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EXHIBIT 10.1
EQUITY PURCHASE AND LOAN AGREEMENT
BETWEEN
BEACON EDUCATION MANAGEMENT, INC.
AND
KINDERCARE LEARNING CENTERS, INC.
FEBRUARY 17, 2000
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TABLE OF CONTENTS
ARTICLE 1 EQUITY PURCHASE..........................................................................1
Section 1.1 Purchase of Common Stock...................................................1
Section 1.2 Issuance of Additional Shares..............................................2
Section 1.3 Issuance of Additional Shares Upon Liquidity Event.........................2
ARTICLE 2 THE CONVERTIBLE LOAN.....................................................................2
Section 2.1 Principal Amount and Maturity..............................................2
Section 2.2 Interest/Payment of Accrued Interest.......................................3
Section 2.3 Notice and Conditions......................................................3
Section 2.4 Prepayments................................................................3
Section 2.5 Place of Payments..........................................................3
Section 2.6 Termination of Commitment..................................................3
ARTICLE 3 CONVERSION RIGHTS........................................................................4
Section 3.1 Conversion.................................................................4
Section 3.2 Mechanics of Conversion....................................................4
Section 3.3 Current Conversion Price...................................................5
Section 3.4 Adjustment of Conversion Price.............................................5
Section 3.5 Consolidation or Merger...................................................10
Section 3.6 Notice to the Investor....................................................10
ARTICLE 4 SUBORDINATION...........................................................................11
Section 4.1 Subordination.............................................................11
ARTICLE 5 CLOSING.................................................................................12
Section 5.1 The Closing Date..........................................................12
Section 5.2 Deliveries by the Company.................................................12
Section 5.3 Deliveries by the Investor................................................12
ARTICLE 6 INVESTOR'S REPRESENTATIONS AND WARRANTIES...............................................13
Section 6.1 Authority; No Contravention...............................................13
Section 6.2 Approvals.................................................................13
Section 6.3 Purchase Entirely for Own Account; Restrictions on Transfer...............13
Section 6.4 No Adverse Consequences...................................................13
Section 6.5 Brokers and Finders.......................................................14
ARTICLE 7 REPRESENTATIONS AND WARRANTIES OF THE COMPANY...........................................14
Section 7.1 Corporate Existence.......................................................14
Section 7.2 Capitalization............................................................15
Section 7.3 Subsidiaries; Investments.................................................15
Section 7.4 Authority.................................................................16
Section 7.5 No Adverse Consequences...................................................16
Section 7.6 Brokers and Finders.......................................................16
Section 7.7 Litigation................................................................16
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Section 7.8 Compliance with Laws......................................................16
Section 7.9 Employment Matters........................................................17
Section 7.10 Title to and Condition of Real Property...................................18
Section 7.11 Title to and Condition of Tangible Personal Property......................18
Section 7.12 Intellectual Property.....................................................18
Section 7.13 Certain Contracts and Arrangements........................................19
Section 7.14 Status of Contracts.......................................................19
Section 7.15 Insurance.................................................................20
Section 7.16 Permits and Licenses......................................................20
Section 7.17 Taxes.....................................................................21
Section 7.18 Certain Interests.........................................................21
Section 7.19 No Powers of Attorney or Restrictions.....................................22
Section 7.20 Financial Statements......................................................22
Section 7.21 Undisclosed Liabilities...................................................22
Section 7.22 Absence of Certain Changes or Events......................................22
Section 7.23 Certain Payments..........................................................24
Section 7.24 Environmental Conditions..................................................24
Section 7.25 Consents and Approvals....................................................25
Section 7.26 Records...................................................................25
Section 7.27 Receivables...............................................................25
Section 7.28 Accounting Controls.......................................................25
Section 7.29 Not an Investment Company.................................................25
Section 7.30 Not a Holding Company.....................................................26
Section 7.31 Reliance..................................................................26
Section 7.32 Accuracy of Representations and Warranties................................26
Section 7.33 No Material Adverse Change................................................26
Section 7.34 No Defaults...............................................................26
ARTICLE 8 COVENANTS OF TEE COMPANY................................................................26
Section 8.1 Affirmative Covenants.....................................................26
Section 8.2 Covenants of Investor.....................................................29
Section 8.3 Negative Covenants........................................................30
ARTICLE 9 DEFAULT AND REMEDIES...................................................................31
Section 9.1 Events of Default.........................................................31
Section 9.2 Acceleration..............................................................32
ARTICLE 10 CONDITIONS TO CLOSING BY THE INVESTOR; CONDITIONS TO FUTURE ADVANCES...................33
Section 10.1 Accuracy of Representations and Warranties; Performance of Covenants......33
Section 10.2 Officer's Certificate.....................................................33
Section 10.3 Execution of Note.........................................................33
Section 10.4 Secretary's Certificate...................................................33
Section 10.5 Consents and Approvals....................................................33
Section 10.6 Opinion of Counsel........................................................33
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Section 10.7 Shareholders Agreements...................................................34
Section 10.8 No Material Adverse Change................................................34
Section 10.9 Subsequent Loans..........................................................34
ARTICLE 11 CONDITIONS TO CLOSING BY THE COMPANY..................................................34
Section 11.1 Accuracy of Representations and Warranties; Performance of Covenants......34
Section 11.2 Officer's Certificate.....................................................34
ARTICLE 12 INDEMNIFICATION........................................................................35
Section 12.1 Survival..................................................................35
Section 12.2 Indemnification by the Company............................................35
Section 12.3 Indemnification Procedure.................................................35
Section 12.4 Rights Not Exclusive......................................................37
ARTICLE 13 TERMINATION............................................................................37
ARTICLE 14 NONSOLICITATION........................................................................37
Section 14.1 Nonsolicitation of Employees..............................................37
Section 14.2 Nonsolicitation of Management Contracts...................................38
Section 14.3 Breach of Covenant........................................................38
ARTICLE 15 MISCELLANEOUS..........................................................................38
Section 15.1 No Implied Waiver, Cumulative Remedies....................................38
Section 15.2 Governing Law.............................................................38
Section 15.3 Notices...................................................................38
Section 15.4 Counterparts..............................................................39
Section 15.5 Assignment................................................................39
Section 15.6 Amendments................................................................40
Section 15.7 Confidentiality...........................................................40
Section 15.8 Titles and Subtitles......................................................40
Section 15.9 Severability..............................................................40
Section 15.10 Legal Expenses............................................................40
Section 15.11 Attorneys' Fees...........................................................40
Section 15.12 Entire Agreement..........................................................40
Section 15.13 Binding Effect............................................................41
Section 15.14 Further Assurances........................................................41
EXHIBIT A Form of Note
EXHIBIT B Form of Shareholders Agreement
SCHEDULES
Schedule 6.4
Schedule 7.2
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Schedule 7.3
Schedule 7.5
Schedule 7.6
Schedule 7.7
Schedule 7.8
Schedule 7.9.2
Schedule 7.9.3
Schedule 7.10
Schedule 7.11
Schedule 7.12
Schedule 7.13
Schedule 7.14
Schedule 7.15
Schedule 7.16
Schedule 7.17
Schedule 7.18
Schedule 7.19
Schedule 7.21
Schedule 7.22
Schedule 7.25
Schedule 7.26
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EQUITY PURCHASE AND LOAN AGREEMENT
THIS EQUITY PURCHASE AND LOAN AGREEMENT (this "Agreement") is made as
of February 17, 2000 between Beacon Education Management. Inc., a Delaware
corporation (the "Company") with its principal place of business at 000 Xxxxxxxx
Xxxx, Xxxxx 000, Xxxxxxxxxxx, Xxxxxxxxxxxxx 00000, and KinderCare Learning
Centers. Inc., a Delaware corporation (the "Investor") with its principal place
of business at 000 XX Xxxxxxxx, Xxxxx 0000, Xxxxxxxx, Xxxxxx 00000.
RECITAL
The Company is the successor in interest to Beacon Education Management
LLC, a Tennessee limited liability company (the "Former Company"), which was
merged with and into the Company on December 30, 1999 pursuant to an Agreement
and Plan of Merger by and between the Former Company and the Company.
The Investor wishes to purchase and the Company desires to issue and
sell to the Investor 799,973 shares of the common stock, $0.01 par value per
share, of the Company (the "Common Stock"), representing (after taking into
account such issuance and sale) 18.99% of the outstanding common stock of the
Company, upon the terms and conditions set forth in this Agreement. The Investor
shall also automatically receive, from time to time, Additional Shares (as
defined herein), on the terms and conditions set forth herein. In addition, the
Company desires to borrow from the Investor up to $2,225,000 on the terms and
conditions set forth in this Agreement to refinance the acquisition of the
remaining interests of Beacon Education Management-Michigan, Inc., a Michigan
corporation ("JCR"), and to finance working capital needs of the Company's
charter school management operations. Accordingly, the parties agree as follows:
ARTICLE 1
EQUITY PURCHASE
SECTION 1.1 PURCHASE OF COMMON STOCK. Upon the terms and subject to the
conditions of and in reliance on the representations and warranties contained in
this Agreement, at the Closing, as hereinafter defined, the Company will (i)
issue and sell to the Investor, and the Investor will purchase from the Company
799,973 shares of Common Stock (equal to 18.99% of all outstanding common stock
of the Company; the Common Stock to be acquired by the Investor referred to as
the "Purchased Shares" and all outstanding Common Stock referred to as
"Shares"), and (ii) issue to Investor, from time to time, additional shares of
Common Stock (the total number of such shares issued as at any time being herein
referred to as "Additional Shares") pursuant to Section 1.2 hereof, for a total
purchase price of $5,275,000.
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SECTION 1.2 ISSUANCE OF ADDITIONAL SHARES.
A. The Company and Investor hereby agree that, subject to Section
1.2(B) below, upon the issuance of any shares of Common Stock by the Company,
whether upon the exercise or conversion of any right or option outstanding at
Closing or otherwise, the Company shall automatically issue (effective as of the
date of issuance of the shares of Common Stock by the Company) to Investor such
additional shares of Common Stock (constituting Additional Shares) such that,
following such issuance, the Shares held by Investor constitute 18.99% of the
Company's outstanding Common Stock; provided, however, that the maximum number
of Additional Shares to be issued pursuant to this Section 1.2 shall be 109,145
(subject to increase or decrease, as the case may be, in the event of a stock
split, a reverse split, combination, reclassification, rights issuance, stock
dividend, special distribution or a similar recapitalization).
B. The Company and Investor agree that the Company shall not be
obligated to issue fractional shares of Common Stock pursuant to Section 1.2(A)
above. Any fractional shares of Common Stock required to be issued under Section
1.2(A), without regard to this Section 1.2(B), shall be added to all other
fractional shares of Common Stock previously not issued to Investor due to this
Section 1.2(B) until the sum of such fractional shares equals at least one share
of Common Stock, at which time such share of Common Stock shall be issued to
Investor.
SECTION 1.3 ISSUANCE OF ADDITIONAL SHARES UPON LIQUIDITY EVENT. In the
event of a merger, consolidation, plan of exchange or reorganization in which
the Company is not the surviving corporation or in which the Company becomes a
wholly owned subsidiary of another corporation, a sale of all or substantially
all of the Company's assets or the liquidation or dissolution of the Company,
acquisition by any person, entity, or group, acting in concert, of substantially
all of the outstanding shares of Common Stock of the Company, or the conversion
of the Term Loans increasing Investor's ownership of the Company's Common Stock
to more than 20% (each a "Liquidity Event"), the maximum number of the
Additional Shares not previously issued shall be automatically issued to
Investor prior to the consummation of such Liquidity Event without any further
action required by the Investor.
