Exhibit 10.41
CREDIT AND SECURITY AGREEMENT
Dated as of April ___, 1997
SUNRISE EDUCATIONAL SERVICES, INC., a Delaware corporation formerly
known as Sunrise Preschools, Inc. (the "Borrower"), and IMPERIAL BANK, a
California banking corporation (the "Lender"), hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 DEFINITIONS. For all purposes of this Agreement, except as
otherwise expressly provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings assigned to
them in this Article, and include the plural as well as the singular; and
(b) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted accounting
principles.
"Accounts" means the aggregate unpaid obligations of customers
and other account debtors to the Borrower arising out of the sale or
lease of goods or rendition of services by the Borrower on an open
account or deferred payment basis.
"Advance" means an advance to the Borrower by the Lender under
Facility One, Facility Two, Facility Three, Facility Four or otherwise
under the Credit Facilities.
"Affiliate" or "Affiliates" means any Person controlled by,
controlling or under common control with the Borrower. For purposes of
this definition, "control," when used with respect to any specified
Person, means the power to direct the management and policies of such
Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise.
"Agreement" means this Credit and Security Agreement.
"Banking Day" means a day other than a Saturday or a Sunday on
which banks are generally open for business in Inglewood, California.
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"Cash Flow Coverage Ratio" means a rolling ratio based on the
prior four quarters (the prior 12 months) determined by dividing EBITDA
for such prior period by the current portion of the Borrower's long
term debt for the prior period plus interest expenses for the prior
period. All components of the Cash Flow Coverage Ratio are to be
determined in accordance with generally accepted accounting principles
consistent with those used in preparing Borrower's most recent
consolidating and consolidated audited financial statement.
"Collateral" means all of the Fixtures, Equipment, Vehicles,
General Intangibles, Inventory, Receivables, and fixed assets, all sums
on deposit in any collateral account, together with all substitutions
and replacements for and products of any of the foregoing Collateral
and together with proceeds of any and all of the foregoing Collateral
and together with (i) all accessories thereto, (ii) all accessories,
attachments, parts, equipment and repairs now or hereafter attached or
affixed to or used in connection with any such collateral, and (ii) all
warehouse receipts, bills of lading and other documents of title now or
hereafter covering such collateral.
"Credit Facility" means the credit facilities being made
available to the Borrower by the Lender as Facility One, Facility Two,
Facility Three and Facility Four pursuant to Article II hereof.
"Current Ratio" means the Borrower's total current assets
divided by the Borrower's total current liabilities. All components of
the Current Ratio are to be determined in accordance with generally
accepted accounting principles consistent with those used in preparing
Borrower's most recent consolidating and consolidated audited financial
statement.
"Debt to EBIDTA Ratio" means the ratio of Borrower's
capitalized debt (all non-subordinated, interest bearing liabilities of
Borrower) to Borrower's EBIDTA, all components of which are to be
determined in accordance with generally accepted accounting principles
consistent with those used in preparing Borrower's most recent
consolidating and consolidated audited financial statement.
"Debt to Worth Ratio" means the Borrower's total liabilities
less Subordinated Debt divided by the Borrower's total equity plus
Subordinated Debt. All components of the Debt to Worth Ratio are to be
determined in accordance with generally accepted accounting principles
consistent with those used in preparing Borrower's most recent
consolidating and consolidated audited financial statement.
"Default" means an event that, with giving of notice or
passage of time or both, would constitute an Event of Default.
"Default Period" means the period following the occurrence of
a Default or Event of Default which period shall continue until and
unless the Lender shall thereafter waive such Default or Event of
Default in writing.
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"Default Rate" means at any time five percent (5%) over the
Floating Rate, which Default Rate shall change when and as the Floating
Rate changes.
"EBIDTA" means earnings before interest, depreciation, taxes
and amortization for the applicable time period (the four prior quarters or, in
the case of pro-forma projections, the subsequent four quarters) plus, with
respect to the quarters ending January 31, 1997 and April 30, 1997 the total
amount of $1,008,000. In addition, in calculating EBIDTA for purposes of
advances under Facility One, EBIDTA shall be adjusted for any negative cash flow
from the acquisition in question.
"Environmental Laws" has the meaning specified in Section 5.12
hereof.
"Equipment" means all of the Borrower's equipment, as such
term is defined in the UCC, whether now owned or hereafter acquired, including
but not limited to all present and future machinery, furniture, day care center
equipment, fixed assets, plant assets, office and recordkeeping equipment,
parts, tools, supplies, and including specifically (without limitation) the
goods described in any equipment schedule or list herewith or hereafter
furnished to the Lender by the Borrower, but excluding any equipment leased from
non-Affiliate third parties.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"Event of Default" has the meaning specified in Section 8.1
hereof.
"Floating Rate" means an annual rate of interest equal to the
sum of the Prime Rate plus a margin percentage as listed, with respect to each
Credit Facility in Article II below. The Floating Rate shall change if and when
the Prime Rate changes.
"General Intangibles" means all of the Borrower's general
intangibles, as such term is defined in the UCC, whether now owned or hereafter
acquired, including (without limitation) all present and future patents, patent
applications, copyrights, trademarks, trade names (including without limitation
the trade names and trademarks "SUNRISE PRESCHOOLS" and "SUNRISE EDUCATIONAL
SERVICES"), trade secrets, customer or supplier lists and contracts, manuals,
operating instructions, permits, franchises, the right to use the Borrower's
name and the goodwill of the Borrower's business.
"Fixtures" means all tangible personal property owned or
hereafter acquired by Borrower which is attached or affixed to real property,
including Borrower's interest in leasehold improvements.
"Inventory" means all of the Borrower's inventory, as such
term is defined in the UCC, whether now owned or hereafter acquired, whether
consisting of whole goods, spare parts or components, supplies or materials,
whether acquired, held or furnished for sale, for lease or under service
contracts or for manufacture or processing, and wherever located.
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"Landlord Waiver Requirement" has the meaning given that term
in Section 4.3 of this Agreement.
"Late Charge" means five percent (5%) of the amount of any
installment which is past due in excess of ten (10) days, as provided in Section
2.6 of this Agreement and in the Note.
"Loan Documents" means this Agreement, the Notes and the
Security Documents and all other documents relating to any of the foregoing.
"Net Loss" means an after tax net loss for the Borrower from
continuing operations determined on a consolidating and consolidated basis, to
be determined in accordance with generally accepted accounting principles
consistent with those used in preparing Borrower's most recent consolidating and
consolidated audited financial statement.
"Notes" mean the promissory notes of the Borrower for each
separate Credit Facility payable to the order of the Lender in substantially the
form attached hereto as EXHIBIT X-0, X-0, X-0 and A-4
"Obligations" has the meaning specified in Section 3.1 hereof.
"Person" means any individual, corporation, partnership, joint
venture, limited liability company, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"Plan" means an employee benefit plan or other plan maintained
for employees of the Borrower and covered by Title IV of ERISA.
"Premises" means all premises where the Borrower conducts its
business and has any rights of possession, including (without limitation) each
of the child care facilities listed on EXHIBIT E attached hereto.
"Prime Rate" means the rate of interest publicly announced
from time to time by Imperial Bank, a California banking corporation, in
Inglewood, California as its prime rate for lending (the "Prime Rate") (the
Prime Rate is not intended to be the lowest rate of interest charged by Lender
in connection with extensions of credit to borrowers) or, if such bank ceases to
announce a rate so designated, any similar successor rate designated by the
Lender;
"Pro Forma Cash Flow Coverage Ratio" means a rolling ratio for
the subsequent four quarters (the subsequent 12 months) determined by dividing
projected EBITA from such period (reduced by any negative cash flow anticipated
form the Facility being acquired) by the current portion of long term debt for
such period plus interest expense for such period (including debt and interest
on the Facility to be acquired).
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"Receivables" means each and every right of the Borrower to
the payment of money, whether such right to payment now exists or hereafter
arises, whether such right to payment arises out of a sale, lease or other
disposition of goods or other property, out of a rendering of services or
services to be rendered, out of a loan, out of the overpayment of taxes or other
liabilities, or otherwise arises under any contract or agreement, whether such
right to payment is created, generated or earned by the Borrower or by some
other person who subsequently transfers such person's interest to the Borrower,
whether such right to payment is or is not already earned by performance, and
howsoever such right to payment may be evidenced, together with all other rights
and interests (including all liens and security interests) which the Borrower
may at any time have by law or agreement against any account debtor or other
obligor obligated to make any such payment or against any property of such
account debtor or other obligor; all including but not limited to all present
and future accounts, accounts receivable, contract rights, loans and obligations
receivable, chattel papers, bonds, notes, drafts, acceptances, and other debt
instruments, purchase orders, tax refunds and rights to payment in the nature of
general intangibles and other forms of obligations and receivables.
"Reportable Event" shall have the meaning assigned to that
term in Title IV of ERISA.
"Security Documents" means all documents relating to the
security interest in the Collateral being given to Lender.
"Security Interest" has the meaning specified in Section 3.1
hereof.
"Stock Warrant" has the meanings specified in Section 4.4
hereof.
"Subordinated Debt" means debt which is junior in all respects
to amounts due to Lender pursuant to subordination agreements approved by
Lender.
"Term Out Date" means the date which is one year from the date
of this Agreement.
"UCC" means the Uniform Commercial Code as in effect from time
to time in the state designated in Section 9.12 hereof as the state whose laws
shall govern this Agreement, or in any other state whose laws are held to govern
this Agreement or any portion hereof.
"Vehicles" means all right, title and interest of Borrower now
held or hereafter acquired in all automobiles, busses, vans, trucks and other
motor vehicles, other than motor vehicles leased from non-Affiliate third
parties.
"Warrant Requirement" has the meaning given in Section 4.4 of
this Agreement.
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ARTICLE II
Section 2.1 FACILITY ONE. The Lender agrees, as "Facility One" and on
the terms and subject to the conditions herein set forth, to make Advances to
the Borrower from the date of the satisfaction of the Landlord Waiver
Requirement and Warrant Requirement to the Term Out Date (one year from the date
hereof) or the earlier date of termination of this Facility One pursuant to
Sections 2.7 or 8.2 hereof, in the aggregate amount at anytime outstanding not
to exceed $1,000,000, which Advances shall be secured by the Collateral as
provided in Article III hereof. Facility One shall be a non-revolving term
facility. The aggregate amount of all advances under Facility One shall not
exceed $1,000,000. Advances under Facility One are limited for use by the
Borrower in paying up to 80% of the purchase price of established child care
centers. Each request for an Advance under Facility One shall be made in writing
specifying the date upon which the Advance is requested, the amount thereof, the
designation of the child care center to be acquired, a copy of the purchase
contract with respect to the center being acquired and such other information as
Lender may request concerning the acquisition, including, without limitation,
the operating history and financial performance of the center to be acquired.
Lender may condition any Facility One Advance on amendments to this Agreement or
any of the Security Instruments in order to encumber or perfect the lien of
Lender on the Collateral to be acquired in connection with the acquisition and
the payment of reasonable attorneys fees reasonably incurred in connection with
such amendments. The following shall apply to Facility One:
(a) Each Advance made by Lender under Facility One shall be
evidenced by and repayable with interest in accordance with a separate Facility
One Note to be executed by Borrower at the time of each Facility One advance in
the form attached hereto as EXHIBIT A-1.
(b) The interest rate payable for Facility One advances shall
be a Floating Rate equal to the Prime Rate plus 2.5 percentage points or, at the
election of Borrower made at the Term Out Date at the fixed rate quoted to
Borrower by Lender at such time.
(c) No further advances under Facility One shall be made after
the Term Out Date.
