question of intent or interpretation arises, this
Agreement shall be construed as if drafted jointly by the parties hereto, and no
presumption or burden of proof shall arise favoring or disfavoring any party by
virtue of the authorship of any of the provisions of this Agreement.
-37-
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first written above.
CORINTHIAN SCHOOLS, INC.
By /s/ Xxxxx X. Xxxxx
--------------------------
Its PRESIDENT
-------------------------
PRIMUS CAPITAL FUND III
LIMITED PARTNERSHIP
By:Primus Venture Partners, Inc.
By __________________________
Its _________________________
BANC ONE CAPITAL PARTNERS II,
LIMITED PARTNERSHIP
By:__________________________
By __________________________
Its _________________________
-38-
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first written above.
CORINTHIAN SCHOOLS, INC.
By __________________________
Its _________________________
PRIMUS CAPITAL FUND III
LIMITED PARTNERSHIP
By:Primus Venture Partners, Inc.
By /s/ Loyal X. Xxxxxx
-------------------------
Its President
------------------------
BANC ONE CAPITAL PARTNERS II,
LIMITED PARTNERSHIP
By:_________________________
By _________________________
Its ________________________
-39-
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first written above.
CORINTHIAN SCHOOLS, INC.
By __________________________________________
Its _________________________________________
PRIMUS CAPITAL FUND III
LIMITED PARTNERSHIP
By:Primus Venture Partners, Inc.
By __________________________________________
Its _________________________________________
BANC ONE CAPITAL PARTNERS II,
LIMITED PARTNERSHIP
By: Banc One Capital Partners II, Corporation
-----------------------------------------
By /s/ Xxxxx X. Xxxxxxx
-----------------------------------------
Its Senior Vice President
------------------------------------------
-40-
SCHEDULE OF PURCHASERS
----------------------
Total
No. of No. of No. of Purchase
Shares Shares Shares Price
of of of for
Names and Class A Class A Class B Investor
Addresses Preferred Common Common Stock
------------------------- --------- ------- ------- -----------
Primus Capital Fund III 14,500 55,000 -0- $2,000,000
Limited Partnership
Attn: Loyal X. Xxxxxx
0000 Xxxx Xxxxx Xxxxxx
Xxxxx 0000
Xxxxxxxxx, Xxxx 00000
Banc One Capital 3,625 5,410 8,340 $ 500,000
Partners II, Limited
Partnership
Attn: Xxxxx X. Xxxxxxx
00 Xxxx Xxxxx Xxxxxx
Xxxxx 000
Xxxxxxxx, Xxxx 00000
______ ______ _____ __________
TOTAL 18,125 60,410 8,340 $2,500,000
-41-
LIST OF EXHIBITS
----------------
Exhibit A - Restated Certificate of Incorporation
Exhibit B - Bylaws
Exhibit C - Registration Agreement
Exhibit D - Executive Stock Agreement
Exhibit E - Opinion of Counsel
-42-
LIST OF DISCLOSURE SCHEDULES
----------------------------
Capitalization Schedule
Assets Schedule
Contracts Schedule
Intellectual Property Schedule
Litigation Schedule
Brokerage Schedule
Employees Schedule
Employee Benefits Schedule
Environmental Schedule
Affiliated Transactions Schedule
-43-