ARTICLE 2
THE CONVERTIBLE LOAN
SECTION 2.1 PRINCIPAL AMOUNT AND MATURITY. Upon the terms and subject
to the conditions of and in reliance on the representations and warranties
contained in this Agreement (including without limitation the representations
and warranties set forth in Article 7 and the conditions set forth in Article
10), the Investor agrees to make loans (the "Term Loans") to the Company;
provided, that the aggregate principal amount of loans outstanding hereunder
shall not exceed $2,225,000 at any one time (the "Commitment"). The Term Loans
shall be disbursed in increments of $100,000 as the Company may from time to
time request, with the aggregate amount of such disbursements not to exceed the
Commitment. The Commitment is a revolving
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loan, and subject to the terms and conditions hereof, the Company may borrow,
prepay and reborrow up to the maximum principal amount provided for in this
SECTION 2.1, at any time before the Termination Date; provided, however that
such prepayment shall not affect the Investor's right to convert the full amount
of the Commitment in accordance with ARTICLE 3. The Term Loans shall be
evidenced by a master promissory note in substantially the form of Exhibit A,
attached hereto (the "Note"). The aggregate principal amount of the Note (to the
extent disbursed) and accrued but unpaid interest shall be due and payable in
full five years from the Closing Date ("Commitment Period"), subject to earlier
conversion as described in ARTICLE 3.
SECTION 2.2 INTEREST/PAYMENT OF ACCRUED INTEREST. Principal outstanding
under the Note shall bear interest from the date of the Note until paid in full
at the lower of the rate of eight percent (8%) per annum or the maximum
percentage permitted by law, payable in full when the principal becomes due and
payable. Within ten (10) business days after receipt of notice of the Investor's
election to convert all or a portion, subject to SECTION 3.1(A), of the
principal amount of any Term Loan, and subject to the terms of SECTION 3.2(A)
hereof, the Company will have the option to pay to the Investor any unpaid
interest accrued to the date of conversion of the Term Loan on the principal
amount so converted.
SECTION 2.3 NOTICE AND CONDITIONS. Term Loans shall be made with at
least ten (10) business days prior written notice to the Investor by the
Company.
SECTION 2.4 PREPAYMENTS. The Term Loans may be prepaid by the Company
upon notice to the Investor. The principal amount prepaid may be reborrowed by
the Company pursuant to SECTION 2.1 hereof and no such prepayment shall affect
the right of Investor to advance and convert such amount pursuant to SECTION
3.1.
SECTION 2.5 PLACE OF PAYMENTS. All payments of principal, interest, and
other amounts payable to the Investor hereunder will be made by wire transfer to
the Investor according to the instructions set forth below or at such other
place designated by the Investor in writing to the Company.
Bank: Bank of America
Dallas, Texas
ABA# 000000000
Credit: KinderCare Learning Centers, Inc.
Account# 3750210354
SECTION 2.6 TERMINATION OF COMMITMENT. The Commitment shall terminate
five (5) years from the Closing Date ("Termination Date"). The Investor may
earlier terminate (by written notice to the Company (except as provided in
SECTION 9.2 with respect to an Event of Default under SECTION 9.1(E) or SECTION
9.1(F), for which no notice is required) which notice may be simultaneous with
such termination) the Commitment to make further Term Loans at any time Investor
determines an Event of Default has occurred and is continuing hereunder (an
"Early Termination"). If Investor determines (i) (a) that the conditions
described in SECTION 10.8 or SECTION 10.9 have not been met or (b) an Event of
Default has occurred and is continuing hereunder and (ii) Investor fails to make
a Term Loan within the 10 business day period after
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notice pursuant to SECTION 2.3, such failure to make a Term Loan shall be deemed
a notice of termination of the Commitment pursuant to this SECTION 2.6 at the
end of such 10 business day period.
ARTICLE 3
CONVERSION RIGHTS
SECTION 3.1 CONVERSION.
A. The Investor shall have the right, subject to the terms and
provisions of this ARTICLE 3, at the option of the Investor, (i) at any time
prior to the Termination Date, to convert the aggregate unpaid principal amount
of the Term Loans or a portion thereof, and, subject to SECTION 2.2, any accrued
and unpaid interest on such Term Loans, and (ii) at any time prior to the
Termination Date or an Early Termination, to simultaneously advance and convert
all or any portion of the remaining Commitment, whether it is part of the
Commitment which has never been advanced or part of the Commitment which has
been loaned and repaid (the "Advanced Commitment"), into fully paid Shares or
any other securities into which such Shares shall have been changed or any other
securities resulting from a reclassification thereof (for purposes of this
Article 3, "Shares" shall include "Shares" and any such securities); provided,
however, that notwithstanding the foregoing, in no event will Investor be
entitled to convert less than $100,000 of the outstanding Term Loans; provided,
further, that Investor shall not be permitted more than five conversions of the
Term Loans. The Term Loans and Commitment shall continue to be convertible even
though the Commitment is terminated pursuant to SECTION 2.6, so long as the
Investor's notice of election to convert has been delivered to the Company
within ten (10) days after delivery of the notice to terminate the Commitment.
B. For convenience, the conversion pursuant to this ARTICLE 3 of all or
a portion of the unpaid principal amount of Term Loans (and, subject to SECTION
2.2, of accrued and unpaid interest if elected by the Investor) and Commitment
into Shares is herein sometimes referred to as the "Conversion of Loans".
SECTION 3.2 MECHANICS OF CONVERSION.
A. Election and Payment. The Conversion of Loans may occur at the
election of the Investor, in whole or in part, during normal business hours on
any business day during the period such election can be made by written notice
by the Investor to the Company at its office designated pursuant to SECTION 15.3
hereof. The number of Shares to be purchased upon conversion shall be determined
by dividing (i) aggregate amount of unpaid principal of the Term Loans,
interest, if any, and the Advanced Commitment being converted by (ii) the then
Current Conversion Price. The Investor shall thereupon be entitled to receive
the number of Shares as determined by such calculation (plus cash in lieu of any
fractional share as provided in SECTION 3.2(C) hereof).
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B. Effective Date. Each Conversion of Loans pursuant to ARTICLE 3
hereof shall be deemed to have been effected immediately prior to the close of
business on the business day on which notice of the Investor's election shall
have been given to the Company as provided in SECTION 3.2(A) hereof. On each
such day that the Conversion of Loans is deemed effected, the Investor shall be
deemed to have become the holder of record of such Shares.
C. Share Certificates and Cash for Fractional Shares. As promptly as
practicable after any Conversion of Loans, and in any event within five (5)
business days thereafter, the Company at its expense (including the payment by
it of any applicable issue, stamp or other taxes, other than any income taxes)
will cause to be issued in the name of and delivered to the Investor or as the
Investor may direct, a certificate or certificates for the number of Shares to
which the Investor shall be entitled upon such conversion plus, in lieu of any
fractional share to which such holder would otherwise be entitled, cash in an
amount equal to the same fraction of the Conversion Price. The Investor shall
return to the Company the original Note on conversion of all Term Loans and
termination of the Commitment.
SECTION 3.3 CURRENT CONVERSION PRICE. The term "Conversion Price" shall
mean initially $5.80 per Share, subject to adjustment as set forth in Section
3.4 hereof. The term "Current Conversion Price" as used herein shall mean the
Conversion Price, as the same may be adjusted from time to time as hereinafter
provided, in effect at any given time. In determining the Current Conversion
Price, the result shall be expressed to the nearest $0.01 but any such lesser
amount shall be carried forward and shall be considered at the time of (and
together with) the next subsequent adjustment which, together with any
adjustments to be carried forward, shall amount to $0.01 per Share or more.
SECTION 3.4 ADJUSTMENT OF CONVERSION PRICE. The Conversion Price shall
be subject to adjustment, from time to time, as follows:
A. ADJUSTMENTS FOR DISTRIBUTIONS, RECAPITALIZATIONS, ETC. In
case the Company shall, after the date hereof, (i) pay a stock dividend or make
a stock distribution on or in respect of its Shares, (ii) subdivide the
outstanding Shares, (iii) combine the outstanding Shares into a smaller number
of Shares, or (iv) issue by reclassification of Shares, any securities of the
Company, then, in any such case, the Current Conversion Price in effect
immediately prior to such action shall be adjusted to a price such that if the
Investor were to Convert the Loans in full immediately after such action, the
Investor would be entitled to receive the number of Shares which the Investor
would have owned immediately following such action had such Conversion of Loans
occurred immediately prior thereto (with any record date requirement being
deemed to have been satisfied), and, in any such case, such Conversion Price
shall thereafter be subject to further adjustments under this ARTICLE 3. An
adjustment made pursuant to this subsection (A) shall become effective
retroactively immediately after the record date in the case of a stock dividend
or stock distribution and shall become effective immediately after the effective
date in the case of a subdivision, combination or reclassification.
B. ADJUSTMENTS FOR CERTAIN OTHER DISTRIBUTIONS. In case the
Company shall, after the date hereof fix a record date for the making of a
distribution to holders of its Shares (including any such distribution made in
connection with a consolidation or merger in which the Company is the continuing
corporation) of (i) assets, (ii) evidences of indebtedness or
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other securities of the Company or of any entity other than the Company, or
(iii) subscription rights, options or warrants to purchase any of the foregoing
assets or securities, whether or not such rights, options or warrants are
immediately exercisable (all such distributions referred to in clauses (i), (ii)
and (iii) being hereinafter collectively referred to as "Distributions"), the
Company shall set aside in an escrow reasonably acceptable to the Investor, and
suitably invested for the benefit of the Investor, the Distribution to which the
Investor would have been entitled if the Investor had elected the Conversion of
Loans with respect to all Term Loans, interest, and Commitment and if the
Additional Shares had been issued to the Investor, in each case determined
immediately prior to the record date for the purpose of determining shareholders
entitled to receive such Distribution and any such Distribution (together with
any earnings while escrowed) shall thereafter be distributed from out of such
escrow to the Investor (immediately upon conversion or the issuance of
Additional Shares, as the case may be), to the extent such Distribution relates
to the portion of the Term Loans, interest, if any, and Advanced Commitment then
being converted.
C. ADJUSTMENTS FOR ISSUANCES OF ADDITIONAL SECURITIES. Subject
to the exceptions referred to in SECTION 3.4(E) hereof, in case the Company
shall at any time or from time to time after the date hereof issue any
additional Shares ("Additional Securities"), excluding the Additional Shares
described in SECTION 1.2, for a consideration per Share either (i) less than the
then Current Conversion Price per Share immediately prior to the issuance of
such Additional Securities, or (ii) without consideration, then (in the case of
either clause (i) or (ii)), and thereafter successively upon each such issuance,
the Current Conversion Price shall forthwith be reduced to a price equal to the
price determined by dividing (a) the sum of (1) the product derived by
multiplying the Current Conversion Price in effect immediately prior to such
issue or sale by the number of shares of Common Stock Deemed Outstanding
immediately prior to such issue or sale, plus (2) the consideration, if any,
received or deemed to have been received by the Company upon such issue or sale,
by (b) the number of shares of Common Stock Deemed Outstanding immediately after
such issue or sale. For purposes of this Agreement, "Common Stock Deemed
Outstanding" means, at any given time, the sum of the number of shares of Common
Stock actually outstanding at such time plus the number of shares of Common
Stock deemed to have been issued pursuant to SECTION 3.4(D) hereof provided,
however, that such adjustment shall be made only if such adjustment results in a
Current Conversion Price less than the Current Conversion Price in effect
immediately prior to the issuance of such Additional Securities. The Company
may, but shall not be required to. make any adjustment of the Current Conversion
Price if the amount of such adjustment shall be less than one percent (1%) of
the Current Conversion Price immediately prior to such adjustment, but any
adjustment that would otherwise be required then to be made which is not so made
shall be carried forward and shall be made at the time of (and together with)
the next subsequent adjustment which, together with any adjustments so carried
forward. shall amount to not less than one percent (1%) of the Current
Conversion Price immediately prior to such adjustment.
D. CERTAIN RULES IN APPLYING THE ADJUSTMENT FOR ADDITIONAL
SECURITIES ISSUANCES. For purposes of any adjustment as provided in Section
3.4(C) hereof, the following provisions shall also be applicable:
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(i) Cash Consideration. In case of the issuance of
Additional Securities for cash, the consideration received by
the Company therefor shall be deemed to be the gross cash
proceeds paid to the Company for such Additional Securities
(before deducting any commissions or other expenses paid or
incurred by the Company for any underwriting of, or otherwise
in connection with the issuance of, such Additional
Securities).