(d) As further specified in the Facility One Note, prior to
the Term Out Date, interest on Facility One Advance shall be payable monthly and
principal shall be payable monthly in an amount equal to 3% of the principal
balance of the Facility One Advances outstanding as of the last day of the prior
month.
(e) From and after the Term Out Date principal and interest on
the then outstanding balance of the Facility One Note shall be payable monthly
in an amount necessary to fully amortize principal, at the interests rate
specified above, in equal monthly payments over three years from the Term Out
Date. Such amortized payments may change corresponding to changes in the Prime
Rate.
(f) A Commitment Fee of .25% of the total amount available
under Facility One is payable at closing.
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(g) An Origination Fee of 2% of amounts advanced under
Facility One shall be payable upon each such Facility One Advance.
Section 2.2 FACILITY TWO. The Lender agrees as "Facility Two" and, on
the terms and subject to the conditions herein set forth, to make Advances to
the Borrower from time to time from the date hereof to and including one year
from the date hereof, (or the earlier date of termination of this facility
pursuant to Sections 2.7 or 8.2 hereof), in the aggregate amount at any time
outstanding not to exceed $500,000, which advances shall be secured by the
Collateral as provided in Article III hereof. Facilities Two shall be a
revolving facility and it is contemplated that the Borrower will request
advances, make prepayments and request additional Advances. If the aggregate
amount of outstanding Advances made under Facility Two exceeds $500,000,
Borrower shall immediately repay the excess to Lender. Advances under Facility
Two are to provide temporary working capital to the Borrower and the following
apply to Facility Two:
(a) All Advances made by Lender under Facility Two shall be
evidenced by and repayable with interest in accordance with the Facility Two
Note to be executed by Borrower at closing in the form attached hereto as
EXHIBIT A-2.
(b) The interest rate payable on Facility Two Advances shall
be a Floating Rate equal to the Prime Rate plus 1.5 percentage points.
(c) Interest under the Facility Two shall be payable monthly
and all outstanding principal and any accrued interest shall be due and payable
one year from the date hereof.
(d) A Commitment Fee of .5% of the total amount available
under Facility Two is payable at closing.
Section 2.3 FACILITY THREE. The Lender agrees, as Facility Three and
upon the terms and subject to the conditions herein set forth, to make advances
to the Borrower from time to time during the period from the date hereof to one
year from the date hereof (or the earlier date of termination of the facility
pursuant to Section 2.7 or 8.2 hereof) in an aggregate amount not to exceed
$500,000, which advances shall be secured by the Collateral as provided in
Article III hereof. Facility Three shall be used by the Borrower in acquiring
new and used Vehicles or Equipment used in Borrower's business. The advances
under Facility Three shall not be revolving advances but shall constitute
separate term loans payable monthly, as provided below, on a full amortization
schedule based upon a 60 month amortization for new Vehicles or 36 month
amortization for used Vehicles and Equipment. Each request for an Advance under
Facility Three shall be accompanied by an invoice showing the cost of the item
to be acquired with the Advance and, in the case of Vehicles, with title
documents with respect to the Vehicles. Lender may condition any Facility Three
Advances on amendments to this Agreement or any of the Security Instruments in
order to encumber or perfect the lien of Lender on the Collateral to be acquired
in connection with the acquisition and the payment of reasonable attorneys fees
reasonably incurred in connection with such amendment. The aggregate amount of
all advances under Facility Three shall not exceed $500,000. The following apply
to Facility Three:
(a) All Advances made by Lender under Facility Three shall be
evidenced by and repayable with interest in accordance with the Facility Three
Notes, with a separate Facility Three Note to be executed by Borrower at the
time of each Facility Three Advance in the form attached hereto as EXHIBIT A-3.
Each Facility Three Note shall be repayable monthly on a full amortization
schedule based upon a 60 month amortization for new Vehicles or 36 month
amortization for used Vehicles and Equipment.
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(b) The interest rate payable on Facility Three Advances shall
be a Floating Rate equal to the Prime Rate plus 1.75 percentage points, or at
the election of Borrower made at the time of the applicable advance at a Fixed
Rate quoted to Borrower by Lender at such time.
(c) An Origination Fee of .5% the total amount available under
Facility Three is payable at closing.
Section 2.4 FACILITY FOUR. The Lender agrees, as Facility Four and on
the terms and subject to the conditions herein set forth, to make Advances to
the Borrower at the closing hereunder in the aggregate amount not to exceed
$1,000,000 for the purpose of refinancing existing equipment loans, existing
improvement loans, and other existing loans approved for refinancing by Lender
and for refinancing existing debt owed by Borrower to sellers of day care
facilities. Facility Four is not a revolving facility and is payable as a fully
amortized loan with a 48 month term. The following apply to Facility Four.
(a) Facility Four shall be evidenced by and repayable with
interest in accordance with the Facility Four Note to be executed by Borrower at
closing in the form of EXHIBIT A-4 attached hereto.
(b) The interest rate payable on Facility Four Advances shall
be a Floating Rate equal to the Prime Rate plus one percentage point or, at the
election of Borrower made at Closing, at a Fixed Rate quoted to Borrower by
Lender at Closing.
An Origination Fee of .25% of the total amount available under Facility Four is
payable at closing.
Section 2.5 ADVANCES. The Borrower agrees to comply with the following
procedures in requesting Advances under Sections 2.1, 2.2, 2.3, and 2.4
(a) The Borrower will not request any Advance if, after giving
effect to such requested Advance, the sum of the outstanding and unpaid Advances
under the applicable facility would exceed the applicable maximum amounts
specified in Sections 2.1, 2.2, 2.3 and 2.4 above.
(b) Each request for an Advance shall be made to the Lender
prior to 12:00 noon (Phoenix, Arizona time) at least two (2) Banking Days prior
to the day of the Advance in the case of Facility One and Facility Four
Advances, at least two (2) Banking Days prior to the day of the Advance in the
case of Facility Three Advances and of at least one (1) Banking Day prior to the
day of the Advance in the case of Facility Two Advances. Each request for an
Advance shall be made in writing, specifying (i) the Banking Day on which the
Advance is to be made is requested, (ii) the amount thereof, (iii) the
application of the proceeds thereof and shall be by (i) any officer of the
Borrower; or (ii) any person designated as the Borrower's agent by any officer
of the Borrower in a writing delivered to the Lender; or (iii) any person
reasonably believed by the Lender to be an officer of the Borrower or such a
designated agent.
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(c) Upon fulfillment of the applicable conditions of this
Agreement, the Lender shall disburse loan proceeds in accordance with the
Borrower's written instructions. The Borrower shall be obligated to repay all
Advances notwithstanding the fact that the person requesting the same was not in
fact authorized to do so, provided however that all requests for an Advance
shall be made in writing as provided in subsection (b) above. Any request for an
Advance shall be deemed to be a representation by the Borrower that (i) the
condition set forth in in this Article II have been met, and (ii) the conditions
set forth in Section 4.2 hereof have been met as of the time of the request.
Section 2.6 INTEREST.
(a) The principal of the Advances outstanding from time to
time during any month shall bear interest (computed on the basis of actual days
elapsed in a 360-day year) at the applicable rate set forth in Sections 2.1,
2.2, 2.3 and 2.4 above; PROVIDED, HOWEVER, that from the first day of any month
during which any Default or Event of Default occurs or exists at any time, in
the Lender's discretion and without waiving any of its other rights and
remedies, the principal of the Advances under all of the Notes outstanding from
time to time shall bear interest at the Default Rate during the entire Default
Period; PROVIDED FURTHER that if any payment of interest and/or principal is not
received by the holder of the Notes when such payment is due, then in addition
to the remedies conferred upon the holder and the other loan documents, a late
charge of five percent (5%) of the amount of the installment due and unpaid will
be added to the delinquent amount to compensate the holder for the expense of
handling the delinquency for any payment past due in excess of ten (10) days,
regardless of any notice and cure period; and PROVIDED, FURTHER, that in any
event no rate change shall be put into effect which would result in a rate
greater than the highest rate permitted by law. Interest accruing on the
principal balance of such Advances outstanding from time to time shall be
payable on the fifteenth (15th) day of each succeeding month and on the
applicable maturity date set forth in Section 2.1, 2.2, 2.3 or 2.4 above, or
earlier demand made in accordance with the provisions of this Agreement or
prepayment in full. The Borrower agrees that the interest rate contracted for
includes the interest rate set forth herein plus any other charges or fees set
forth herein and costs and expenses incident to this transaction paid by the
Borrower to the extent same are deemed interest under applicable law.
(b) If any Person shall acquire a participation in Advances
under this Agreement, the Borrower shall be obligated to the Lender to pay the
full amount of all interest calculated under this Article II and the Note, along
with all other fees, charges and other amounts due under this Agreement,
regardless if such Person elects to accept interest with respect to its
participation at a lower rate than the applicable Floating Rate, or otherwise
elects to accept less than its pro rata share of such fees, charges and other
amounts due under this Agreement. The Lender shall not be obligated to request,
induce or permit any Person to acquire or to retain any participation at all or
in any particular amount or at any particular rate of interest or on any
particular terms.
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Section 2.7 VOLUNTARY PREPAYMENT; TERMINATION OF AGREEMENT BY THE
BORROWER; PERMANENT REDUCTION OF COMMITMENT.
(a) Except as otherwise provided herein, the Borrower may, in
its discretion, upon at least three (3) Banking Days irrevocable notice to the
Lender, prepay on any Banking Day the Advances in whole at any time or from time
to time in part. The notice of prepayment shall specify the date and amount of
the prepayment, and the loan to which the prepayment applies. Other than with
respect to the prepayment of any fixed rate obligation which is subject to the
prepayment fee provisions of Section 2.7(c) below, any such prepayment shall be
without any fee. Notice of prepayment having been delivered as aforesaid, the
principal amount of the prepayment specified in such notice shall become due and
payable on the prepayment date set forth in such notice. All payments of
principal under this section shall be accompanied by accrued but unpaid interest
on the amount being prepaid through the date of such prepayment and, with
respect to any prepayment of a fixed rate obligation, by the applicable
prepayment fee specified in Section 2.7(c) below. Subject to the foregoing
provisions, the Borrower may terminate this Agreement at any time and, subject
to payment and performance of all the Borrower's obligations to the Lender, may
obtain any release or termination of the Security Interest to which the Borrower
is otherwise entitled by law by giving at least 30 days' prior written notice to
the Lender of the Borrower's intention to terminate this Agreement.
(b) The Borrower may at any time and from time to time, upon
at least 30 days' prior written notice to the Lender, permanently reduce the
Commitment in whole or in part, without payment of any fee or penalty; provided,
however, that no reduction shall reduce the Commitment to an amount less than
the then-aggregate amount of the Advances.
(c) PREPAYMENT OF FIXED RATE LOANS. If Borrower prepays any
Advance which has a fixed interest rate Borrower shall pay a prepayment premium.
The prepayment premium shall be computed as follows: 1% of the amount prepaid if
the amount prepaid is under $50,000, and if the amount prepaid is $50,000 or
over, the result of [the present value of the remaining cash flows calculated at
the interest rate on the Advance being prepaid discounted at the Treasury
Constant Yield (TCY) + 100 basis points] minus the [principal amount being
prepaid]. The TCY is calculated as the interpolated constant maturity Treasury
rate with a maturity matching the remaining average life of the Advance being
prepaid. Rate date is obtained, at the time of prepayment, from the most recent
Federal Reserve H-15 Report using data from the most recent week ending column.
Section 2.8 MANDATORY PREPAYMENT. Without notice or demand, if the sum
of the outstanding principal balance of the Advances under any Facility shall at
any time exceed the applicable maximum amounts specified in Section 2.1, 2.2,
2.3 or 2.4 , the Borrower shall immediately prepay the Advances to the extent
necessary to reduce the sum of the outstanding principal balance of the Advances
to the applicable maximum amounts specified in Section 2.1, 2.2, 2.3 or 2.4. Any
payment received by the Lender after an Event of Default may be applied to the
Advances, including interest thereon and any fees, commissions, costs and
expenses hereunder and under the Security Documents, in such order and in such
amounts as the Lender, in its sole discretion, may from time to time determine.
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Section 2.9 PAYMENT. All payments of principal of and interest on the
Advances shall be made to the Lender in immediately available funds. The
Borrower hereby authorizes the Lender, in its discretion at any time or from
time to time and without request by the Borrower, but upon 5 days prior notice
to Borrower, to make an Advance or Advances in such amount as shall be necessary
to pay principal and accrued interest amounts and any fees, costs or expenses
from time to time due to the Lender hereunder or under the Security Documents.
Section 2.10 PAYMENT ON NON-BANKING DAYS. Whenever any payment to be
made hereunder shall be stated to be due on a day which is not a Banking Day,
such payment may be made on the next succeeding Banking Day, and such extension
of time shall in such case be included in the computation of interest on the
Advances or the fees hereunder, as the case may be.
Section 2.11 USE OF PROCEEDS. The proceeds of Advances under each
Facility shall be used by the Borrower for applicable purposes set forth in
Sections 2.1, 2.2, 2.3 and 2.4 above.
Section 2.12 LIABILITY RECORDS. The Lender may maintain from time to
time, at its discretion, liability records as to any and all Advances made or
repaid and interest accrued or paid under this Agreement. All entries made on
any such record shall be presumed correct unless Borrower gives notice of its
exception to the same within 30 days after receipt by the Borrower of copies of
any of such records. On demand by the Lender, the Borrower will admit and
certify in writing the exact principal balance that the Borrower then asserts to
be outstanding to the Lender for Advances under this Agreement. Any billing
statement or accounting rendered by the Lender shall be conclusive and binding
on the Borrower unless specific written notice of exception is given to the
Lender by the Borrower within 30 days after receipt by the Borrower of said
billing statement or accounting.
Section 2.13 SETOFF. The Borrower agrees that the Lender may at any
time or from time to time, at its sole discretion and without demand and without
notice to anyone, setoff any liability owed to the Borrower by the Lender,
against any indebtedness owed to the Lender by the Borrower (for Advances or for
any other Obligations). In addition, each other Person holding a participating
interest in any Advances made to the Borrower by the Lender shall have the right
to appropriate or setoff any deposit or other liability then owed by such Person
to the Borrower, whether or not due, and apply the same to the payment of said
participating interest, as fully as if such Person had lent directly to the
Borrower the amount of such participating interest.
Section 2.14 FEES.
(a) The Borrower hereby agrees to timely pay the Lender the
fully earned and non-refundable origination and commitment fees specified in
Sections 2.1, 2.2, 2.3 and 2.4 above.
(b) The Borrower hereby agrees to pay the Lender, on demand,
audit fees not to exceed $2,500 per audit and $5,000 per year in connection with
any audits or inspections by the Lender of any collateral or the operations or
business of the Borrower in connection with the Collateral, together with all
actual out-of-pocket costs and expenses incurred in conducting any such audit or
inspection. Lender shall give at least one day's prior notice of any such audit;
provided that no prior notice is required if there is pending Event of Default.
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Section 2.15 CAPITAL ADEQUACY. If the Lender shall determine that the
adoption after the date hereof of any applicable law, rule or regulation
regarding capital adequacy, or any change therein after the date hereof, any
change after the date hereof in the interpretation or administration thereof by
any governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by the Lender or its
parent corporation with any guideline or request issued after the date hereof
regarding capital adequacy (whether nor not having the force of law) of any such
authority, central bank or comparable agency, has or would have the effect of
reducing the rate of return on the Lender's or the Lender's parent corporation's
capital as a consequence of the Lender's obligations hereunder to a level below
that which the Lender or its parent corporation could have achieved but for such
adoption, change or compliance (taking into consideration the Lender's policies
with respect to capital adequacy and those of the Lender's parent corporation by
an amount deemed to the Lender or its parent corporation to be material, then
from time to time on demand by the Lender, the Borrower shall pay to the Lender
such additional amount or amounts as will compensate the Lender or its parent
corporation for such reduction. Certificates of the Lender sent to the Borrower
from time to time claiming compensation under this Section, stating the reason
therefor and setting forth in reasonable detail the calculation of the
additional amount or amounts to be paid to the Lender hereunder shall be
conclusive absent manifest error. In determining such amounts, the Lender or its
parent corporation may use any reasonable averaging and attribution methods.
ARTICLE III
SECURITY INTEREST
Section 3.1 GRANT OF SECURITY INTEREST. The Borrower hereby assigns and
grants to the Lender a security interest (collectively referred to as the
"Security Interests") in the Collateral, as security for the payment and
performance of each and every debt, liability and obligation of every type and
description which the Borrower may now or at any time hereafter owe to the
Lender (whether such debt, liability or obligation now exists or is hereafter
created or incurred, whether it arises in a transaction involving the Lender
alone or with the Lender as a participant with other lenders, and whether it is
direct or indirect, due or to become due, absolute or contingent, primary or
secondary, liquidated or unliquidated, or sole, joint, several or joint and
several, and including specifically, but not limited to, all indebtedness of the
Borrower arising under this Agreement or any other loan or credit agreement or
guaranty between the Borrower and the Lender, whether now in effect or hereafter
entered into; all such debts, liabilities and obligations are herein
collectively referred to as the "Obligations").
Section 3.2 NOTIFICATION OF ACCOUNT DEBTORS AND OTHER OBLIGORS. In
addition to the rights of the Lender under Section 6.10 hereof, with respect to
any and all rights to payment constituting Collateral the Lender may at any time
(after the occurrence of an Event of Default) notify any account debtor or other
person obligated to pay the amount due that such right to payment has been
assigned or transferred to the Lender for security and shall be paid directly to
the Lender. The Borrower will join in giving such notice if the Lender so
requests. At any time after the Borrower or the Lender gives such notice to an
account debtor or other obligor, the Lender may, but need not, in the Lender's
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name or in the Borrower's name, (a) demand, xxx for, collect or receive any
money or property at any time payable or receivable on account of, or securing,
any such right to payment, or grant any extension to, make any compromise or
settlement with or otherwise agree to waive, modify, amend or change the
obligations (including collateral obligations) of any such account debtor or
other obligor; and (b) as agent and attorney in fact of the Borrower, notify the
United States Postal Service to change the address for delivery of the
Borrower's mail to any address designated by the Lender, otherwise intercept the
Borrower's mail, and receive and, open Borrower's mail, applying all Collateral
as permitted under this Agreement and holding all other mail for the Borrower's
account or forwarding such mail to the Borrower's last known address.
Section 3.3 ASSIGNMENT OF INSURANCE. As additional security for the
payment and performance of the Obligations, the Borrower hereby assigns to the
Lender any and all monies (including, without limitation, proceeds of insurance
and refunds of unearned premiums) due or to become due under, and all other
rights of the Borrower with respect to, any and all policies of insurance now or
at any time hereafter covering the Collateral or any evidence thereof or any
business records or valuable papers pertaining thereto, and the Borrower hereby
directs the issuer of any such policy to pay all such monies directly to the
Lender. At any time after the occurrence of any Event of Default, the Lender may
(but need not), in the Lender's name or in the Borrower's name, execute and
deliver proof of claim, receive all such monies, endorse checks and other
instruments representing payment of such monies, and adjust, litigate,
compromise or release any claim against the issuer of any such policy.
Section 3.4 OCCUPANCY. Subject to provisions of any leases of the
Premise:
(a) The Borrower hereby irrevocably grants to the Lender the
right to take possession of the Premises at any time after the occurrence and
during the continuance of an Event of Default.
(b) The Lender may use the Premises only to hold, process,
manufacture, sell, use, store, liquidate, realize upon or otherwise dispose of
goods that are Collateral and for other purposes that the Lender may in good
xxxxx xxxx to be related or incidental purposes.
(c) The right of the Lender to hold the Premises shall cease
and terminate upon the earlier of (i) payment in full and discharge of all
Obligations, and (ii) final sale or disposition of all goods constituting
Collateral and delivery of all such goods to purchasers.
(d) The Lender shall not be obligated to pay or account for
any rent or other compensation for the possession, occupancy or use of any of
the Premises; provided, however, in the event that the Lender does pay or
account for any rent or other compensation for the possession, occupancy or use
of any of the Premises, the Borrower shall reimburse the Lender promptly for the
full amount thereof. In addition, the Borrower will pay, or reimburse the Lender
for, all taxes, fees, duties, imposts, charges and expenses at any time incurred
by or imposed upon the Lender by reason of the execution, delivery, existence,
recordation, performance or enforcement of this Agreement or the provisions of
this Section 3.4.
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Section 3.5 LICENSE. The Borrower hereby grants to the Lender a
non-exclusive, worldwide and royalty-free license to use or otherwise exploit
all trademarks, franchises, trade names, copyrights and patents of the Borrower
for the purpose of selling, leasing or otherwise disposing of any or all
Collateral following an Event of Default.
Section 3.6 VEHICLE TITLES. The Borrower represents and warrants that
it has delivered to Lender all title documents with respect to the portion of
the Collateral consisting of Vehicles and Borrower will execute such documents
as Lender may reasonably require so that Lender's lien is shown on such title
documents.
ARTICLE IV
CONDITIONS OF LENDING
Section 4.1 CONDITIONS PRECEDENT TO THE INITIAL ADVANCE.
The obligation of the Lender to make the initial Advance under the
Credit Facility shall be subject to the condition precedent that the Lender
shall have received all of the following, each in form and substance
satisfactory to the Lender:
(a) This Agreement, properly executed on behalf of the
Borrower.
(b) The Notes, properly executed on behalf of the Borrower.
(c) A true and correct copy of any and all leases pursuant to
which the Borrower is leasing the Premises.
(d) Title documents with respect to all of Borrower's Vehicles
and documentation executed by Borrower so that Lender's lien will be shown on
such titles..
(e) Current searches of appropriate filing offices showing
that (i) no state or federal tax liens have been filed and remain in effect
against the Borrower, (ii) no financing statements have been filed and remain in
effect against the Borrower, except those financing statements relating to liens
permitted pursuant to Section 7.1 hereof and those financing statements filed by
the Lender, and (iii) the Lender has duly filed all financing statements
necessary to perfect the Security Interests granted hereunder, to the extent the
Security Interests are capable of being perfected by filing.
(f) Current searches of appropriate filing offices showing
that (i) no mortgages, deeds of trust, collateral assignments or other security
interests have been filed and remain in effect against the Borrower's interest
in the Fixtures or the General Intangibles, except those filed by the Lender.
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(g) A Corporate Resolution Regarding Credit executed by the
Secretary of the Borrower, certifying as to (i) the resolutions of the directors
and, if required, the shareholders of the Borrower, authorizing the execution,
delivery and performance of this Agreement and the Security Documents, (ii) the
articles of incorporation and bylaws of the Borrower, and (iii) the signatures
of the officers or agents of the Borrower authorized to execute and deliver this
Agreement, the Security Documents and other instruments, agreements and
certificates, including Advance requests, on behalf of the Borrower.
(h) A current certificate issued by the Secretary of State of
the state of the Borrower's incorporation, certifying that the Borrower is in
compliance with all corporate organizational requirements of such state.