(ii) Non-Cash Consideration. In case of the issuance
of Additional Securities for a consideration other than cash,
or consideration a part of which shall be other than cash, (A)
if the value of the Additional Securities to be issued for
such consideration is less than Two Hundred and Fifty Thousand
Dollars ($250,000), the amount of the consideration other than
cash so received or to be received by the Company shall be
deemed to be the value of such consideration at the time of
its receipt by the Company as determined in good faith by the
Board of Directors of the Company, and (B) if the value of
Additional Securities to be issued for such consideration is
equal to or greater than Two Hundred and Fifty Thousand
Dollars ($250,000), the amount of the consideration other than
cash so received or to be received by the Company shall be
deemed to be the value of such consideration at the time of
its receipt by the Company as determined in good faith by an
independent appraiser approved by the Investor; provided,
however, that where the non-cash consideration consists of the
cancellation, surrender or exchange of outstanding obligations
of the Company (or where such obligations are otherwise
converted into Shares), the value of the non-cash
consideration shall be deemed to be the principal and unpaid
interest amount of the obligations canceled, surrendered,
satisfied, exchanged or converted. If the Company receives
consideration, part or all of which consists of publicly
traded securities (i.e., in lieu of cash), the value of such
non-cash consideration shall be the aggregate market value of
such securities (based on an average of the last reported
trading price, standard settlement, for the 10 consecutive
trading days prior to receipt of consideration) as of the
close of the day immediately preceding the date of its receipt
by the Company.
(iii) Options, Warrants, Convertibles, Etc. In case
of the issuance, whether by distribution or sale to holders of
the Shares or to others, by the Company of (i) any security
that is convertible into Shares or (ii) any rights, options or
warrants to purchase Shares (except as stated in SECTION
3.4(E) hereof), if inclusion thereof in calculating
adjustments under this SECTION 3.4 would result in a Current
Conversion Price lower than if excluded, the Company shall be
deemed to have issued, for the consideration described below,
the number of Shares into which such convertible security may
be converted when first convertible, or the number of Shares
deliverable upon the exercise of such rights, options or
warrants when first exercisable, as the case may be (and such
Shares shall be deemed to be Additional Securities for
purposes of SECTION 3.4(C) hereof). The consideration deemed
to be received by the Company at the time of the issuance of
such convertible securities or such rights, options or
warrants shall be the consideration so received determined as
provided in SECTION 3.4(D)(I) and (II) hereof plus (x) any
consideration or adjustment
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payment to be received by the Company in connection with such
conversion or, as applicable, (y) the aggregate price at which
Shares are to be delivered upon the exercise of such rights,
options or warrants when first exercisable (or, if no price is
specified and such Shares are to be delivered at an option
price related to the market value of the subject Shares, an
aggregate option price bearing the same relation to the market
value of the subject Company common stock at the time such
rights, options or warrants were granted). If, subsequently,
such convertible security, rights, options or warrants are
converted or exercised hereunder (1) such number of Shares
into which such convertible security is convertible, or which
are deliverable upon the exercise of such rights, options or
warrants, is increased or (2) the conversion or exercise price
of such convertible security, rights, options or warrants is
decreased, then the calculations under the preceding two
sentences (and any resulting adjustment to the Current
Conversion Price under SECTION 3.4(C) hereof) with respect to
such convertible security, rights, options or warrants, as the
case may be, shall be recalculated as of the time of such
exercise or conversion but giving effect to such changes (but
any such recalculation shall not result in the Current
Conversion Price being higher than that which would be
calculated without regard to such issuance). On the expiration
or termination of such rights, options or warrants, or rights
to convert, the Conversion Price hereunder shall be readjusted
(up or down as the case may be) to such Current Conversion
Price as would have been obtained had the adjustments made
with respect to the issuance of such rights, options, warrants
or convertible securities been made upon the basis of the
delivery of only the number of Shares actually delivered upon
the exercise of such rights, options or warrants or upon the
conversion of any such securities and at the actual exercise
or conversion prices (but any such recalculation shall not
result in the Current Conversion Price being higher than that
which would be calculated without regard to such issuance).
(iv) Number of Shares Outstanding. The number of
Shares the Company has at the time outstanding shall exclude
all Shares then owned or held by or for the account of the
Company, but shall include the aggregate number of Shares at
the time deliverable in respect of the convertible securities,
rights, options and warrants referred to in SECTION
3.4(D)(III) and 3.4(E) hereof; provided, that to the extent
that such rights, options, warrants or conversion privileges
are not exercised, such Shares shall be deemed to be
outstanding only until the expiration dates of the rights,
warrants, options or conversion privileges or the prior
cancellation thereof.
E. Exclusion from the Adjustment for Additional Securities
Issuances. No adjustment of the Current Conversion Price under SECTION 3.4(C)
hereof shall be made as a result of or in connection with:
(i) the issuance of Shares upon the Conversion of
Loans; or
(ii) the issuance of Additional Shares.
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To the extent that the issuance (or deemed issuance) of Shares shall
not result in any adjustment of the Current Conversion Price pursuant to the
provisions of this SECTION 3.4(E) then such Shares shall not be taken into
account for purposes of determining any adjustment under SECTION 3.4(C) hereof.
F. Antidilution Adjustments with Respect to Other Securities.
Without limiting any other rights available hereunder to the Investor, if there
is an antidilution adjustment (x) with respect to any security which is
convertible into Shares whether issued prior to or after the date hereof or (y)
with respect to any right, option or warrant to purchase Shares whether issued
prior to or after the date hereof which (in the case of clause (x) or (y))
results in a reduction in the exercise or purchase price with respect to such
security, right, option or warrant or results in an increase in the number of
Shares obtainable under such security, right, option or warrant, then an
adjustment shall be made under this SECTION 3.4(F) to the Current Conversion
Price hereunder. Any such adjustment under this SECTION 3.4(F) shall be
whichever of the following results in a lower Current Conversion Price: (A) a
reduction in the Current Conversion Price equal to the percentage reduction in
such exercise or purchase price with respect to such security, right, option or
warrant or (B) a reduction in the Current Conversion Price which will result in
the same percentage increase in the number of Shares available under this
ARTICLE 3 as the percentage increase in the number of shares available under
such security, right, option or warrant; provided however such adjustment shall
not cause the Current Conversion Price to be lower than the adjusted exercise or
purchase price with respect to such security, right, option or warrant. Any such
adjustment under this SECTION 3.4(F) shall only be made if it would result in a
lower Current Conversion Price than that which would be determined pursuant to
any other antidilution adjustment otherwise required under this ARTICLE 3 as a
result of the event or circumstance which triggered the adjustment to the
security, right, option or warrant described in clause (x) or (y) above (and if
any such adjustment is so made under this SECTION 3.4(F), then such other
antidilution adjustment otherwise required under this ARTICLE 3 shall not be
made as a result of such event or circumstance).
G. Other Adjustments. In case any event shall occur as to
which any of the provisions of this SECTION 3.4 are not strictly applicable but
the failure to make any adjustment would not fairly protect the conversion
rights represented hereby in accordance with the essential intent and principles
of this SECTION 3.4, then, in each such case, the Company shall make an
adjustment consistent with the intent and principles of this SECTION 3.4,
provided, however, that any such adjustment under this SECTION 3.4(G) shall only
be made if it would result in a lower Current Conversion Price. Upon the request
of the Investor, the Company shall promptly (in any event, within thirty (30)
days of such request) appoint a firm of independent public accountants of
recognized national standing selected by the Board of Directors of the Company
(who may be the regular auditors of the Company), which shall give their opinion
upon the adjustment, if any, on a basis consistent with the essential intent and
principles established in this SECTION 3.4, necessary to preserve, without
dilution, the conversion rights represented hereby. Upon receipt of such
opinion, the Company will promptly mail copies thereof to the Investor and shall
make the adjustments described therein. If there is no change in the amount of
the original proposed adjustment or if the change (whether increased or
decreased) is less than five percent (5%) of the original proposed adjustment,
the cost of such opinion shall be for the account of the Investor.
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H. Meaning of "Issuance". References in this Agreement to
"issuances" of Shares by the Company include issuances by the Company of
previously unissued Shares and issuances or other transfers by the Company of
Shares repurchased by the Company.
SECTION 3.5 CONSOLIDATION OR MERGER. Without limiting Section 8.3
hereof, if the Company shall at any time reorganize, reclassify or change its
capitalization, or consolidate or merge with another party (where the Company is
not the continuing entity after such merger or consolidation) for which approval
of shareholders of the Company is required, or the Company shall sell, transfer
or lease all or substantially all of the assets of the Company, then, in any
such case, the Investor shall thereupon (and thereafter) be entitled to receive,
upon the Conversion of Loans, the securities or other property to which (and
upon the same terms and with the same rights as) the Investor would have been
entitled if such conversion had occurred immediately prior to such consolidation
or merger, such sale of assets or such change (with any record date requirement
being deemed to have been satisfied), and such conversion rights shall
thereafter continue to be subject to further adjustments under this Article 3.
The Company shall take such steps in connection with such consolidation or
merger, such sale of assets or such change as may be necessary to assure the
Investor that the provisions hereof shall thereafter be applicable in relation
to any securities or property thereafter deliverable upon the Conversion of
Loans, including obtaining a written obligation to supply such securities or
property upon such conversion and to be so bound hereby.
SECTION 3.6 NOTICE TO THE INVESTOR. In case at any time
(i) the Company shall take any action which would require an
adjustment in the Current Conversion Price pursuant to SECTION 3.4(A),
(C), (F) or (G); or
(ii) the Company shall authorize the granting to the holders
of Company Shares of any Distributions as set forth in SECTION 3.4(B);
or
(iii) there shall be any reorganization, reclassification or
change of the Company's capitalization, or any consolidation or merger
to which the Company is a party and for which approval of the
shareholders of the Company is required, or any sale, transfer or lease
of all or substantially all of the assets of the Company; or
(iv) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Company;
then, in any one or more of such cases, the Company shall give written notice to
the Investor, not less than twenty (20) days before any record date or other
date set for definitive action, of the date on which such action, distribution,
reorganization, reclassification, change, sale, transfer, lease, consolidation,
merger, dissolution, liquidation or winding-up shall take place, as the case may
be. Such notice shall also set forth such facts as shall indicate the effect of
any such action (to the extent such effect may be known at the date of such
notice) on the Current Conversion Price and the kind and amount of the
securities and property deliverable upon Conversion of
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Loans. Such notice shall also specify any date as of which the holders of the
Shares shall be entitled to exchange their Shares for securities or other
property deliverable upon any such reorganization, reclassification, change,
sale, transfer, lease, consolidation, merger, dissolution, liquidation or
winding-up, as the case may be.