(i) Evidence that the Borrower is duly licensed or qualified
to transact business in all jurisdictions where the character of the property
owned or leased or the nature of the business transacted by it makes such
licensing or qualification necessary.
(j) A certificate of an officer of the Borrower confirming,
after due investigation, the representations and warranties set forth in Article
V hereof.
(k) An opinion of counsel to the Borrower, addressed to the
Lender, together with the results of a litigation search or searches showing all
actions and proceedings where the Borrower is a defendant or involving a claim
against the Borrower.
(l) Certificates of the insurance required hereunder, with all
hazard insurance containing a loss payee endorsement in favor of the Lender ( to
the extent of its interest in the Collateral) and with all liability insurance
naming the Lender as an additional insured.
(m) Payment of the fees due through the date of the initial
Advance under Article II hereof and expenses incurred by the Lender through such
date and required to be paid by the Borrower under Section 9.7 hereof (including
without limitation the Lender's attorneys' fees as provided in Section 9.7);
provided that the attorneys fees of Lender through the date of the initial
Advance hereunder shall be limited to $6,000;
(n) Such other documents as the Lender in its reasonable
discretion may require, including without limitation such documents as are
necessary to perfect any and all registered trademarks or trade names (including
without limitation the trade names and trademarks "Sunrise Preschools" and
"Sunrise Educational Services).
Section 4.2 CONDITIONS PRECEDENT TO ALL ADVANCES. The obligation of the
Lender to make each Advance shall be subject to the further conditions precedent
that on such date:
(a) the representations and warranties contained in Article V
hereof are correct on and as of the date of such Advance as though made on and
as of such date, except to the extent that such representations and warranties
relate solely to an earlier date; and
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(b) no event has occurred and is continuing, or would result
from such Advance which constitutes a Default or an Event of Default.
Section 4.3 SPECIAL CONDITIONS/LANDLORD WAIVER REQUIREMENT. Prior to
any advance under Facility One, and in any event within ninety (90) days of the
date of this Agreement, Borrower shall have obtained from the landlords of at
least 75% of the child care facilities operated by Borrower an executed
landlord's waiver of lien right in the form provided by Lender (referred to
herein as the "Landlord Waiver Requirement").
Section 4.4 STOCK WARRANT/WARRANT REQUIREMENT. Prior to any advance
under Facility One, and in any event within ninety (90) days from the date of
this Agreement, Borrower shall issue to Lender a Stock Warrant with respect to
10,000 shares of the Common Stock of Borrower (the "Stock Warrant") in a form
prepared by Lender (the "Warrant Requirement"). The price in the Warrant shall
be the average bid price for such stock for the five days prior to the closing
hereunder. The Warrant shall contain anti-dilution provisions.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to the Lender as follows:
Section 5.1 CORPORATE EXISTENCE AND POWER; NAME; CHIEF EXECUTIVE
OFFICE; INVENTORY AND EQUIPMENT LOCATIONS. The Borrower is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware, and is duly licensed or qualified to transact business in all
jurisdictions where the character of the property owned or leased or the nature
of the business transacted by it makes such licensing or qualification
necessary. The Borrower has all requisite power and authority, corporate or
otherwise, to conduct its business, to own its properties and to execute and
deliver, and to perform all of its obligations under, the Loan Documents. During
its corporate existence, the Borrower has done business solely under the names
set forth in EXHIBIT B hereto. The chief executive office and principal place of
business of the Borrower is located at the address set forth in EXHIBIT B
hereto, and all of the Borrower's records relating to its business or the
Collateral are kept at that location. All Inventory and Equipment is located at
that location or at one of the other locations set forth in EXHIBIT B hereto.
Section 5.2 AUTHORIZATION OF BORROWING; NO CONFLICT AS TO LAW OR
AGREEMENTS. The execution, delivery and performance by the Borrower of the Loan
Documents and the borrowings from time to time hereunder have been duly
authorized by all necessary corporate action and do not and will not (a) require
any consent or approval of the stockholders of the Borrower, (b) require any
authorization, consent or approval by, or registration, declaration or filing
with, or notice to, any governmental department, commission, board, bureau,
agency or instrumentality, domestic or foreign, or any third party, except such
authorization, consent, approval, registration, declaration, filing or notice as
has been obtained, accomplished or given prior to the date hereof, (c) violate
any provision of any law, rule or regulation (including, without limitation,
Regulation X of the Board of Governors of the Federal Reserve System) or of any
order, writ, injunction or decree presently in effect having applicability to
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the Borrower or of the Articles of Incorporation or Bylaws of the Borrower, (d)
result in a breach of or constitute a default under any indenture or loan or
credit agreement or any other material agreement, lease or instrument to which
the Borrower is a party or by which it or its properties may be bound or
affected, or (e) result in, or require, the creation or imposition of any
mortgage, deed of trust, pledge, lien, security interest or other charge or
encumbrance of any nature (other than the Security Interests) upon or with
respect to any of the properties now owned or hereafter acquired by the
Borrower.
Section 5.3 LEGAL AGREEMENTS. This Agreement constitutes and, upon due
execution by the Borrower, the other Loan Documents will constitute the legal,
valid and binding obligations of the Borrower, enforceable against the Borrower
in accordance with their respective terms.
Section 5.4 SUBSIDIARIES. The Borrower has no Subsidiaries other than
Sunrise Preschools Hawaii, Inc. which subsidiary holds no assets. Borrower shall
notify Lender in advance of creating any other Subsidiaries.
Section 5.5 FINANCIAL CONDITION; NO ADVERSE CHANGE. The Borrower has
heretofore furnished to the Lender audited financial statements of the Borrower
for its fiscal year ended and unaudited financial statements of the Borrower for
the month ended, and those statements fairly present the financial condition of
the Borrower on the dates thereof and the results of its operations and cash
flows for the periods then ended and were prepared in accordance with generally
accepted accounting principles. Since the date of the most recent financial
statements, there has been no material adverse change in the business,
properties or condition (financial or otherwise) of the Borrower.
Section 5.6 LITIGATION. There are no actions, suits or proceedings
pending or, to the knowledge of the Borrower, threatened against or affecting
the Borrower or any of its Affiliates or the properties of the Borrower or any
of its Affiliates before any court or governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign, which, if
determined adversely to the Borrower or any of its Affiliates, would have a
material adverse effect on the financial condition, properties or operations of
the Borrower or any of its Affiliates.
Section 5.7 REGULATION U. The Borrower is not engaged in the business
of extending credit for the purpose of purchasing or carrying margin stock
(within the meaning of Regulation U of the Board of Governors of the Federal
Reserve System), and no part of the proceeds of any Advance will be used to
purchase or carry any margin stock or to extend credit to others for the purpose
of purchasing or carrying any margin stock.
Section 5.8 TAXES. The Borrower and its Affiliates have paid or caused
to be paid to the proper authorities when due all federal, state and local taxes
required to be withheld by each of them. The Borrower and its Affiliates have
filed all federal, state and local tax returns which to the knowledge of the
officers of the Borrower or any Affiliate, as the case may be, are required to
be filed, and the Borrower and its Affiliates have paid or caused to be paid to
the respective taxing authorities all taxes as shown on said returns or on any
assessment received by any of them to the extent such taxes have become due.
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Section 5.9 TITLES AND LIENS. The Borrower has marketable title to all
Collateral described in the collateral reports provided to the Lender and all
other Collateral, properties and assets reflected in the latest balance sheet
referred to in Section 5.5 hereof and all proceeds thereof, free and clear of
all mortgages, security interests, liens and encumbrances, except in the case of
any such property which is not Collateral, covenants, restrictions, rights,
easements and minor irregularities in title which do not materially interfere
with the business or operations of the Borrower as presently conducted. No
financing statement naming the Borrower as debtor is on file in any office.
Section 5.10 PLANS. Except as disclosed to the Lender in writing prior
to the date hereof, neither the Borrower nor any of its Affiliates maintains or
has maintained any Plan. Neither the Borrower nor any Affiliate has received any
notice or has any knowledge to the effect that it is not in full compliance with
any of the requirements of ERISA. No Reportable Event or other fact or
circumstance which may have an adverse effect on the Plan's tax qualified status
exists in connection with any Plan. Neither the Borrower nor any of its
Affiliates has:
(a) Any accumulated funding deficiency within the meaning of
ERISA; or
(b) Any liability or knows of any fact or circumstances which
could result in any liability to the Pension Benefit Guaranty Corporation, the
Internal Revenue Service, the Department of Labor or any participant in
connection with any Plan (other than accrued benefits which or which may become
payable to participants or beneficiaries of any such Plan).
Section 5.11 DEFAULT. The Borrower is in compliance with all provisions
of all agreements, instruments, decrees and orders to which it is a party or by
which it or its property is bound or affected, the breach or default of which
could have a material adverse effect on the financial condition, properties or
operations of the Borrower.
Section 5.12 ENVIRONMENTAL PROTECTION. The Borrower has obtained all
permits, licenses and other authorizations which are required under federal,
state and local laws and regulations relating to emissions, discharges, releases
of pollutants, contaminants, hazardous or toxic materials, or wastes into
ambient air, surface water, ground water or land, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of pollutants, contaminants or hazardous or toxic
materials or wastes ("Environmental Laws") at the Borrower's facilities or in
connection with the operation of its facilities. The Borrower shall provide
copies of all such permits, licenses and other authorizations to the Lender upon
the Lender's request. The Borrower also shall provide to the Lender copies of
all environmental investigation and inspection reports available to the Borrower
that pertain to the Borrower's facilities, upon the Lender's request. Except as
previously disclosed to the Lender in writing, the Borrower and all activities
of the Borrower at its facilities comply in all material respects with all
Environmental Laws and with all terms and conditions of any required permits,
licenses and authorizations applicable to the Borrower with respect thereto.
Except as previously disclosed to the Lender in writing, the Borrower is also in
compliance with all limitations, restrictions, conditions, standards,
prohibitions, requirements, obligations, schedules and timetables contained in
18
Environmental Laws or contained in any plan, order, decree, judgment or notice
of which the Borrower is aware. Except as previously disclosed to the Lender in
writing, the Borrower is not aware of, nor has the Borrower received notice of,
any events, conditions, circumstances, activities, practices, incidents, actions
or plans which may interfere with or prevent continued compliance with, or which
may give rise to any liability under, any Environmental Laws. Except as
previously disclosed to the Lender in writing, the Borrower has received no
inquiry from any federal, state or local agency concerning the Borrower's
facilities or any adjacent properties involving possible environmental
contamination or violations of any Environmental Laws, and has no knowledge of
any such inquiry to any party concerning the Borrower's facilities or any
adjacent properties. The Borrower agrees to notify the Lender promptly in
writing of any inquiries by third parties or regulatory agencies concerning the
possible presence of environmental contamination on the Borrower's facilities or
any adjacent properties or concerning any possible violations of Environmental
Laws involving the Borrower's facilities or any adjacent properties. The Lender
shall have the right to enter the Borrower's facilities for the purpose of
conducting environmental investigations, including taking soil and water
samples, during the Borrower's normal business hours of operation.
Section 5.13 SUBMISSIONS TO THE LENDER. All financial and other
information provided to the Lender by or on behalf of the Borrower in connection
with the Borrower's request for the credit facilities contemplated hereby is
true and correct in all material respects and, as to projections, valuations or
proforma financial statements, present a good faith opinion as to such
projections, valuations and proforma condition and results.
Section 5.14 FINANCING STATEMENTS. The Borrower has provided to the
Lender signed financing statement(s) (and in the case of vehicles, signed title
documents) sufficient when filed to perfect the Security Interests and the other
security interests created by the Security Documents. When such financing
statements (or title documents with respect to Vehicles) are filed in the
offices noted therein, the Lender will have a valid and perfected security
interest in all Collateral and all other collateral described in the Security
Documents which is capable of being perfected by filing financing statements.
None of the Collateral or other collateral covered by the Security Documents is
or will become a fixture on real estate, unless a sufficient fixture filing is
in effect with respect thereto.
Section 5.15 RIGHTS TO PAYMENT. Each instrument, document, chattel
paper and other agreement constituting or evidencing Collateral or other
collateral covered by the Security Documents and each obligation thereunder is
(or, in the case of all future Collateral or such other collateral, will be when
arising or issued) the valid, genuine and legally enforceable obligation,
subject to no defense, setoff or counterclaim, of the account debtor or other
obligor named therein or in the Borrower's records pertaining thereto as being
obligated to pay such obligation.
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ARTICLE VI
AFFIRMATIVE COVENANTS OF THE BORROWER
So long as the Note shall remain unpaid or the Credit Facility shall be
outstanding, the Borrower will comply with the following requirements, unless
the Lender shall otherwise consent in writing:
Section 6.1 REPORTING REQUIREMENTS. The Borrower will deliver, or cause
to be delivered, to the Lender each of the following, which shall be in form and
detail acceptable to the Lender:
(a) as soon as available, and in any event within 120 days
after the end of each fiscal year of the Borrower, audited financial statements
of the Borrower with the unqualified opinion of independent certified public
accountants selected by the Borrower and acceptable to the Lender, which annual
financial statements shall include the balance sheet of the Borrower as at the
end of such fiscal year and the related statements of income, retained earnings
and cash flows of the Borrower for the fiscal year then ended, prepared, if the
Lender so requests, on a consolidating and consolidated basis to include any
Affiliates, all in reasonable detail and prepared in accordance with generally
accepted accounting principles applied on a basis consistent with the accounting
practices applied in the financial statements referred to in Section 5.5 hereof,
including a note signed by such accountants stating that in making the
investigations necessary for said opinion they obtained no knowledge, except as
specifically stated, of any Default or Event of Default hereunder and all
relevant facts in reasonable detail to evidence, and the computations as to,
whether or not the Borrower is in compliance with the requirements set forth in
Sections 6.12 through 6.15 and Section 7.10 hereof and including a certificate
of the chief financial officer of the Borrower stating that such financial
statements have been prepared in accordance with generally accepted accounting
principles applied on a basis consistent with the accounting practices reflected
in the annual financial statements referred to in Section 5.5 hereof and whether
or not such officer has knowledge of the occurrence of any Default or Event of
Default hereunder and, if so, stating in reasonable detail the facts with
respect thereto;
(b) as soon as available and in any event within 45 days after
the end of each quarter, an unaudited internal balance sheet and statements of
income and retained earnings of the Borrower as at the end of and for such
quarter month and for the year to date period then ended, prepared, if the
Lender so requests, on a consolidating and consolidated basis to include any
Affiliates, in reasonable detail and stating in comparative form the figures for
the corresponding date and periods in the previous year, all prepared in
accordance with generally accepted accounting principles applied on a basis
consistent with the accounting practices reflected in the financial statements
referred to in Section 5.5 hereof, subject to year-end audit adjustments; and
accompanied by a certificate of the chief financial officer of the Borrower,
substantially in the form of Exhibit D hereto stating (i) that such financial
statements have been prepared in accordance with generally accepted accounting
principles applied on a basis consistent with the accounting practices reflected
in the financial statements referred to in Section 5.5 hereof, subject to
year-end audit adjustments, (ii) whether or not such officer has knowledge of
the occurrence of any Default or Event of Default hereunder not theretofore
20
reported and remedied and, if so, stating in reasonable detail the facts with
respect thereto, and (iii) all relevant facts in reasonable detail to evidence,
and the computations as to, whether or not the Borrower is in compliance with
the requirements set forth in Sections 6.12 through 6.15 and Section 7.10
hereof;
(c) within 30 days after the end of each month, agings of the
Borrower's accounts receivable and its accounts payable and an inventory
certification report as at the end of such month;
(d) at least 30 days before the beginning of each year of the
Borrower, the projected balance sheets and income statements for the ensuing
twelve months, each in reasonable detail, representing the good faith
projections of the Borrower and certified by the Borrower's chief financial
officer as being identical to the projections used by the Borrower for internal
planning purposes, together with such supporting schedules and information as
the Lender may in its discretion require;
(e) immediately after the commencement thereof, notice in
writing of all litigation and of all proceedings before any governmental or
regulatory agency affecting the Borrower of the type described in Section 5.6
hereof or which seek a monetary recovery against the Borrower in excess of
$25,000;
(f) as promptly as practicable (but in any event not later
than five (5) business days) after an officer of the Borrower obtains knowledge
of the occurrence of any breach, default or event of default under any Security
Document or any event which constitutes a Default or Event of Default hereunder,
notice of such occurrence, together with a detailed statement by a responsible
officer of the Borrower of the steps being taken by the Borrower to cure the
effect of such breach, default or event;
(g) as soon as possible and in any event within 30 days after
the Borrower knows or has reason to know that any Reportable Event with respect
to any Plan has occurred, the statement of the chief financial officer of the
Borrower setting forth details as to such Reportable Event and the action which
the Borrower proposes to take with respect thereto, together with a copy of the
notice of such Reportable Event to the Pension Benefit Guaranty Corporation;
(h) as soon as possible, and in any event within 10 days after
the Borrower fails to make any quarterly contribution required with respect to
any Plan under Section 412(m) of the Internal Revenue Code of 1986, as amended,
the statement of the chief financial officer of the Borrower setting forth
details as to such failure and the action which the Borrower proposes to take
with respect thereto, together with a copy of any notice of such failure
required to be provided to the Pension Benefit Guaranty Corporation;
(i) promptly upon knowledge thereof, notice of (i) any
disputes or claims by customers of the Borrower of a material nature; and (ii)
any change in the persons constituting the officers and directors of the
Borrower;
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(j) promptly upon knowledge thereof, notice of any material
loss of or material damage to any Collateral or other collateral covered by the
Security Documents or of any substantial adverse change in any Collateral or
such other collateral or the prospect of payment thereof;
(k) promptly upon their distribution, copies of all financial
statements, reports and proxy statements which the Borrower shall have sent to
its stockholders;
(l) promptly after the sending or filing thereof, copies of
all regular and periodic financial reports which the Borrower shall file with
the Securities and Exchange Commission or any national securities exchange,
including without limitation the Borrower's Quarterly 10Q Reports no later that
45 days after the quarterly period ending and the Borrower's Annual 10K Report
no later than 90 days after the fiscal year period ending;
(m) promptly upon knowledge thereof, notice of the violation
by the Borrower of any law, rule or regulation, the non-compliance with which
could materially and adversely affect its business or its financial condition;
and
(n) from time to time, with reasonable promptness, any and all
receivables schedules, collection reports, deposit records, equipment schedules,
copies of invoices to account debtors, shipment documents and delivery receipts
for goods sold, and such other material, reports, records or information as the
Lender may reasonably request.
(o) at the time of a requested Advance under Facility One a
report showing the Pro Forma Cash Flow Coverage Ratio taking into account the
Advance and the acquisition for which the request is made.
Section 6.2 BOOKS AND RECORDS; INSPECTION AND EXAMINATION. The Borrower
will keep accurate books of record and account for itself pertaining to the
Collateral and pertaining to the Borrower's business and financial condition and
such other matters as the Lender may from time to time request in which true and
complete entries will be made in accordance with generally accepted accounting
principles consistently applied and, upon request of the Lender, will permit any
officer, employee, attorney or accountant for the Lender to audit, review, make
extracts from or copy any and all corporate and financial books and records of
the Borrower at all times during ordinary business hours, to send and discuss
with account debtors and other obligors requests for verification of amounts
owed to the Borrower, and to discuss the affairs of the Borrower with any of its
directors, officers, employees or agents. The Borrower will permit the Lender,
or its employees, accountants, attorneys or agents, to examine and inspect any
Collateral, other collateral covered by the Security Documents or any other
property of the Borrower at any time during ordinary business hours.
Section 6.3 ACCOUNT VERIFICATION. The Borrower will at any time and
from time to time as Lender may reasonably request, send requests for
verification of accounts or notices of assignment to account debtors and other
obligors.
22
Section 6.4 COMPLIANCE WITH LAWS; ENVIRONMENTAL INDEMNITY. The Borrower
will (a) comply with the requirements of applicable laws and regulations, the
non-compliance with which would materially and adversely affect its business or
its financial condition, (b) comply with all applicable Environmental Laws and
obtain any permits, licenses or similar approvals required by any such
Environmental Laws, and (c) use and keep the Collateral, and will require that
others use and keep the Collateral, only for lawful purposes, without violation
of any federal, state or local law, statute or ordinance. The Borrower will
indemnify, defend and hold the Lender harmless from and against any claims, loss
or damage to which the Lender may be subjected as a result of any past, present
or future existence, use, handling, storage, transportation or disposal of any
hazardous waste or substance or toxic substance by the Borrower or on property
owned, leased or controlled by the Borrower. This indemnification agreement
shall survive the termination of this Agreement and payment of the indebtedness
hereunder.
Section 6.5 PAYMENT OF TAXES AND OTHER CLAIMS. The Borrower will pay or
discharge, when due, (a) all taxes, assessments and governmental charges levied
or imposed upon it or upon its income or profits, upon any properties belonging
to it (including, without limitation, the Collateral) or upon or against the
creation, perfection or continuance of the Security Interests, prior to the date
on which penalties attach thereto, (b) all federal, state and local taxes
required to be withheld by it, and (c) all lawful claims for labor, materials
and supplies which, if unpaid, might by law become a lien or charge upon any
properties of the Borrower; provided, that the Borrower shall not be required to
pay any such tax, assessment, charge or claim whose amount, applicability or
validity is being contested in good faith by appropriate proceedings and so long
as the Collateral and the Lender's lien thereon is not in any manner impaired by
any enforcement remedy available to the tax levying entity during the period of
such contest.
Section 6.6 MAINTENANCE OF PROPERTIES.
(a) The Borrower will keep and maintain the Collateral, the
other collateral covered by the Security Documents and all of its other
properties necessary or useful in its business in good condition, repair and
working order (normal wear and tear excepted) and will from time to time replace
or repair any worn, defective or broken parts; provided, however, that nothing
in this Section 6.6 shall prevent the Borrower from discontinuing the operation
and maintenance of any of its properties if such discontinuance is, in the
judgment of the Lender, desirable in the conduct of the Borrower's business and
not disadvantageous in any material respect to the Lender.
(b) The Borrower will defend the Collateral against all claims
or demands of all persons (other than the Lender) claiming the Collateral or any
interest therein.
(c) The Borrower will keep all Collateral and other collateral
covered by the Security Documents free and clear of all security interests,
liens and encumbrances except the Security Interests and other security
interests permitted by Section 7.1 hereof.
23
Section 6.7 INSURANCE. The Borrower will obtain and at all times
maintain insurance with insurers believed by the Borrower to be responsible and
reputable, in such amounts and against such risks as may from time to time be
required by the Lender, but in all events in such amounts and against such risks
as is usually carried by companies engaged in similar business and owning
similar properties in the same general areas in which the Borrower operates.
Without limiting the generality of the foregoing, the Borrower will at all times
keep all tangible Collateral insured against risks of fire (including so-called
extended coverage), theft, collision (for Collateral consisting of motor
vehicles) and such other risks and in such amounts as the Lender may reasonably
request, with any loss payable to the Lender to the extent of its interest, and
all policies of such insurance shall contain a lender's loss payable endorsement
for the benefit of the Lender. All policies of liability insurance required
hereunder shall name the Lender as an additional insured and liability insurance
shall be maintained in the following minimum amounts: $1,000,000 per occurrence,
$2,000,000 in aggregate and $10,000,000 in umbrella coverage.