ARTICLE 4
SUBORDINATION
SECTION 4.1 SUBORDINATION. The Term Loan shall be subordinate to the
prior payment in full in cash of the principal of, premium (if any), and
interest on all Senior Indebtedness. "Senior Indebtedness" means the principal
of (and premium, if any) and interest (including all interest accruing
subsequent to the commencement of any bankruptcy or similar case or proceeding,
regardless of whether a claim for post-petition interest is allowable as a claim
in any such case or proceeding) on, and all fees, charges and other amounts
payable in connection with, the following, whether absolute or contingent,
secured or unsecured, due or to become due, outstanding on the date hereof or
thereafter created, incurred or assumed: (a) indebtedness of the Company that is
for borrowed money to banks, insurance companies, capital corporations,
investment funds and other financial institutions evidenced by credit or loan
agreements, notes or other similar written obligations (including obligations of
the Company arising from its guarantee of such indebtedness of others), (b) all
other indebtedness of the Company that is for borrowed money, whether
outstanding on the date hereof or hereafter created, incurred or assumed,
evidenced by a note, security, debenture, bond or similar instrument (including
obligations of the Company arising from its guarantee of such indebtedness of
others), (c) obligations of the Company as lessee under leases required to be
capitalized on the balance sheet of the lessee under generally accepted
accounting principles (including obligations of the Company arising from its
guarantee of any leases, regardless whether such leases are capitalized), (d)
obligations of the Company under interest rate and currency swaps, caps, floors,
collars or similar agreements or arrangements, (e) all obligations of the
Company issued or assumed as the deferred purchase price of property (but
excluding any portion thereof constituting trade accounts payable arising in the
ordinary course of business), (f) all obligations of the Company for the
reimbursement of any letters of credit to the extent the obligations underlying
such letters of credit are Senior Indebtedness under clauses (a) through (e)
above, and (g) renewals, extensions, modifications, restatements and refundings
of, and any amendments, modifications or supplements to, or any indebtedness or
obligation issued in exchange for, any such indebtedness or obligation described
in clauses (a) through (f) of this paragraph; provided, however, that "Senior
Indebtedness" shall not include (i) any indebtedness or obligation if the terms
of such indebtedness or obligation expressly provide that such indebtedness or
obligation shall be junior in right of payment to the indebtedness evidenced by
this Note, or expressly provide that such indebtedness or obligations is "pari
passu" with the indebtedness evidenced by this Note, (ii) any indebtedness or
other obligation to any officer or shareholder of the Company that is not a
bank, insurance company. capital corporation, investment fund or other financial
institution, but the exclusion provided in this clause (ii) shall not apply to
any indebtedness or obligation to Xxxxxxx X. Xxxxxxxxx or any of his affiliates
in an aggregate amount not to exceed Five Million Dollars ($5,000,000) arising
out of or related to any guaranty or other assurance of
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performance provided for the benefit of the Company or for the benefit of any
person or entity for whose indebtedness the Company has provided a guaranty or
assurance of performance, or (iii) any amounts owed for goods or materials
purchased in the ordinary course of business (to the extent permitted by law),
for compensation to employees or for services.
ARTICLE 5
CLOSING
SECTION 5.1 THE CLOSING DATE. Upon the terms and subject to
satisfaction of the conditions contained in this Agreement, the closing (the
"Closing") under this Agreement shall take place at the offices of Stoel Rives
LLP, 000 XX Xxxxx Xxx., Xxxxx 0000, Xxxxxxxx, Xxxxxx 00000, at 10:00 a.m. on
February 17, 2000 (the "Closing Date") or at such earlier time and place as are
mutually agreeable to the Investor and the Company.
SECTION 5.2 DELIVERIES BY THE COMPANY. At the Closing, the Company will
deliver to the Investor the following:
(a) A certificate representing the Purchased Shares,
registered in the Investor's name.
(b) The Note.
(c) The officer's certificate contemplated by SECTION 10.2.
(d) A secretary's certificate, including copies of the
Company's Certificate of Incorporation, bylaws and the certified
resolutions contemplated by SECTION 10.4.
(e) The opinion of counsel contemplated by SECTION 10.6.
(f) The Shareholders Agreements contemplated by SECTION 10.7.
(g) All other documents, instruments and writings required to
be delivered by the Company at or prior to the Closing pursuant to this
Agreement or otherwise reasonably required in connection herewith.
SECTION 5.3 DELIVERIES BY THE INVESTOR. At the Closing, the Investor
will deliver to the Company:
(a) The sum of $5,275,000 in payment of the purchase price for
the Purchased Shares by wire transfer, check or other method agreeable
to the Company and the Investor.
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(b) All other documents, instruments and writings required to
be delivered by the Investor at or prior to the Closing pursuant to
this Agreement or otherwise reasonably required in connection herewith.
ARTICLE 6
INVESTOR'S REPRESENTATIONS AND WARRANTIES
The Investor represents and warrants to the Company that:
SECTION 6.1 AUTHORITY; NO CONTRAVENTION. The Investor is a corporation
duly organized and validly existing under the laws of the state of Delaware. The
Investor has the corporate power and corporate authority to enter into this
Agreement and carry out its terms. The Investor has taken all corporate action
necessary to authorize the execution, delivery and performance by it of this
Agreement. This Agreement has been duly and validly executed and delivered on
behalf of the Investor and is binding and enforceable against the Investor in
accordance with its terms except as enforceability may be limited or affected by
applicable bankruptcy, insolvency, reorganization or other laws of general
application relating to or affecting the rights of creditors and except as
enforceability may be limited by rules of law governing specific performance,
injunctive relief or other equitable remedies.
SECTION 6.2 APPROVALS. No consent, approval or authorization of, or
filing or registration with, any governmental body or any other entity or person
not a party to this Agreement is required for the consummation by the Investor
of the transactions described in this Agreement.
SECTION 6.3 PURCHASE ENTIRELY FOR OWN ACCOUNT; RESTRICTIONS ON
TRANSFER. The Purchased Shares and the Note to be received by the Investor will
be acquired for investment for the Investor's own account and not with a view to
the resale or distribution of any part thereof, and the Investor has no present
intention of selling, granting any participation in, or otherwise distributing
the same. The Investor understands that the Purchased Shares and the Note being
issued to the Investor have not been registered under the Securities Act of
1933, as amended ("1933 Act"), and, therefore, cannot be transferred unless they
are registered under the 1933 Act or unless an exemption from registration is
available.
SECTION 6.4 NO ADVERSE CONSEQUENCES. Except as disclosed on SCHEDULE
6.4, neither the execution and delivery of this Agreement by the Investor nor
the consummation of the transactions contemplated by this Agreement will (a)
violate any provision of the Investor's Certificate of Incorporation or Bylaws,
(b) violate any statute, judgment, order, injunction, decree, rule, regulation
or ruling of any governmental authority applicable to the Investor, or (c)
either alone or with the giving of notice or the passage of time or both,
conflict with, constitute grounds for termination of, accelerate the performance
required by, accelerate the maturity of any indebtedness or obligation under,
result in the breach of the terms, conditions or provisions of or constitute a
default under, any mortgage, deed of trust, indenture, note, bond, lease,
license, contract, permit or other agreement, instrument or obligation to which
the Investor is a party or
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by which it is bound, except where such action would not result in a material
adverse effect on the business, operations, assets, liabilities or condition
(financial or otherwise) of the Investor.
SECTION 6.5 BROKERS AND FINDERS. Except for Xxxxxxxx, Xxxxxxx &
Company, L.L.C., the fees and expenses of which shall be paid by Investor, the
Investor has not employed any broker, finder or agent or dealt with anyone
purporting to act in such capacity or agreed to pay any brokerage fee, finder's
fee or commission with respect to the transactions contemplated by this
Agreement.
ARTICLE 7
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Subject to the specific exceptions set forth in the Schedules
referenced in this ARTICLE 7, the Company makes the following representations
and warranties to the Investor, which representations and warranties shall
survive the execution of this Agreement and remain in full force and effect
until the expiration of the Shareholders Agreement described in SECTION 10.7.
The representations and warranties contained in SECTIONS 7.1, 7.4, 7.5, 7.33 and
7.34 shall be deemed repeated as of the date of each advance of a Term Loan (the
"Bring-Down Representations"). For purposes of this ARTICLE 7, any reference to
the Company shall be deemed to include references to the Former Company for any
applicable period prior to its merger with and into the Company.
SECTION 7.1 CORPORATE EXISTENCE. The Company and each of its
subsidiaries is a company duly organized and validly existing under the laws of
the state of its incorporation or organization and has the corporate power and
authority to own, lease and operate its properties and assets and to conduct its
business as now being conducted and as proposed to be conducted. The Former
Company's merger with and into the Company was properly effected and completed
in accordance with the laws of the States of Tennessee and Delaware and did not
result in any tax liability to the Company. The merger of Alternative Public
Schools, Inc. with and into the Company was properly effected and completed in
accordance with the laws of the state of Delaware and did not result in any tax
liability to the Company. There are no liabilities of Alternative Public
Schools, Inc., contingent or otherwise, assumed by the Company pursuant to the
merger. Except as set forth on Schedule 7.1, the Company is duly qualified and
in good standing as a foreign company in each jurisdiction in which the property
owned, leased or operated by it or the nature or conduct of its business makes
such qualification necessary and where the failure to so qualify would have a
Material Adverse Effect. For purposes of this Agreement, "Material Adverse
Effect" means a material adverse effect on the business, operations, assets,
liabilities or condition (financial or otherwise) of the Company and its
Subsidiaries, taken as a whole and a "Material Adverse Change" shall mean any
event or condition which has had or is reasonably likely to have a Material
Adverse Effect, including, without limitation, the loss of key management
personnel. The Company has not received any written notice or assertion within
the last three years from any governmental official of any jurisdiction to the
effect that the Company is required to be qualified or otherwise authorized to
do business therein, other than jurisdictions in which the Company has qualified
or obtained such
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authorization. The Company has delivered to the Investor a complete and accurate
copy of the Company's Certificate of Incorporation and Bylaws, in each case as
amended to the date hereof, and of the minute books of the Company.
SECTION 7.2 CAPITALIZATION. The capitalization of the Company consists
of 10,000,000 authorized shares of Common Stock and 1,000,000 authorized shares
of preferred stock. As of the Closing Date, including the Purchased Shares, but
excluding the shares issuable pursuant to the Conversion of the Loans and the
Additional Shares, there are no shares of preferred stock outstanding or
reserved for issuance, there are 4,212,605 shares of Common Stock outstanding
and there are 407,600 shares of Common Stock reserved for issuance pursuant to
outstanding options (all of which are listed on SCHEDULE 7.2). All outstanding
Shares of the Company are fully paid and nonassessable. The Shares to be issued
pursuant to this Agreement have been duly authorized and, when issued and
delivered in accordance with the terms of this Agreement against payment
therefor, or, in the case of Shares to be issued as Additional Shares, when
issued in accordance with SECTION 1.2 hereof and in the case of Shares to be
issued upon conversion of the Term Loans, when issued upon conversion as
contemplated under ARTICLE 3 hereof, will be validly issued, fully paid and
nonassessable and free of preemptive rights (except for the rights set forth in
the Shareholder's Agreement). 383,621 Shares have been validly reserved by the
Board of Directors of the Company for issuance upon the Conversion of Loans. An
additional 109,145 Shares have been validly reserved for issuance as the
Additional Shares issuable to Investor pursuant to this Agreement. No Shares
have been issued in violation of or are subject to any preemptive or similar
rights granted to former or existing shareholder of the Company pursuant to law,
the Company's Certificate of Incorporation or otherwise. Other than pursuant to
this Agreement or except as disclosed in SCHEDULE 7.2, there is no subscription,
option, warrant, call, right, agreement or commitment granted or issued by or
binding upon the Company or, to the knowledge of the Company. any shareholder of
the Company relating to the issuance, sale, delivery, or transfer by the Company
of the Company's Shares or any other securities convertible into, exchangeable
for, or evidencing the right to subscribe for Shares or any other equity
interest in the Company or relating to the payment of amounts measured by
changes in the value or price of capital stock of the Company; and the Company
has no obligation of any kind to issue any additional securities other than
pursuant to this Agreement. Other than pursuant to this Agreement, or except as
disclosed in SCHEDULE 7.2, there are no outstanding obligations of the Company
to repurchase. redeem or otherwise acquire any of its Shares or other
securities. The list of shareholders attached hereto as SCHEDULE 7.2 sets forth
a complete and accurate list of the shareholders of the Company as of the date
hereof indicating the number of Shares held by shareholder, including all
options to purchase Shares, and the percentage of outstanding Shares so held.
SECTION 7.3 SUBSIDIARIES; INVESTMENTS. SCHEDULE 7.3 contains a full and
complete list of all entities (collectively, the "Subsidiaries") in which the
Company owns, directly or indirectly, any outstanding capital stock or other
ownership interest (or securities, rights or other interests convertible into
capital stock or other ownership interest), and also discloses, as to each
Subsidiary, the business activities thereof, the number of authorized and
outstanding shares of capital stock or other ownership interest thereof, the
percentage of outstanding shares or interests thereof owned beneficially and of
record by the Company, and the jurisdiction in which each Subsidiary is
incorporated or organized. Except as set forth on SCHEDULE 7.3, the Company has
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never owned, directly or indirectly, any outstanding capital stock or other
ownership interest in any entity other than the Subsidiaries.