Section 6.8 PRESERVATION OF CORPORATE EXISTENCE. The Borrower will
preserve and maintain its corporate existence and all of its rights, privileges
and franchises necessary or desirable in the normal conduct of its business and
shall conduct its business in an orderly, efficient and regular manner.
Section 6.9 DELIVERY OF INSTRUMENTS, ETC. Upon request by the Lender,
the Borrower will promptly deliver to the Lender in pledge all instruments,
documents and chattel papers constituting Collateral, duly endorsed or assigned
by the Borrower.
Section 6.10 PERFORMANCE BY THE LENDER. If the Borrower at any time
fails to perform or observe any of the foregoing covenants contained in this
Article VI or elsewhere herein, and if such failure shall continue for a period
of ten (10) calendar days after the Lender gives the Borrower written notice
thereof (or in the case of the agreements contained in Sections 6.5, 6.7 and
6.10 hereof, immediately upon the occurrence of such failure, without notice or
lapse of time), the Lender may, but need not, perform or observe such covenant
on behalf and in the name, place and stead of the Borrower (or, at the Lender's
option, in the Lender's name) and may, but need not, take any and all other
actions which the Lender may reasonably deem necessary to cure or correct such
failure (including, without limitation, the payment of taxes, the satisfaction
of security interests, liens or encumbrances, the performance of obligations
owed to account debtors or other obligors, the procurement and maintenance of
insurance, the execution of assignments, security agreements and financing
statements, and the endorsement of instruments); and the Borrower shall
thereupon pay to the Lender on demand the amount of all monies expended and all
costs and expenses (including reasonable attorneys' fees and legal expenses)
incurred by the Lender in connection with or as a result of the performance or
observance of such agreements or the taking of such action by the Lender,
together with interest thereon from the date expended or incurred at the
Floating Rate. To facilitate the performance or observance by the Lender of such
covenants of the Borrower, the Borrower hereby irrevocably appoints the Lender,
or the delegate of the Lender, acting alone, as the attorney in fact of the
Borrower (which appointment is coupled with an interest) with the right (but not
the duty) from time to time to create, prepare, complete, execute, deliver,
endorse or file in the name and on behalf of the Borrower any and all
instruments, documents, assignments, security agreements, financing statements,
applications for insurance and other agreements and writings required to be
obtained, executed, delivered or endorsed by the Borrower under this Section
6.11.
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Section 6.11 CURRENT RATIO. The Borrower will at all times maintain a
Current Ratio of not less than 1.25 to 1.00 measured on a quarterly basis.
Section 6.12 DEBT TO WORTH RATIO. The Borrower will at all times
maintain a Debt to Worth Ratio of not more than 1.50 to 1.00 measured on a
quarterly basis.
Section 6.13 CASH FLOW COVERAGE RATIO. The Borrower will at all times
maintain a Cash Flow Ratio of not less than 1.50 to 1.00 measured on rolling
basis for the prior four quarters.
Section 6.14 DEBT TO EBIDTA RATIO. The Borrower will at all times
maintain a Debt to EBIDTA Ratio of not more than 3.00 to 1.00 measured on a
quarterly basis.
Section 6.15 PRO FORMA CASH FLOW COVERAGE RATIO. Each Pro Forma Report
required hereunder shall show that Borrower will maintain a Cash Flow Coverage
Ratio of not more than 1.50 to 1.00 for the applicable period.
Section 6.16 SALES PROCEEDS. All proceeds from the sale of the
collateral or any other assets of Borrower shall be payable directly to Lender
to reduce the amount of the Credit Facilities. Notwithstanding the foregoing, so
long as no Event of Default has occurred and pending and so long as the sale in
question would not result in an Event of Default, Borrower may retain:
(i) sales proceeds which are used to replace the Collateral
or other property sold with property of a similar type;
(ii) the proceeds of the sale of up to four (4) child care
centers in any twelve month period not to exceed eight
(8) child care centers in total; and
(iii) the proceeds of the sale of any assets not covered
under (i) or (ii) above to Lender to the extent of 20%
of all such other assets (based on their book value)
sold in any twelve month period.
Section 6.17 WARRANT. Borrower shall timely and fully comply with the
provisions of the Stock Warrant.
ARTICLE VII
NEGATIVE COVENANTS
So long as the Note shall remain unpaid or the Credit Facility shall
be outstanding, the Borrower agrees that, without the prior written consent of
the Lender:
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Section 7.1 LIENS. Unless approved in writing by Lender, the Borrower
will not create, incur or suffer to exist any mortgage, deed of trust, pledge,
lien, security interest, assignment or transfer upon or of any of its assets,
now owned or hereafter acquired, to secure any indebtedness, other than leases
of Vehicles from non-Affiliated third party lessors and other than liens
securing loans approved by Lender under Section 7.2(d) below. This limitation is
specifically intended to extend to any assignment (as collateral or otherwise)
of any of Borrower's interest in any leases of any of the Premises.
Section 7.2 INDEBTEDNESS. The Borrower will not incur, create, assume
or permit to exist any indebtedness or liability on account of deposits or
advances or any indebtedness for borrowed money, or any other indebtedness or
liability evidenced by notes, bonds, debentures or similar obligations, except:
(a) indebtedness arising hereunder;
(b) indebtedness of the Borrower in existence on the date
hereof and listed in EXHIBIT C hereto;
(c) Subordinated Debt; and
(d) other indebtedness approved, in advance and in writing by
Lender, which approval shall not be unreasonable withheld.
Section 7.3 GUARANTIES. The Borrower will not assume, guarantee,
endorse or otherwise become directly or contingently liable in connection with
any obligations of any other Person, except the endorsement of negotiable
instruments by the Borrower for deposit or collection or similar transactions in
the ordinary course of business; and
Section 7.4 INVESTMENTS AND SUBSIDIARIES.
(a) The Borrower will not purchase or hold beneficially any
stock or other securities or evidences of indebtedness of, make or permit to
exist any loans or advances to, or make any investment or acquire any interest
whatsoever in, any other Person, including specifically but without limitation
any partnership or joint venture, except:
(1) investments in direct obligations of the United
States of America or any agency or instrumentality thereof whose obligations
constitute full faith and credit obligations of the United States of America
having a maturity of one year or less, commercial paper issued by U.S.
corporations rated "A-1" or "A-2" by Standard & Poors Corporation or "P-1" or
"P-2" by Xxxxx'x Investors Service or certificates of deposit or bankers'
acceptances having a maturity of one year or less issued by members of the
Federal Reserve System having deposits in excess of $100,000,000 (which
certificates of deposit or bankers' acceptances are fully insured by the Federal
Deposit Insurance Corporation);
(2) advances in the form of progress payments, prepaid
rent or security deposits.
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(3) up to $500,000 in the Xxxxx Xxxxx Floating Rate
Fund.
(4) regular bank checking and savings accounts.
(b) The Borrower will not create or permit to exist any
Subsidiary, other than any Subsidiary in existence on the date hereof and listed
in EXHIBIT B hereto.
Section 7.5 DIVIDENDS. The Borrower will not declare or pay any
dividends on any class of its stock or make any payment on account of the
purchase, redemption or other retirement of any shares of such stock or make any
distribution in respect thereof, either directly or indirectly, during the
pendency of any Event of Default if the effect of the same would result in
Borrower failing to satisfy any of the financial covenants of this Agreement.
Section 7.6 SALE OR TRANSFER OF ASSETS; SUSPENSION OF BUSINESS
OPERATIONS. The Borrower will not sell, lease, assign, transfer or otherwise
dispose of: the stock of any Subsidiary, or any of the Collateral or other of
its assets. Notwithstanding the foregoing, so long as no Event of Default exists
or would result from the sale, Borrower may
(i) sell tangible assets so long as the same is immediately
replaced with assets of a similar type of equal or
greater value;
(ii) sell up to four (4) child care centers in any twelve
month period not to exceed a total of eight (8) child
care centers;
(iii) sell assets not included in (i) or (ii) above to the
extent of not more than 20% of all such other assets
(based on book value) in any twelve month period.
Borrower will not liquidate, dissolve or suspend business operations. The
Borrower will not in any manner transfer any property without prior or present
receipt of full and adequate consideration.
Section 7.7 CONSOLIDATION AND MERGER; ASSET ACQUISITIONS. The Borrower
will not consolidate with or merge into any Person, or permit any other Person
to merge into it, or acquire in a transaction analogous in purpose or effect to
a consolidation or merger all or substantially all the assets of any other
Person.
Section 7.8 SALE AND LEASEBACK. The Borrower will not enter into any
arrangement, directly or indirectly, with any other Person whereby the Borrower
shall sell or transfer any real or personal property, whether now owned or
hereafter acquired, and then or thereafter rent or lease as lessee such property
or any part thereof or any other property which the Borrower intends to use for
substantially the same purpose or purposes as the property being sold or
transferred.
Section 7.9 RESTRICTIONS ON NATURE OF BUSINESS. The Borrower will not
engage in any line of business materially different from that presently engaged
in by the Borrower and will not purchase, lease or otherwise acquire assets not
related to its business.
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Section 7.10 ACCOUNTING. The Borrower will not adopt any material
change in accounting principles other than as required by generally accepted
accounting principles. The Borrower will not adopt, permit or consent to any
change in its fiscal year.
Section 7.11 DEFINED BENEFIT PENSION PLANS. The Borrower will not
adopt, create, assume or become a party to any defined benefit pension plan,
unless disclosed to the Lender pursuant to Section 5.10 hereof.
Section 7.12 OTHER DEFAULTS. The Borrower will not permit any breach,
default or event of default by the Borrower to occur under any note, loan
agreement, indenture, lease, mortgage, contract for deed, security agreement or
other contractual obligation binding upon the Borrower.
Section 7.13 PLACE OF BUSINESS; NAME. The Borrower shall give Lender at
least thirty (30) days prior written notice of any transfer of its chief
executive office or principal place of business, or of any move, relocation, or
closing of any business location. Borrower will not sell any business location
except as permitted in Section 7.6 above. The Borrower will not permit any
tangible Collateral or any records pertaining to the Collateral to be located in
any state or area in which, in the event of such location, a financing statement
covering such Collateral would be required to be, but has not in fact been,
filed in order to perfect the Security Interests. The Borrower, shall give
Lender at least thirty (30) days prior written notice of any change of its name.
Section 7.14 ORGANIZATIONAL DOCUMENTS. The Borrower will not amend its
certificate of incorporation, articles of incorporation or bylaws in any manner
which could adversely affect the obligations to Lender or the validity,
perfection or priority of any liens in favor of Lender, without the Lender's
prior written consent. The Borrower will not become an S Corporation within the
meaning of the Internal Revenue Code of 1986, as amended, or, if the Borrower
already is such an S Corporation, it shall not change or rescind its status as
an S Corporation.