SECTION 7.4 AUTHORITY. The Company has the legal power and legal
authority to enter into this Agreement and carry out its terms. This Agreement
has been duly executed and delivered on behalf of the Company. The Company has
taken all action necessary to authorize the execution, delivery and performance
by it of this Agreement. This Agreement has been duly and validly executed and
delivered on behalf of the Company and is binding upon and enforceable against
the Company in accordance with its terms, except as enforceability may be
limited or affected by applicable bankruptcy, insolvency, reorganization or
other laws of general application relating to or affecting the rights of
creditors and except as enforceability may be limited by rules of law governing
specific performance, injunctive relief or other equitable remedies.
SECTION 7.5 NO ADVERSE CONSEQUENCES. Except as disclosed on SCHEDULE
7.5, neither the execution and delivery of this Agreement by the Company nor the
consummation of the transactions contemplated by this Agreement will (a) result
in the creation or imposition of any lien, charge, encumbrance or restriction on
the Purchased Shares, any other Shares, or on any of the Company's assets or
properties, (b) violate any provision of the Company's Certificate of
Incorporation or Bylaws, (c) violate any statute, judgment, order, injunction,
decree, rule, regulation or ruling of any governmental authority applicable to
the Company, or (d) either alone or with the giving of notice or the passage of
time or both, conflict with, constitute grounds for termination of, accelerate
the performance required by, accelerate the maturity of any indebtedness or
obligation under, result in the breach of the terms, conditions or provisions of
or constitute a default under, any mortgage, deed of trust, indenture, note,
bond, lease, license, contract, permit or other agreement, instrument or
obligation to which the Company is a party or by which it is bound, except where
such action would not result in a Material Adverse Effect.
SECTION 7.6 BROKERS AND FINDERS. Except as disclosed in SCHEDULE 7.6,
the Company has not employed any broker, finder or agent or dealt with anyone
purporting to act in such capacity or agreed to pay any brokerage fee, finder's
fee or commission with respect to the transactions contemplated by this
Agreement.
SECTION 7.7 LITIGATION. Except as disclosed in SCHEDULE 7.7, there is
no claim, litigation, proceeding or formal investigation of any kind (or, to the
knowledge of the Company, any other investigation of any kind) pending by or
against the Company or any Subsidiary, or any of the assets or properties of the
Company or any Subsidiary, and, to the knowledge of the Company, no claim,
litigation, proceeding or investigation has been threatened and there is no
basis for any such claim, litigation, proceeding or investigation. There are no
actions, proceedings, suits, investigations, or inquiries pending, or to the
knowledge of the Company, threatened, that question the validity of this
Agreement or any actions taken or to be taken pursuant hereto.
SECTION 7.8 COMPLIANCE WITH LAWS. Except as disclosed on SCHEDULE 7.8,
the Company and its Subsidiaries have at all relevant times conducted their
businesses in compliance with the provisions of their charter documents and all
applicable laws and regulations except where such failure to comply would not
result in a Material Adverse Effect. Except as disclosed
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on SCHEDULE 7.8, neither the Company nor any Subsidiary is in violation of any
applicable laws or regulations except where such failure to comply would not
result in a Material Adverse Effect. Except as disclosed in SCHEDULE 7.8,
neither the Company nor any Subsidiary is subject to any outstanding judgment,
order, writ, injunction or decree, and neither the Company nor any Subsidiary
has been charged with, or, to the knowledge of the Company, threatened with a
charge of, a violation of any provision of any applicable law or regulation.
SECTION 7.9 EMPLOYMENT MATTERS.
7.9.1 LABOR MATTERS. Neither the Company nor any Subsidiary is
a party or otherwise subject to any collective bargaining or other agreement
governing the wages, hours or terms of employment of its employees. The Company
and its Subsidiaries are and have been in compliance with all applicable laws
regarding employment and employment practices, terms and conditions of
employment, wages and hours and are not and have not been engaged in any unfair
labor practice except where such failure to comply would not result in a
Material Adverse Effect. Neither the Company nor any Subsidiary has experienced
any primary work stoppage or other organized work stoppage involving its
employees in the past two years, and to the knowledge of the Company, no work
stoppage has been threatened against the Company.
7.9.2 EMPLOYEE BENEFITS. SCHEDULE 7.9.2 lists all pension,
retirement, profit sharing, deferred compensation, bonus, commission, incentive
compensation (including cash, stock and option plans or arrangements), life
insurance, health and disability insurance, hospitalization and all other
employee benefit plans or arrangements (including, without limitation, any
contracts or agreements with trustees, insurance companies or others relating to
any such employee benefit plans or arrangements) established or maintained by
the Company or any Subsidiary, and complete and accurate copies of all those
plans or arrangements have been provided to the Investor. The employee pension
benefit plans (within the meaning of SECTION 3(2) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA") established and maintained by
the Company or any Subsidiary that are subject to ERISA (the "ERISA Plans") are
listed separately as ERISA Plans on SCHEDULE 7.9.2. The ERISA Plans comply in
all material respects with the applicable requirements of ERISA. The Company and
each Subsidiary, as applicable, have received from the Internal Revenue Service
a favorable determination for each of the ERISA Plans and their related trusts
that each of the ERISA Plans is qualified under Section 401(a) of the Internal
Revenue Code of 1986, as amended (the "Code") and the related trust is
tax-exempt under Section 501(a) of the Code. Except as disclosed on SCHEDULE
7.9.2, there has been no event subsequent to that determination that has
adversely affected the tax qualified status of the ERISA Plans or the exemption
of the related trusts other than changes in the Code that are not effective as
of the Closing Date. No "accumulated funding deficiency" as defined in Section
302(a)(2) of ERISA or Section 412(a) of the Code exists, or has existed, with
respect to any of the ERISA Plans. The Company and any controlled group of
companies of which it is a member have no "potential withdrawal liability," as
defined in Section 4201 of ERISA. To the knowledge of the Company, none of the
ERISA Plans, its related trusts or any trustee, investment manager or
administrator thereof has engaged in a nonexempt "prohibited transaction," as
such term is defined in Section 406 of ERISA and Section 4975 of the Code. There
are not and have not been any excess deferrals or excess contributions under any
ERISA Plan. Each ERISA Plan is and has been operated and
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administered in material conformity with the requirements of all applicable laws
and regulations, whether or not the ERISA Plan documents have been amended to
reflect such requirements.
7.9.3 EMPLOYMENT AGREEMENTS; OTHER AGREEMENTS. Except for
employment contracts with teachers and other school staff providing for
compensation (in each such instance) of less than Eighty Thousand Dollars
($80,000) entered into in the ordinary course of business of the Company or any
Subsidiary and except as disclosed on SCHEDULE 7.9.3, there are no material
employment, commission or compensation agreements between the Company or any
Subsidiary and any of their employees. Neither the Company nor any Subsidiary
has any agreements or understandings with its employees, shareholders or
affiliates, including without limitation any agreements or understandings
regarding compensation of any nature, severance payments or retirement benefits
in excess of Eighty Thousand Dollars ($80,000) annually except as reflected in
the items listed in SCHEDULES 7.9.2 and 7.9.3.
SECTION 7.10 TITLE TO AND CONDITION OF REAL PROPERTY. Neither the
Company nor any Subsidiary owns any real property. SCHEDULE 7.10 contains a list
of all real property leased by the Company or any Subsidiary (the "Real
Property"), including the dates of and parties to all leases and any amendments
thereof. To the knowledge of the Company, all Real Property (including
improvements thereon) is in satisfactory condition and repair consistent with
its present use, and is available for immediate use in the conduct of the
Company's business. Neither the operations of the Company or any Subsidiary on
any Real Property, nor any improvements on the Real Property, violates in any
material respect any applicable building or zoning code or regulation of any
governmental authority having jurisdiction. The Real Property includes all such
property necessary to conduct the business of the Company or any Subsidiary, as
applicable.
SECTION 7.11 TITLE TO AND CONDITION OF TANGIBLE PERSONAL PROPERTY.
Except as provided in SCHEDULE 7.11, the Company and each Subsidiary have good
and marketable title to all of the tangible personal property ("Tangible
Personal Property") reflected in the Company's consolidated financial statements
free and clear of all liens, mortgages, pledges, leases, restrictions and other
claims and encumbrances of any nature whatsoever. The Tangible Personal Property
is in good operating condition and repair (ordinary wear and tear excepted), is
performing satisfactorily, and is adequate for the conduct of the Company's
business, except where the failure of such Tangible Personal Property to be in
good operating condition (ordinary wear and tear excepted) would not result in a
Material Adverse Effect. All Tangible Personal Property and the state of
maintenance thereof are in compliance with all applicable laws and regulations
except where such failure to comply would not result in a Material Adverse
Effect. The Tangible Personal Property includes all such property necessary to
conduct the business of the Company or any Subsidiary, as applicable, as
currently conducted.
SECTION 7.12 INTELLECTUAL PROPERTY. The Company and each Subsidiary
own, or have a valid license to use, all patents, trademarks, service marks,
trade names, copyrights, trade secrets, technology, know-how and other
intellectual property (the "Intellectual Property") necessary to or used in the
conduct of their business as now conducted and as currently proposed to be
conducted. SCHEDULE 7.12 contains a complete and accurate list of all patents,
patent applications, trademarks and service marks and related applications,
trade names and copyrights owned by or licensed to the Company or any
Subsidiary, including a description of any agreements relating to the
acquisition by or license to the Company or any Subsidiary of such
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Intellectual Property. SCHEDULE 7.12 also describes all licenses or other
agreements under which the Company or any Subsidiary has sold or granted a right
to use any Intellectual Property. All Intellectual Property owned by the Company
or any Subsidiary is owned by it free and clear of all liens, claims,
encumbrances or adverse claims of any third party. The conduct of the business
of the Company and its Subsidiaries does not conflict with or infringe upon any
Intellectual Property rights of any other person and no claims of conflict or
infringement are pending or, to the knowledge of the Company, threatened against
the Company or any Subsidiary.
SECTION 7.13 CERTAIN CONTRACTS AND ARRANGEMENTS. SCHEDULE 7.13, which
is organized by type of agreement, contains a complete and accurate list of each
of the following types of agreements, including any amendments thereto, to which
the Company or any Subsidiary is a party or by which it is bound:
(a) any mortgage, note or other instrument or agreement
relating to the borrowing of money or the incurrence of indebtedness in
the principal amount of Fifty Thousand Dollars ($50,000) or more
(provided that not more than Two Hundred Thousand Dollars ($200,000) in
the aggregate of such indebtedness is excluded from disclosure on said
Schedule pursuant to this exception) by the Company or any Subsidiary
or the guaranty by the Company or any Subsidiary of indebtedness of
such amount of any person or entity;
(b) contracts or agreements for the joint performance of work
or services, and all other joint venture agreements;
(c) management contracts for the operation of charter schools;
(d) limited service contracts with charter schools; and
(e) any other contract, instrument, agreement or obligation
not described on any other Schedule (other than employment contracts
not required to be scheduled in SCHEDULE 7.9.3) to which the Company or
any Subsidiary is a party or by which it is bound, which is material to
the Company's business and which contains unfulfilled obligations of
the Company and is not terminable without payment of premium or penalty
upon 30 days' notice or less.
SECTION 7.14 STATUS OF CONTRACTS. Except as disclosed on SCHEDULE 7.14,
each of the contracts, agreements, commitments and instruments listed on
SCHEDULES 7.10, 7.11, 7.12 and 7.13 (collectively, the "Contracts") is valid,
binding and enforceable by the Company or the Subsidiary, as applicable, in
accordance with its terms and is in full force and effect. To the knowledge of
the Company and except as set forth on SCHEDULE 7.14, there is no existing
default or violation by the Company or any Subsidiary under any Contract and, to
the knowledge of the Company and except as set forth on SCHEDULE 7.14, no event
has occurred which (whether with or without notice, lapse of time or both) would
constitute a material default of the Company or any Subsidiary under any
Contract. There is no pending or, to the knowledge of the Company, threatened
proceeding which would interfere with the quiet enjoyment of any leasehold of
which the Company or any Subsidiary is lessee or sublessee. All other parties to
the Contracts have
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consented or prior to the Closing will have consented (where such consent is
necessary) to the consummation of the transactions contemplated by this
Agreement without modification of the Company's rights or obligations under any
Contract. Complete and accurate copies of all Contracts have been delivered to
the Investor. The Company is not aware of any default by any other party to any
Contract or of any event which (whether with or without notice, lapse of time or
both) would constitute a default by any other party with respect to obligations
of that party under any Contract, and, to the knowledge of the Company and
except as set forth on SCHEDULE 7.14, there are no facts that exist indicating
that any of the Contracts may be totally or partially terminated or suspended by
the other parties. Neither the Company nor any Subsidiary has granted any waiver
or forbearance with respect to any of the Contracts.
SECTION 7.15 INSURANCE. SCHEDULE 7.15 contains a complete and accurate
list of all policies of property, liability, worker's compensation and other
forms of insurance insuring the Company, any Subsidiary, their officers or
directors, their assets or their operations (the "Policies"). Except as set
forth on SCHEDULE 7.15, all the Policies, as each relates to the Company, are
valid, enforceable and in full force and effect, all premiums with respect to
the Policies covering all periods up to and including the date as of which this
representation is being made have been paid and no notice of cancellation or
termination has been received with respect to any Policy. To the knowledge of
the Company and except as set forth in Section 8.1(J), the Policies are
sufficient for compliance with all requirements of law and of agreements to
which the Company or any Subsidiary is a party and provide insurance for the
risks and in the amounts and types of coverage usually obtained by persons using
or holding similar properties in similar businesses (including without
limitation coverage for claims of alleged sexual or other abuse of children).
Except as disclosed on SCHEDULE 7.15 and except for covered claims relating to
employee health insurance, there have been no claims made for insurance payment
under any of the Policies involving amounts in excess of Ten Thousand Dollars
($10,000) (provided that not more than Two Hundred Thousand Dollars ($200,000)
in aggregate claims is excluded from disclosure on said Schedule pursuant to
that exception). Complete and accurate copies of the Policies and all
endorsements thereto have been delivered to Investor. Neither the Company nor
any Subsidiary has been refused any insurance coverage and no insurance coverage
has been canceled during the three years preceding the date of this Agreement.
SECTION 7.16 PERMITS AND LICENSES. SCHEDULE 7.16 contains a complete
and accurate list of all material governmental licenses, permits, franchises,
certificates of occupancy, easements and authorizations (collectively,
"Permits") held by the Company or any Subsidiary. The Company and each
Subsidiary hold all Permits necessary for the lawful conduct of their business
pursuant to all applicable statutes, laws, ordinances, rules and regulations of
all governmental bodies, agencies and other authorities having jurisdiction over
them or any part of their operations, except where the failure to hold such a
Permit would not have a Material Adverse Effect. The Company and each Subsidiary
are in compliance with each of the terms of each of their Permits in all
material respects, and there are no claims of violation by the Company or any
Subsidiary of any of their Permits which could have a Material Adverse Effect.
Complete and accurate copies of all Permits listed on SCHEDULE 7.16 have been
delivered to the Investor. All governmental entities and agencies that have
issued any Permits to or with respect to the Company or its business have
consented or prior to the Closing will have consented (where such consent is
necessary) to the consummation of the transactions contemplated by this
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Agreement without requiring modification of the Company's rights or obligations
under any of such Permits.
SECTION 7.17 TAXES.
7.17.1 RETURNS. The Company and each Subsidiary have filed on
a timely basis all federal, state and other returns, reports, forms,
declarations and information returns required to be filed by them with respect
to Taxes (as defined below) which relate to the business, results of operations,
financial condition, properties or assets of the Company (collectively, the
"Returns") and have paid on a timely basis all Taxes shown to be due on the
Returns. No extensions of time have been requested for Returns which have not
been filed. Except as set forth on SCHEDULE 7.17, neither the Company nor any
Subsidiary has received any notice of audit with respect to any period for which
the applicable statutory period of limitation has not expired and there are no
outstanding agreements or waivers extending the applicable statutory periods of
limitation for such Taxes for any period. All Returns filed are complete and
accurate in all respects and no additional Taxes are owed by the Company or any
Subsidiary with respect to the periods covered by the Returns. The Company has
provided the Investor with complete and accurate copies of the Returns of the
Company and each Subsidiary for 1997 through 1999.
7.17.2 TAXES PAID OR RESERVED. The reserves for Taxes
reflected in the Current Balance Sheet (as defined in SECTION 7.20), are
adequate for payment of Taxes in respect of periods ending on or before the date
of the Current Balance Sheet. All reserves for Taxes have been determined in
accordance with generally accepted accounting principles consistently applied
throughout the periods involved and with prior periods. All Taxes which the
Company has been required to collect or withhold have been withheld or collected
and, to the extent required, have been paid to the proper taxing authority.
7.17.3 DEFINITION. The term "Taxes" shall mean all taxes,
charges, fees, levies or other assessments, including, without limitation, all
net income, gross income, gross receipts, premium, sales, use, ad valorem,
transfer, franchise, profits, license, withholding, payroll, employment, excise,
estimated severance, stamp, occupation, property or other taxes, fees,
assessments or charges of any kind whatsoever, together with any interest and
any penalties (including penalties for failure to file in accordance with
applicable information reporting requirements), and additions to tax by any
authority (domestic or foreign).
SECTION 7.18 CERTAIN INTERESTS. Except as disclosed on SCHEDULE 7.18,
neither any shareholder nor any director or officer of the Company (or any
entity owned or controlled by one or more of such parties) (a) has any interest
in any property, real or personal, tangible or intangible, used in or pertaining
to the business of the Company or any Subsidiary, (b) is indebted to the Company
or any Subsidiary, or (c) has any material financial interest, direct or
indirect, in any supplier or customer of, or other outside business which has
significant transactions with, the Company or any Subsidiary. Neither the
Company nor any Subsidiary is indebted to any shareholder, director or officer
(or any entity owned or controlled by one or more of such parties) except for
(i) amounts due under normal salary arrangements, (ii) reimbursement of ordinary
business expenses and (iii) indebtedness or obligations to Xxxxxxx X. Xxxxxxxxx
or his affiliates, as described in Schedule 7.13. The consummation of the
transactions contemplated
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by this Agreement will not (either alone or upon the occurrence of any act or
event, or with the lapse of time, or both) result in any payment (severance or
other) becoming due from the Company or any Subsidiary to any of its
shareholders, officers, directors or employees (or any entity owned or
controlled by one or more of such parties).
SECTION 7.19 NO POWERS OF ATTORNEY OR RESTRICTIONS. Except as disclosed
in SCHEDULE 7.19, (a) no power of attorney or similar authorization given by the
Company or any Subsidiary is presently in effect or outstanding; (b) no contract
or agreement to which the Company or any Subsidiary is a party or is bound or to
which any of its properties or assets is subject limits the freedom of the
Company or any Subsidiary to compete in any line of business or with any person;
and (c) to the knowledge of the Company, none of the employees of the Company or
any Subsidiary is obligated under any contract (including licenses, covenants or
commitments of any nature), or subject to any judgment, decree or order of any
court or administrative agency, that would interfere with the use of his or her
reasonable efforts to promote the interests of the Company or any Subsidiary or
that would conflict with the business of the Company or the Subsidiary as now
conducted or proposed to be conducted.
SECTION 7.20 FINANCIAL STATEMENTS. The Company has furnished to the
Investor audited consolidated balance sheets of the Company and its Subsidiaries
as of June 30, 1997, 1998 and 1999, and the related consolidated statements of
operations, changes in shareholders' equity and cash flows for the periods then
ended (collectively, the "Audited Financial Statements"), and the unaudited
balance sheet of the Company and its Subsidiaries as of November 30, 1999 (the
"Current Balance Sheet") and the related statements of operations, changes in
shareholders' equity and cash flows for the five (5) months then ended
(collectively, with the Current Balance Sheet, the "Current Financial
Statements"). The Audited Financial Statements and the Current Financial
Statements are complete and accurate in all material respects and present fairly
the financial position and operating results of the Company and its Subsidiaries
as of the dates and for the periods indicated therein. The Audited Financial
Statements have been prepared in accordance with generally accepted accounting
principles ("GAAP") consistently applied throughout the periods involved and
with prior periods, except as otherwise disclosed in the Audited Financial
Statements. The Current Financial Statements have been prepared on an accrual
basis consistently applied throughout the periods involved, except as otherwise
disclosed in the Current Financial Statements.
SECTION 7.21 UNDISCLOSED LIABILITIES. Except as disclosed on SCHEDULE
7.21 and except for current liabilities which were incurred after November 30,
1999 in the ordinary course of business and of a type and in an amount
consistent with past practices, neither the Company nor any Subsidiary,
including without limitation Alternative Public Schools, Inc., has any liability
or obligation (whether absolute, accrued, contingent or otherwise, and whether
due or to become due) which is not accrued, reserved against, or disclosed in
the Current Balance Sheet.
SECTION 7.22 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed
on SCHEDULE 7.22, since November 30, 1999 there has not been:
(a) Any direct or indirect declaration, setting aside or
payment of any dividend or other distribution (whether in cash, Shares,
property or any combination
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thereof) in respect of the equity interests of the Company or any
Subsidiary, or any direct or indirect repurchase, redemption or other
acquisition by the Company or any Subsidiary of any of its equity
interests, or any other payment by the Company or any Subsidiary to or
for the account of shareholders;
(b) Except for increases, changes, payments or contracts in
the ordinary course of business and consistent with past practices, any
increase in the rate or terms of compensation payable or to become
payable by the Company to its shareholders, officers or key employees;
any change in the rate or terms of any bonus, insurance, pension or
other employee benefit plan, payment or arrangement made to, for or
with any employees of the Company or any Subsidiary; any special bonus
or remuneration paid; any written employment contract executed or
amended except for employment contracts entered into in the ordinary
course of business with school staff, none of which provide for
compensation in excess of Eighty Thousand Dollars ($80,000) annually;
or any change in personnel policies of the Company or any Subsidiary;
(c) Any entry into any agreement, commitment or transaction
(including, without limitation, any borrowing, capital expenditure or
capital financing, any purchase, acquisition, sale or other disposition
of assets, any lease or sublease, any guaranty, assumption or
endorsement of payment or performance of any loan or obligation of
another, or any amendment, modification or termination of any existing
agreement, commitment or transaction) by the Company or any Subsidiary,
except agreements, commitments or transactions in the ordinary course
of business or as contemplated in this Agreement;
(d) Any material change by the Company or any Subsidiary in
accounting methods, principles or practices;
(e) Except as disclosed in the Financial Statements or an any
Schedule hereto, any issuance or sale of any equity interest in the
Company or any Subsidiary or any issuance or granting of any option,
warrant or right to purchase any equity interest in the Company or any
Subsidiary or any commitment to do any of the foregoing other than
pursuant to this Agreement;
(f) Any amendment to the charter documents of the Company or
any Subsidiary;
(g) Other than the Company's acquisition of the remaining
interests of JCR, any conduct of business which is outside the ordinary
course of business or not substantially in the manner that the Company
or any Subsidiary previously conducted its business;
(h) Any incurrence of any liability other than pursuant to
this Agreement, except in the ordinary course of business and
liabilities not exceeding $50,000 individually or $200,000 in the
aggregate;
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(i) Any encumbrance or consent to encumbrance of any property
or assets except in the ordinary course of business;
(j) Any pending or, to the knowledge of the Company,
threatened labor disputes, organizational activities or disturbances
affecting in a material adverse manner the business, results of
operations, financial condition, properties, assets or prospects of the
Company or any Subsidiary;
(k) Any written or oral notice (such oral notice delivered
directly or indirectly to an officer of the Company or any subsidiary)
from a charter school managed by the Company or any Subsidiary that
such charter school intends to, is desirous of, or is actively
considering terminating its relationship with or reducing the services
provided by the Company or the Subsidiary for any reason;
(l) Any default or, to the knowledge of the Company,
threatened default under any material contract or agreement to which
the Company or any Subsidiary is a party, including without limitation
any contract or agreement of the Company or any Subsidiary with a
charter school managed by the Company or any Subsidiary; or
(m) Any change in the assets, liabilities, licenses, permits
or franchises of the Company or any Subsidiary, or in any agreement to
which the Company or any Subsidiary is a party or is bound, which,
either individually or in the aggregate, has had or reasonably could be
expected to have a Material Adverse Effect.