ARTICLE VIII
EVENTS OF DEFAULT, RIGHTS AND REMEDIES
Section 8.1 EVENTS OF DEFAULT. "Event of Default", wherever used
herein, means any one of the following events:
(a) Default in the payment of any interest on or principal
under any of the Notes if not paid within ten (10) days of the date when the
same becomes due and payable; or
(b) Default in the payment of any fees, commissions, costs or
expenses required to be paid by the Borrower under this Agreement if not paid
within ten (10) days of its due date; or
28
(c) Default in the performance, or breach, of any other
covenant or agreement of the Borrower contained in this Agreement not cured
within twenty (20) days of written notice thereof from Lender to Borrower; or
(d) The Borrower or any Guarantor shall be or become
insolvent, or admit in writing its inability to pay its or his debts as they
mature, or make an assignment for the benefit of creditors; or the Borrower or
any Guarantor shall apply for or consent to the appointment of any receiver,
trustee, or similar officer for it or him or for all or any substantial part of
its or his property; or such receiver, trustee or similar officer shall be
appointed without the application or consent of the Borrower or such Guarantor,
as the case may be and not dismissed within forty-five (45) days; or the
Borrower or any Guarantor shall institute (by petition, application, answer,
consent or otherwise) any bankruptcy, insolvency, reorganization, arrangement,
readjustment of debt, dissolution, liquidation or similar proceeding relating to
it or him under the laws of any jurisdiction; or any such proceeding shall be
instituted (by petition, application or otherwise) against the Borrower or any
such Guarantor and not dismissed within sixty (60) days; or any judgment, writ,
warrant of attachment, garnishment or execution or similar process shall be
issued or levied against a substantial part of the property of the Borrower or
any Guarantor and not dismissed within thirty (30) days; or
(e) A petition shall be filed by or against the Borrower or
any Guarantor under the United States Bankruptcy Code naming the Borrower or
such Guarantor as debtor (and in the case of an involuntary petition the same is
not dismissed in sixty (60) days); or
(f) Any representation or warranty made by the Borrower in
this Agreement, by any Guarantor in any guaranty delivered to the Lender or by
the Borrower (or any of its officers) or any Guarantor in any agreement,
certificate, instrument or financial statement or other statement contemplated
by or made or delivered pursuant to or in connection with this Agreement or any
such guaranty shall prove to have been incorrect in any material respect when
made or deemed hereunder to be remade; or
(g) The rendering against the Borrower of a final judgment,
decree or order for the payment of money in excess of $50,000.00 and the
continuance of such judgment, decree or order unsatisfied and in effect for any
period of thirty (30) consecutive days without a stay of execution; or
(h) A default under any bond, debenture, note or other
evidence of indebtedness of the Borrower owed to any Person other than the
Lender, or under any indenture or other instrument under which any such evidence
of indebtedness has been issued or by which it is governed, or under any lease
of any of the Premises, and the expiration of the applicable period of grace, if
any, specified in such evidence of indebtedness, indenture, other instrument or
lease; or
(i) Any Reportable Event, which the Lender determines in good
faith might constitute grounds for the termination of any Plan or for the
appointment by the appropriate United States District Court of a trustee to
29
administer any Plan, shall have occurred and be continuing 30 days after written
notice to such effect shall have been given to the Borrower by the Lender; or a
trustee shall have been appointed by an appropriate United States District Court
to administer any Plan; or the Pension Benefit Guaranty Corporation shall have
instituted proceedings to terminate any Plan or to appoint a trustee to
administer any Plan; or the Borrower shall have filed for a distress termination
of any Plan under Title IV of ERISA; or the Borrower shall have failed to make
any quarterly contribution required with respect to any Plan under Section
412(m) of the Internal Revenue Code of 1986, as amended, which the Lender
determines in good faith may by itself, or in combination with any such failures
that the Lender may determine are likely to occur in the future, result in the
imposition of a lien on the assets of the Borrower in favor of the Plan; or
(j) An event of default shall occur under any Security
Document or under any other security agreement, mortgage, deed of trust,
assignment or other instrument or agreement securing any obligations of the
Borrower hereunder or under any note; or
(k) The Borrower shall liquidate, dissolve, terminate or
suspend its business operations or otherwise fail to operate its business in the
ordinary course, or sell all or substantially all of its assets, without the
prior written consent of the Lender; or
(l) The Borrower shall fail to pay, withhold, collect or remit
any tax or tax deficiency when assessed or due (other than any tax deficiency
which is being contested in good faith and by proper proceedings and for which
it shall have set aside on its books adequate reserves therefor) except as
allowed by Section 6.5 or notice of any state or federal tax liens shall be
filed or issued; or
(m) Default in the payment of any amount owed by the Borrower
to the Lender other than any indebtedness arising hereunder; or
Section 8.2 RIGHTS AND REMEDIES. Upon the occurrence of an Event of
Default or at any time thereafter, the Lender may exercise any or all of the
following rights and remedies:
(a) The Lender may, by notice to the Borrower, declare the
Credit Facility to be terminated, whereupon the same shall forthwith terminate;
(b) The Lender may, by notice to the Borrower, declare to be
forthwith due and payable the entire unpaid principal amounts of the Notes then
outstanding, all interest accrued and unpaid thereon, all amounts payable under
this Agreement and any other Obligations, whereupon the Notes, all such accrued
interest and all such amounts and Obligations shall become and be forthwith due
and payable, without presentment, notice of dishonor, protest or further notice
of any kind, all of which are hereby expressly waived by the Borrower;
30
(c) The Lender may, without notice to the Borrower and without
further action, apply any and all money owing by the Lender to the Borrower,
including without limitation any funds on deposit with the Lender, whether or
not matured, to the payment of the Advances, including interest accrued thereon,
and of all other sums then owing by the Borrower hereunder;
(d) The Lender may, exercise and enforce any and all rights
and remedies available upon default to a secured party under the UCC, including,
without limitation, the right to take possession of Collateral, or any evidence
thereof, proceeding without judicial process or by judicial process (without a
prior hearing or notice thereof, which the Borrower hereby expressly waives) and
the right to sell, lease or otherwise dispose of any or all of the Collateral,
and, in connection therewith, the Borrower will on demand assemble the
Collateral and make it available to the Lender at a place to be designated by
the Lender which is reasonably convenient to both parties;
(e) The Lender may exercise and enforce its rights and
remedies under the Loan Documents; and
(f) The Lender may exercise any other rights and remedies
available to it by law or agreement.
Notwithstanding the foregoing, upon the occurrence of an Event of Default
described in Section 8.1(e) hereof, the entire unpaid principal amounts of the
Notes (whether contingent or funded), all interest accrued and unpaid thereon,
all other amounts payable under this Agreement and any other Obligations shall
be immediately due and payable automatically without presentment, demand,
protest or notice of any kind.
Section 8.3 CERTAIN NOTICES. If notice to the Borrower of any intended
disposition of Collateral, such notice shall be deemed commercially reasonable
if given (in the manner specified in Section 9.3) at least five (5) calendar
days prior to the date of intended disposition or other action.
ARTICLE IX
MISCELLANEOUS
Section 9.1 NO WAIVER; CUMULATIVE REMEDIES. No failure or delay on the
part of the Lender in exercising any right, power or remedy under the Loan
Documents shall operate as a waiver thereof; nor shall any single or partial
exercise of any such right, power or remedy preclude any other or further
exercise thereof or the exercise of any other right, power or remedy under the
Loan Documents. The remedies provided in the Loan Documents are cumulative and
not exclusive of any remedies provided by law.
Section 9.2 AMENDMENTS, ETC. No amendment, modification, termination or
waiver of any provision of any Loan Document or consent to any departure by the
Borrower therefrom or any release of a Security Interest shall be effective
31
unless the same shall be in writing and signed by the Lender, and then such
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given. No notice to or demand on the Borrower in any
case shall entitle the Borrower to any other or further notice or demand in
similar or other circumstances.
Section 9.3 ADDRESSES FOR NOTICES, ETC. Except as otherwise expressly
provided herein, all notices, requests, demands and other communications
provided for under the Loan Documents shall be in writing and shall be (a)
personally delivered, (b) sent by first class United States mail, (c) sent by
overnight courier of national reputation, or (d) transmitted by telecopy, in
each case addressed to the party to whom notice is being given at its address as
set forth below and, if telecopied, transmitted to that party at its telecopier
number set forth below:
If to the Borrower:
Sunrise Educational Services, Inc.
0000 Xxxx Xxx Xxxxxxxx Xxxxx
Xxxxxxxxxx, Xxxxxxx 00000
Attention: Xxx X'Xxxxxx
Telecopier: (000) 000-0000
With a copy to:
Xxxxxxx Lang
Xxx Xxxxx Xxxxxxx Xxxxxx
Xxxxxxx, Xxxxxxx 00000-0000
Attention: Xxxx Xxxxx
Telecopier: (000) 000-0000
If to the Lender:
Imperial Bank
0000 Xxxxx Xx Xxxxxxx Xxxxxxxxx
Xxxxx 000
Xxxxxxxxx, Xxxxxxxxxx 00000
Attention: General Counsel
Telecopier: (000) 000-0000
With a copy to:
Imperial Bank
0000 Xxxx Xxxxxxxxx Xxxx
Xxxxx 000
Xxxxxxx, Xxxxxxx 00000
Attention: Xxxxx Xxxxxxxx
Telecopier:(000) 000-0000
32
or, as to each party, at such other address or telecopier number as may
hereafter be designated by such party in a written notice to the other party
complying as to delivery with the terms of this Section. All such notices,
requests, demands and other communications shall be deemed to have been given on
(a) the date received if personally delivered, (b) when deposited in the mail if
delivered by mail, (c) the date sent if sent by overnight courier, or (d) the
date of transmission if delivered by telecopy, except that notices or requests
to the Lender pursuant to any of the provisions of Article II hereof shall not
be effective until received by the Lender.
Section 9.4 FINANCING STATEMENT. A carbon, photographic or other
reproduction of this Agreement or of any financing statements signed by the
Borrower is sufficient as a financing statement and may be filed as a financing
statement in any state to perfect the security interests granted hereby. For
this purpose, the following information is set forth:
Name and address of Debtor:
Sunrise Educational Services, Inc.
0000 Xxx Xxxxxxxx Xxxxx
Xxxxxxxxxx, Xxxxxxx 00000
Federal Tax Identification No. 00-0000000
Name and address of Secured Party:
Imperial Bank, a California banking corporation
Lending Services
0000 Xxxxx Xx Xxxxxxx Xxxxxxxxx
Xxxxxxxxx, Xxxxxxxxxx 00000
Attention: General Counsel
Section 9.5 FURTHER DOCUMENTS. The Borrower will from time to time
execute and deliver or endorse any and all instruments, documents, conveyances,
assignments, security agreements, financing statements and other agreements and
writings that the Lender may reasonably request in order to secure, protect,
perfect or enforce the Security Interests or the rights of the Lender under this
Agreement (but any failure to request or assure that the Borrower executes,
delivers or endorses any such item shall not affect or impair the validity,
sufficiency or enforceability of this Agreement and the Security Interests,
regardless of whether any such item was or was not executed, delivered or
endorsed in a similar context or on a prior occasion).
Section 9.6 COLLATERAL. This Agreement does not contemplate a sale of
accounts, contract rights or chattel paper, and, as provided by law, the
Borrower is entitled to any surplus and shall remain liable for any deficiency.
The Lender's duty of care with respect to Collateral in its possession (as
imposed by law) shall be deemed fulfilled if it exercises reasonable care in
physically keeping such Collateral, or in the case of Collateral in the custody
or possession of a bailee or other third person, exercises reasonable care in
the selection of the bailee or other third person, and the Lender need not
otherwise preserve, protect, insure or care for any Collateral. The Lender shall
not be obligated to preserve any rights the Borrower may have against prior
parties, to realize on the Collateral at all or in any particular manner or
order or to apply any cash proceeds of the Collateral in any particular order of
application.
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Section 9.7 COSTS AND EXPENSES. The Borrower agrees to pay on demand
all costs and expenses, including (without limitation) attorneys' fees, incurred
by the Lender in connection with the Obligations, this Agreement, the Loan
Documents and any other document or agreement related hereto or thereto, and the
transactions contemplated hereby, including without limitation all such costs,
expenses and fees incurred in connection with the negotiation, preparation,
execution, amendment, administration, performance, collection and enforcement of
the Obligations and all such documents and agreements and the creation,
perfection, protection, satisfaction, foreclosure or enforcement of the Security
Interests.
Section 9.8 INDEMNITY. In addition to the payment of expenses pursuant
to Section 9.7 hereof and the environmental indemnity pursuant to Section 6.4
hereof, the Borrower agrees to indemnify, defend and hold harmless the Lender,
and any of its participants, parent corporations, subsidiary corporations,
affiliated corporations, successor corporations, and all present and future
officers, directors, employees and agents of the foregoing (the "Indemnitees"),
from and against (i) any and all transfer taxes, documentary taxes, assessments
or charges made by any governmental authority by reason of the execution and
delivery of this Agreement and the other Loan Documents or the making of the
Advances, and (ii) any and all liabilities, losses, damages, penalties,
judgments, suits, claims, costs and expenses of any kind or nature whatsoever
(including, without limitation, the reasonable fees and disbursements of
counsel) in connection with any investigative, administrative or judicial
proceedings, whether or not such Indemnitee shall be designated a party thereto,
which may be imposed on, incurred by or asserted against such Indemnitee, in any
manner relating to or arising out of or in connection with the making of the
Advances, this Agreement and all other Loan Documents or the use or intended use
of the proceeds of the Advances (the "Indemnified Liabilities"). If any
investigative, judicial or administrative proceeding arising from any of the
foregoing is brought against any Indemnitee, upon request of such Indemnitee,
the Borrower, or counsel designated by the Borrower and satisfactory to the
Indemnitee, will resist and defend such action, suit or proceeding to the extent
and in the manner directed by the Indemnitee, at the Borrower's sole cost and
expense. Each Indemnitee will use its best efforts to cooperate in the defense
of any such action, suit or proceeding. If the foregoing undertaking to
indemnify, defend and hold harmless may be held to be unenforceable because it
violates any law or public policy, the Borrower shall nevertheless make the
maximum contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law. The obligation of the
Borrower under this Section 9.8 shall survive the termination of this Agreement
and the discharge of the Borrower's other Obligations.
Section 9.9 PARTICIPANTS. The Lender and its participants, if any, are
not partners or joint venturers, and the Lender shall not have any liability or
responsibility for any obligation, act or omission of any of its participants.
All rights and powers specifically conferred upon the Lender may be transferred
or delegated to any of the participants, successors or assigns of the Lender.
34
Section 9.10 EXECUTION IN COUNTERPARTS. This Agreement and other Loan
Documents may be executed in any number of counterparts, each of which when so
executed and delivered shall be deemed to be an original and all of which
counterparts, taken together, shall constitute but one and the same instrument.
Section 9.11 BINDING EFFECT; ASSIGNMENT; COMPLETE AGREEMENT; SHARING OF
INFORMATION. The Loan Documents shall be binding upon and inure to the benefit
of the Borrower and the Lender and their respective successors and assigns,
except that the Borrower shall not have the right to assign its rights
thereunder or any interest therein without the prior written consent of the
Lender. This Agreement, together with the Loan Documents, comprises the complete
and integrated agreement of the parties on the subject matter hereof and
supersedes all prior agreements, written or oral, on the subject matter hereof.
Without limitation of the Lender's right to share information regarding the
Borrower and its Affiliates with Lender's participants, accountants, lawyers and
other advisors, the Lender may share at any time with Imperial Bancorp. and all
direct and indirect subsidiaries of Imperial Bancorp. any and all information
the Lender may have in its possession regarding the Borrower and its Affiliates,
and the Borrower waives any right of confidentiality it may have with respect to
such sharing of such information.
Section 9.12 GOVERNING LAW; JURISDICTION, VENUE; WAIVER OF JURY TRIAL.
The Loan Documents shall be governed by and construed in accordance with the
substantive laws (other than conflict laws) of the State of California, except
to the extent Lender has greater rights or remedies under Federal law, whether
as a national bank or otherwise, in which case such choice of California law
shall not be deemed to deprive Lender of any such rights and remedies as may be
available under Federal law. Subject to the provisions of Section 9.15 hereof,
each party consents to the personal jurisdiction and venue of the state courts
located in Los Angeles, State of California in connection with any controversy
related to this Agreement, waives any argument that venue in any such forum is
not convenient and agrees that any litigation initiated by any of them in
connection with this Agreement shall be venued in the Superior Court of Los
Angeles County, California. The parties waive any right to trial by jury in any
action or proceeding based on or pertaining to this Agreement or any of the Loan
Documents.
Section 9.13 SEVERABILITY OF PROVISIONS. Any provision of this
Agreement which is prohibited or unenforceable shall be ineffective to the
extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof.
Section 9.14 HEADINGS. Article and Section headings in this Agreement
are included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose.
Section 9.15 REFERENCE PROVISION. a. Each controversy, dispute or claim
("Claim") between the parties arising out of or relating to this Agreement
and/or any of the Loan Documents which is not settled in writing within ten days
after the "Claim Date" (defined as the date on which a party gives written
notice to all other parties that a controversy, dispute or claim exists), will
be settled by a reference proceeding in Los Angeles, California, in accordance
with the provisions of Section 638 ET SEQ. of the California Code of Civil
Procedure, or their successor section ("CCP"), which shall constitute the
exclusive remedy for the settlement of any Claim,
35
including whether such Claim is subject to the reference proceeding and the
parties waive their rights to initiate any legal proceedings against each other
in any court or jurisdiction other than the Superior Court of Los Angeles (the
"Court"). The referee shall be a retired Judge selected by mutual agreement of
the parties, and if they cannot so agree within thirty days (30) after the Claim
Date, the referee shall be selected by the Presiding Judge of the Court. The
referee shall be appointed to sit as a temporary judge, as authorized by law.
The referee shall (a) be requested to set the matter for hearing within sixty
(60) days after the Claim Date and (b) try any and all issues of law or fact and
report a statement of decision upon them, if possible, within ninety (90) days
of the Claim Date. Any decision rendered by the referee will be final, binding
and conclusive and judgment shall be entered pursuant to CCP 644 in the Court.
All discovery permitted by this Agreement shall be completed no later than
fifteen (15) days before the first hearing date established by the referee. The
referee may extend such period in the event of a party's refusal to provide
requested discovery for any reason whatsoever, including, without limitation,
legal objections raised to such discovery or unavailability of a witness due to
absence or illness. No party shall be entitled to "priority" in conducing
discovery. Depositions may be taken by either party upon seven (7) days written
notice, and, request for production of inspection of documents shall be
responded to within ten (10) days after service. All disputes relating to
discovery which cannot be resolved by the parties shall be submitted to the
referee whose decision shall be final and binding upon the parties.
b. The referee shall be required to determine all issues in accordance
with existing case law and the statutory laws of the State of California. The
rules of evidence applicable to proceedings at law in the State of California
will be applicable to the reference proceeding. The referee shall be empowered
to enter equitable as well as legal relief, to provide all temporary and/or
provisional remedies and to enter equitable orders that will be binding upon the
parties. The prevailing party shall be entitled to an award of reasonable
attorneys' fees and other costs incurred, pursuant to California Civil Code
Section 1717, as amended. The referee shall issue a single judgment at the close
of the reference proceeding which shall dispose of all of the claims of the
parties that are the subject to the reference. The parties hereto expressly
reserve the right to contest or appeal from the final judgment or any appealable
order or appealable judgment entered by the referee. The parties expressly
reserve the right to findings of fact, conclusions of law, a written statement
of decision, and the right to move for a new trial or a different judgment,
which new trial, if granted, is also to be a reference proceeding under this
provision.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the date
first above written.
SUNRISE EDUCATIONAL SERVICES, INC.
By:
--------------------------------------------
Name:
-----------------------------------------
Title:
-----------------------------------------
IMPERIAL BANK, A CALIFORNIA BANKING CORPORATION
By:
--------------------------------------------
Name:
-----------------------------------------
Title:
-----------------------------------------
36
EXHIBIT B TO CREDIT AND SECURITY AGREEMENT
NAMES
Sunrise Educational Services, Inc.
Sunrise Preschools, Inc.
Suncrest Private Schools
Sunburst Child Care
CHIEF EXECUTIVE OFFICE/PRINCIPAL PLACE OF BUSINESS
0000 Xxx Xxxxxxxx Xxxxx
Xxxxxxxxxx, Xxxxxxx 00000
OTHER INVENTORY AND EQUIPMENT LOCATIONS
See Exhibit E
SUBSIDIARIES
Sunrise Preschools, Hawaii, Inc.
37
EXHIBIT C TO CREDIT AND SECURITY AGREEMENT
PERMITTED LIENS, INDEBTEDNESS AND GUARANTIES
38
EXHIBIT D
COMPLIANCE CERTIFICATE
To: Imperial Bank, a California banking corporation
---------------------------------------------------------
Date:
Subject: Financial Statements
----------------------------------------------------
In accordance with our Credit and Security Agreement dated as of
(the "Credit Agreement"), attached are the financial statements of ___________
(the "Borrower") for the period ending and the year-to-date period then ended
(the "Current Financials"). All terms in this certificate have the meanings
given in the Credit Agreement and are given on behalf of the Borrower.
On behalf of the Borrower, I certify that the Current Financials
have been prepared in accordance with GAAP, subject to year-end audit
adjustments, and fairly present the financial condition of the Borrower as of
the date thereof.
EVENTS OF DEFAULT. (Check one):
___ The undersigned does not have knowledge of the
occurrence of a Default or Event of Default under the Credit
Agreement.
___ The undersigned has knowledge of the occurrence
of a Default or Event of Default under the Credit Agreement and
attached hereto is a statement of the facts with respect to thereto.
FINANCIAL COVENANTS. On behalf of the Borrower, I further hereby
certify as follows:
A. CURRENT RATIO. Pursuant to Section 6.11 of the Credit
Agreement, as of the Reporting Date, the Borrower's Current Ratio was ___ to
1.00, which ____ satisfies ____ does not satisfy the requirement that such ratio
be no less than 1.25 to 1.00 for the Applicable Period ending on the Reporting
Date.
B. DEBT TO WORTH RATIO. Pursuant to Section 6.12 of the Credit
Agreement, as of the Reporting Date, the Borrower's Debt to Worth Ratio was ____
to 1.00, which ____ satisfies ____ does not satisfy the requirement that such
ratio be no more than 1.50 to 1.00 for the Applicable Period ending on the
Reporting Date.
C. CASH FLOW COVERAGE RATIO. Pursuant to Section 6.13 of the
Credit Agreement, as of the Reporting Date, the Borrower's Cash Flow Coverage
Ratio was ____ to 1.00, which ____ satisfies ____ does not satisfy the
requirement that such ratio be no less than 1.5 to 1.00 for the Applicable
Period ending on the Reporting Date.
D. DEBT EBIDTA RATIO. Pursuant to Section 6.14 of the Credit
Agreement, as of the Reporting Date, the Borrower's Cash Flow Ratio was ____ to
1.00, which ____ satisfies ____ does not satisfy the requirement that such ratio
be no more than 3.0 to 1.00 for the Applicable Period ending on the Reporting
Date
Attached hereto are all relevant facts in reasonable detail to
evidence, and the computations of the financial covenants referred to above.
These computations were made in accordance with GAAP.
By:
--------------------------------------
Printed Name:
----------------------------
Title:
-----------------------------------
EXHIBIT E TO CREDIT AND SECURITY AGREEMENT
PREMISES
The Premises referred to in the Credit and Security Agreement are
located at the addresses specified in the attachment hereto.