SECTION 7.23 CERTAIN PAYMENTS. Neither the Company, nor any
shareholder, director or officer has, directly or indirectly, on behalf of or
with respect to the business or operations of the Company or any Subsidiary (i)
made or received any payment that was not legal to make or receive under any
applicable law or regulation of the United States or any other country or
territory; or (ii) engaged in any transaction, maintained any bank account, or
used any company funds or assets except for transactions, bank accounts, funds,
and assets which have been and are reflected in the normally maintained books
and records of the Company or the Subsidiaries.
SECTION 7.24 ENVIRONMENTAL CONDITIONS.
7.24.1 COMPLIANCE. The business and assets of the Company and
each Subsidiary, including without limitation the Real Property, are in material
compliance with all Environmental Laws and all Permits required under any
Environmental Law are listed separately in SCHEDULE 7.16.
7.24.2 HAZARDOUS SUBSTANCES. To the knowledge of the Company,
no Hazardous Substance has been disposed of, spilled, leaked or otherwise
released on, in, under or from the Real Property or has otherwise come to be
located in the soil or water (including surface and ground water) on or under
the Real Property. To the knowledge of the Company, none of the assets of the
Company or any Subsidiary or the improvements on the Real Property have
incorporated into them any asbestos, urea formaldehyde foam insulation,
polychlorinated biphenyls (including in any electrical transformer or capacitor
located on the Real Property), or any other Hazardous Substance which is
prohibited or restricted when present in buildings,
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structures, fixtures or equipment. No Hazardous Substance is or has been
generated, manufactured, treated, stored, transported, used or otherwise handled
on the Real Property or in connection with the business of the Company or any
Subsidiary except in compliance with Environmental Laws. To the knowledge of the
Company, there are no underground storage tanks on the Real Property (whether or
not regulated and whether or not out of service, closed or decommissioned).
7.24.3 DEFINITIONS. As used in this Agreement, (a)
"Environmental Law" means any federal, state or local statute, ordinance or
regulation pertaining to the protection of human health or the environment and
any applicable orders, judgments, decrees, permits, licenses or other
authorizations or mandates under such statutes, ordinances or regulations. and
(b) "Hazardous Substance" means any hazardous, toxic, radioactive or infectious
substance, material or waste as defined, listed or regulated under any
Environmental Law, and includes without limitation petroleum oil and its
fractions.
SECTION 7.25 CONSENTS AND APPROVALS. Except as disclosed in Schedule
7.25, no consent, approval, or authorization of, or filing or registration with,
any court, regulatory authority, governmental body, or any other entity or
person not a party to this Agreement is required for the consummation of the
transactions described in this Agreement by the Company.
SECTION 7.26 RECORDS. Except as set forth on Schedule 7.26, the books
of account, minutes of meeting and shareholder records of the Company and each
Subsidiary are complete and accurate in all material respects, and there has
been no material transaction involving the business or equity ownership of the
Company or any Subsidiary, or action of the Company's or any Subsidiary's board
of directors or shareholders, which properly should have been set forth therein
and which has not been accurately so set forth. Complete and accurate copies of
such books and records have been made available to the Investor.
SECTION 7.27 RECEIVABLES. The accounts receivable appearing on the
Current Balance Sheet and all accounts receivable created since the date
thereof, to the best of the Company's knowledge, represent valid obligations
owing to the Company, and the Company reasonably believes them to be fully
collectible, subject to the reserve for doubtful accounts appearing on the
Current Balance Sheet.
SECTION 7.28 ACCOUNTING CONTROLS. The Company and each of its
Subsidiaries maintain a system of internal accounting controls it believes to be
sufficient to provide reasonable assurances that (i) transactions are executed
in accordance with management's general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with GAAP and to maintain accountability for assets,
(iii) access to assets is permitted only in accordance with management's general
or specific authorization, and (iv) the recorded accountability for assets is
compared with existing assets at reasonable intervals and appropriate action is
taken with respect to any differences.
SECTION 7.29 NOT AN INVESTMENT COMPANY. The Company is not an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended.
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SECTION 7.30 NOT A HOLDING COMPANY. The Company is not a holding
company, or a subsidiary or affiliate of a holding company, within the meaning
of the Public Utility Holding Company Act of 1935, as amended.
SECTION 7.31 RELIANCE. Except as to matters concerning which the
Investor has actual knowledge to the contrary, the Company recognizes and agrees
that, notwithstanding any investigation by the Investor, the Investor is relying
upon the representations and warranties made by the Company in this Agreement.
SECTION 7.32 ACCURACY OF REPRESENTATIONS AND WARRANTIES. None of the
representations or warranties of the Company contained in this Agreement or any
certificate or schedule delivered pursuant to this Agreement by or on behalf of
the Company contain or will contain any untrue statement of any fact or omit or
misstate a fact necessary to make such information, taken as a whole, not
misleading.
SECTION 7.33 NO MATERIAL ADVERSE CHANGE. Except as set forth in the
schedules hereto, the officers of the Company do not know of any fact that has
resulted in any Material Adverse Change since November 30, 1999.
SECTION 7.34 NO DEFAULTS. There exists no Event of Default and no event
or condition which, with the giving of notice or lapse of time or both, could
become an Event of Default (any such event or condition, an "Unmatured Event of
Default").
ARTICLE 8
COVENANTS OF TEE COMPANY
SECTION 8.1 AFFIRMATIVE COVENANTS. Until termination of this Agreement
in accordance with SECTION 13, the Company will:
A. Performance of Obligations. Punctually pay and perform each
of the obligations in accordance with the terms of the Term Loans.
B. Financial Statements and Reports. Furnish Investor:
(i) not later than one hundred (120) days after the end of
each fiscal year of the Company, consolidated financial
statements prepared by the Company in accordance with GAAP and
audited by independent certified public accountants as of and
for the fiscal year then ended, certified by such independent
certified public accountants in a manner reasonably acceptable
to Investor and including a balance sheet, a statement of
operations, a statement of cash flows and a statement of
shareholders' equity;
(ii) not later than forty-five (45) days after the
end of each fiscal quarter of the Company (other than the
fiscal quarter which is the Company's
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fiscal year end), consolidated financial statements prepared
by the Company in accordance with GAAP as of and for the
quarter then ended, to include a balance sheet, a statement of
operations and a statement of cash flows;
(iii) promptly (in any event within five (5) business
days after such report is prepared), a copy of any monthly
financial reports prepared for management;
(iv) at the time of delivery of the financial statements
referred to in SECTIONS 8.1(B)(I), and (II) hereof, a letter
addressed to Investor signed by the Chief Executive Officer,
Chief Financial Officer or the Chief Accounting Officer of the
Company, certifying that no condition, act or event has
occurred and is continuing which constitutes an Event of
Default under this Agreement;
(v) at such times and from time to time as the Investor
may request of the Company, such other reports and information
concerning the Company's and its Subsidiaries' operations as
the Investor may reasonably request;
(vi) promptly upon receipt, copies of all management
letters, internal control evaluations and reports and other
material letters, memoranda or reports submitted by the
Company's independent certified public accountants or
consultants with respect to any matter concerning the audits,
financial statement presentation or other accounting matters.
C. Accounting Records. Maintain adequate books and accounts
and permit any representative of Investor, during normal business hours and upon
reasonable advance notice, to inspect, audit, copy and examine such books and
accounts and inspect the properties of the Company and its Subsidiaries and to
interview the Company's independent accountants regarding operating results and
financial condition.
D. Board and Shareholder Meetings. Provide the Investor, as a
shareholder or through its designated director, prompt notice of, and admittance
of such designated director to, all meetings of the board of directors and
shareholders of the Company.
E. Maintenance of Property. Keep all of the Company's and its
Subsidiaries' properties useful or necessary to the Company's and its
Subsidiaries' business in good repair and condition, reasonable wear and tear
excepted, and from time to time make necessary repairs, renewals and
replacements thereto so that such property shall be fully and efficiently
preserved and maintained, except to the extent it would not cause a Material
Adverse Change.
F. Maintenance of Business. Preserve and maintain the
Company's and each of its Subsidiaries' existence and all of its licenses,
permits, trade names, trade styles, governmental approvals, rights, privileges
and franchises reasonably necessary to conduct its business; conduct its
business in an orderly and regular manner; comply with the provisions of all
documents pursuant to which the Company and each of its Subsidiaries is
organized and/or which govern the Company's and its Subsidiaries' continued
existence; and comply with the requirements of all applicable laws, rules,
regulations and orders of any governmental authority
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and requirements reasonably necessary for the maintenance of the Company's and
its Subsidiaries' insurance, licenses, permits, trade names, trade styles,
governmental approvals, rights, privileges and franchises reasonably necessary
for the continued business of the Company and its Subsidiaries as currently
constituted, except to the extent that any of the foregoing would not cause a
Material Adverse Change.
G. Litigation. Promptly give notice in writing to Investor of
(i) any litigation pending or instituted against the Company or any of its
Subsidiaries potentially involving Fifty Thousand Dollars ($50,000) or more,
(ii) any litigation overtly threatened against the Company potentially involving
Fifty Thousand Dollars ($50,000) or more, or (iii) any litigation pending,
instituted or overtly threatened involving a claim for injunctive relief. Not
later than one hundred twenty (120) days after the end of each fiscal year of
the Company, deliver to the Investor a report of all litigation pending or
overtly threatened against the Company or any of its Subsidiaries, or to which
the Company or any of its Subsidiaries is otherwise a party, in such detail as
the Investor may reasonably request.
H. Taxes and Other Liabilities. Pay and discharge prior to
delinquency any and all debt, obligations, assessments and taxes, real and
personal, including federal and state income taxes, except such as the Company
may in good faith contest by appropriate proceedings promptly instituted and
diligently conducted and if such reserve or other appropriate provisions, if
any, as are proper in accordance with GAAP shall have been made therefor and
maintained.
I. Notice to the Investor. Promptly, but in no event more than
five (5) days after becoming aware of the occurrence of each such event or
matter give notice in writing to the Investor of (i) the occurrence of any Event
of Default, (ii) any change in name, identity or structure of the Company or its
Subsidiaries or (iii) any loss through fire, theft, liability, property damage
or other casualty in excess of an aggregate of Fifty Thousand Dollars ($50,000).
J. Insurance.
(i) Obtain, maintain and keep in force insurance of
the types and in amounts customarily carried in lines of
business similar to the Company including fire, hazard
insurance, extended coverage, public liability, general
liability (including an endorsement for alleged sexual or
other abuse), property damage, extra expense and business
interruption and worker's compensation, carried with
companies, as required by law and in amounts satisfactory to
the Investor in its reasonable discretion and obtain, maintain
and keep in force such other insurance as the Investor may
reasonably request from time to time. Without limiting the
generality of the foregoing, the Company agrees to use its
best efforts to obtain as soon as is practical and in any
event prior to the initial Term Loan an aggregate of not less
than $5 million of coverage for claims of child abuse or
molestation, including retroactive coverage for such claims,
on terms reasonably satisfactory to Investor.
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(ii) On or prior to the date of the initial Term Loan
and at the time of issuance or renewal of any insurance policy
of the Company after the initial Term Loan. deliver to the
Investor certificates of such insurance, each of which such
certificates shall name the Investor as a lender's loss payee
or additional insured, as appropriate, in a form satisfactory
to the Investor and shall prohibit cancellation or
modification except upon thirty (30) days' prior written
notice to the Investor.
K. Subordination. Promptly (in not less than one business day)
notify the Investor of the creation of any debt or other obligations in favor of
any of the Company's officers, directors and shareholders, and promptly (in not
less than one business day) cause all such debt and obligations to be
subordinated (excluding any indebtedness or obligation to Xxxxxxx X. Xxxxxxxxx
or any affiliate thereof in an aggregate amount not to exceed Five Million
Dollars ($5,000,000) arising out of or related to any guaranty or other
assurance of performance provided for the benefit of the Company or for the
benefit of any person or entity for whose indebtedness the Company has provided
a guaranty or assurance of performance), pursuant to subordination agreements in
form and substance reasonably satisfactory to the Investor, to the Term Loans.
L. Shareholders Agreements. Cause each new shareholder of the
Company to enter into one of the shareholders agreements described in SECTION
10.7 of this Agreement.
SECTION 8.2 COVENANTS OF INVESTOR. For a period of five years following
the execution of this Agreement, Investor will, upon reasonable request of the
Company, from time to time, use commercially reasonable efforts (subject in each
case to any duties of confidentiality or similar third-party considerations) to
do the following: (a) make available appropriate management personnel to provide
advice to the Company regarding various issues with which Investor has
expertise, including, but not limited to, general operating methods, assessment
of real estate opportunities, procurement methods, and consultation regarding
management information systems for the Company, (b) in each case to the extent
that, in Investor's reasonable judgment, they are relevant to the Company's
business, furnish to the Company materials such as written operating procedures.
manuals, handbooks, and other written protocols for emulation by the Company,
(c) suggest to the Company the names of vendors with which Investor is familiar
who may be helpful to the Company, and make appropriate introductions to such
vendors, and (d) cooperate with the Company to assess the feasibility of
potential cooperative purchasing arrangements. The Company will reimburse
Investor for any reasonable out-of-pocket costs associated with providing such
requested services or information. To the extent Investor agrees, in Investor's
sole discretion, to provide any services to the Company's clients or to the
Company (including but not limited to services in connection with the
implementation of procurement or human resources or other information systems),
the Company will compensate Investor for such services at a fair market rate, as
mutually determined by the Investor and the Company, taking into account the
Investor's cost of providing the service. The Company acknowledges and agrees
that (a) Investor is not in the business of providing consultation services, (b)
the method of providing any services pursuant to this Section 8.2 shall be
subject to the mutual agreement of the parties hereto, (c) except as otherwise
specifically agreed in writing, any services, advice, recommendations,
information and materials provided pursuant to this Section 8.2 are or shall be
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provided by Investor without any representations or warranties, express or
implied. (d) the Company will use information provided by the Investor at the
Company's own risk and (e) the Investor will have no liability to the Company or
any third party for any claims, costs or expenses arising out of the use of
Investor's services, advice, recommendations, information and materials.
SECTION 8.3 NEGATIVE COVENANTS. Until termination of this Agreement in
accordance with Section 13, the Company will not, without the prior written
consent of the Investor (which shall not be unreasonably withheld):
A. Use of Proceeds. Use the proceeds of the Term Loans and
Purchased Shares for purposes other than to refinance the acquisition of the
remaining interests of JCR and to finance working capital needs of the Company.
B. Merger, Consolidation, Sale of Assets. Make any substantial
change in the nature of the Company's business; merge with or into or
consolidate with any entity or sell, lease, assign, transfer, pledge, encumber
or otherwise dispose of all or substantially all of the Company's property;
provided, that the Company may merge into or with or consolidate with or
transfer all or substantially all of its assets to another entity (the surviving
entity of any such merger, consolidation or transfer referred to as the
"Surviving Entity") if (x) the Surviving Entity is the Company or, if Surviving
Entity is not the Company, it is a corporation formed under the laws of a state
in the United States and the Surviving Entity assumes, in writing (in form and
substance acceptable to Investor and its counsel) all the obligations of the
Company hereunder and under any agreement referred to herein, (y) on the
effective date of such merger, consolidation, or transfer, and immediately after
giving effect thereto, no Event of Default and no Unmatured Event of Default
shall have occurred or be continuing, and (z) on the effective date of such
merger, consolidation, or transfer, and immediately after giving effect thereto,
the financial condition and creditworthiness of the Surviving Entity shall be
better than or at least equal to the financial condition and creditworthiness of
the Company immediately prior to such merger, consolidation, or transfer.
C. Equity Transactions. Distribute, sell, issue or convey any
security of the Company or its Subsidiaries except in compliance with all
applicable state and federal securities laws.
D. Affiliate Transactions. Except as otherwise permitted by
this Agreement, enter into, or be a party to, any transaction with any of the
Company's affiliates, except in the ordinary course of business pursuant to the
reasonable requirements of the Company's business and upon fair and reasonable
terms which are no less favorable to the Company than the Company could obtain
in a comparable arm's length transaction with a person who is not an affiliate;
provided, however, that the foregoing restriction shall not apply to
transactions between the Company and any of its directly or indirectly
wholly-owned subsidiaries.
E. Increase Options. Increase the equity securities reserved
for issuance under any option plan such that the aggregate options available for
issuance plus the aggregate of the options currently outstanding pursuant to any
such plans apply to more than 715,600 Shares
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(which includes 65,600 Shares subject to options granted under the Company's
1995 plan, 336,560 Shares subject to options granted under the Company's 1996
plan, 5,440 Shares subject to options granted under the Company's 2000 plan and
308,000 Shares reserved, authorized and available for issuance under the
Company's 2000 plan); provided, that if any option issued pursuant to this
covenant shall fully lapse unexercised, the number of Shares subject to such
option may be reserved for issuance under another option. This SECTION 8.3(E)
shall terminate upon the earlier to occur of (i) a "Qualified Public Offering"
(as such term is defined in the Shareholders Agreement) or (ii) such time as the
Investor owns less than ten (10%) percent of the outstanding capital stock of
the Company that votes for the election of directors.
F. Repurchases of Common Stock. Repurchase Common Stock or
otherwise increase the amount of treasury stock of the Company without the prior
written consent of the Investor if such repurchase or increase in treasury stock
would increase Investor's percentage ownership of voting capital stock of the
Company to twenty percent (20%) or more.
ARTICLE 9
DEFAULT AND REMEDIES
SECTION 9.1 EVENTS OF DEFAULT. The occurrence of any of the following
acts, events or conditions shall, without any notice, grace or right to cure
except as expressly provided in this Agreement, constitute an event of default
("Event of Default") hereunder:
A. The Company shall fail to pay (i) without demand any
principal due for any Term Loan owing to the Investor (whether under this
Agreement or the Note) which failure continues for ten (10) days from when due,
(ii) within ten (10) days from the date the Company receives notice of a failure
to pay when due, any interest due for any Term Loan owing to the Investor
(whether under this Agreement or the Note), or (iii) within ten (10) days
following the Company's receipt of notice of a failure to pay when due, any
other amounts owing to the Investor (whether under this Agreement or the Note)
not referred to in clauses (i) or (ii).
B. The Company shall fail to perform or observe any covenant
set forth in SECTION 8.1 or 8.3 hereof, which failure is not cured within 30
days of the Company's receipt of notice of such failure.
C. Any representation or warranty hereunder or under any of
the other Term Loan documents shall have been untrue or misleading in any
material respect when made.
D. The Company or any Subsidiary shall fail to pay any amount
of principal on any debt (but excluding debt evidenced by the Note) or fail to
pay amounts due pursuant to any guarantee of debt of the Company or any
Subsidiary, in each case in an aggregate amount of more than Fifty Thousand
Dollars ($50,000), or any interest or premium thereon, when due (whether by
scheduled maturity, required prepayment, acceleration, demand or otherwise) and
such failure shall continue after the applicable grace period, if any, specified
in the agreement or instrument relating to such debt; or any default under any
agreement or
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instrument relating to any such debt, or any other event, shall occur and shall
continue after the applicable grace period, if any, specified in such agreement
or instrument, if the effect of such default or event is to accelerate, or to
permit the acceleration of, the maturity of such debt; or any such debt shall be
declared to be due and payable, or required to be prepaid (other than by a
regularly scheduled required prepayment), prior to the stated maturity thereof.
E. The entry of an order for relief under Title 11 of the
United States Code as to the Company or any Subsidiary or the determination of
such Company or Subsidiary as insolvent or bankrupt pursuant to the provisions
of any state insolvency or bankruptcy laws; the commencement by the Company or
any Subsidiary of any case, proceeding or other action seeking any
reorganization, arrangement, composition, adjustment, liquidation, dissolution
or similar relief for itself under any present or future statute, law or
regulation relating to bankruptcy, insolvency, reorganization or other relief
for debtors; the Company's or any Subsidiary's consent to, acquiescence in or
attempt to secure the appointment of any receiver of all or any part of its
properties and such receivership or trusteeship shall continue undischarged for
a period of sixty (60) days or more; the Company or any Subsidiary shall
generally not pay its debts as they become due or shall admit in writing its
inability to pay its debts or shall make a general assignment for the benefit of
creditors; or the Company or any Subsidiary (including the shareholders of the
Company or any Subsidiary) shall take any action to authorize any of the acts
set forth above in this paragraph.
F. Any case, proceeding or other action against the Company or
any Subsidiary shall be commenced seeking to have an order for relief entered
against it as a debtor or seeking any reorganization, arrangement, composition.
adjustment, liquidation, dissolution or similar relief under any present or
future statute, law or regulation relating to bankruptcy, insolvency,
reorganization or other relief for debtors, or seeking appointment of any
receiver for the Company or any Subsidiary or for all or any substantial part of
its property, and such case, proceeding or other action is not dismissed or
stayed within sixty (60) days after it is filed.
G. The Note, at any time after its execution and delivery and
for any reason, shall cease to be in full force and effect as executed and
delivered in its entirety or be declared null and void, or the validity or
enforceability thereof shall be contested by the Company or any member of the
Company, or the Company shall deny any liability or obligation ascribed to it
under any of the Term Loan documents.
H. A judgment, order or decree has been entered or otherwise
made effective against the Company or any Subsidiary in an amount equal to or
greater than One Hundred Thousand Dollars ($100,000) and either (i) such
judgment, order or decree is not vacated or stayed pending appeal within thirty
(30) days after the date of entry or the effective date thereof, or (ii) if so
stayed, the stay is lifted or the appeal is unsuccessful, or (iii) such judgment
is not paid, settled or otherwise discharged or satisfied within thirty (30)
days.
SECTION 9.2 ACCELERATION. Upon the occurrence and during the
continuance of any Event of Default, the Investor may terminate its Commitment
and accelerate the Term Loans by written notice to the Company (which notice may
be simultaneous with such termination and
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acceleration), in which event the principal and interest on the Term Loans shall
be immediately due and payable, without further notice, on demand; provided
however that, in the case of an Event of Default under 9.1(E) or 9.1(F), such
termination and acceleration shall be automatic and no written notice by the
Investor to the Company shall be required.
ARTICLE 10
CONDITIONS TO CLOSING BY THE INVESTOR;
CONDITIONS TO FUTURE ADVANCES
The obligation of the Investor to consummate the transactions
contemplated by this Agreement and to make a Term Loan and to purchase the
Purchased Shares on the Closing Date, or to make a Term Loan after the Closing
Date, as the case may be, is subject to the satisfaction of each of the
following conditions precedent prior to or on such date:
SECTION 10.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF
COVENANTS. The representations and warranties contained in SECTION 7 hereof
shall be true and correct in all material respects on and as of the Closing Date
with the same force and effect as if made on and as of such date and the Company
shall have performed and complied in all material respects with the covenants
and agreements contained in this Agreement required to be performed or complied
with on or before the Closing Date.
SECTION 10.2 OFFICER'S CERTIFICATE. The Investor shall have received a
certificate of the principal executive officer of the Company as to the matters
set forth in SECTION 10.1 of this Agreement, dated the Closing Date.
SECTION 10.3 EXECUTION OF NOTE. The Investor shall have received prior
to the making of any Term Loan the Note to be issued in connection therewith,
duly executed and delivered on behalf of the Company.
SECTION 10.4 SECRETARY'S CERTIFICATE. The Investor shall have received
true and complete copies, certified by an officer of the Company, of the
Company's Certificate of Incorporation, bylaws and resolutions of the board of
directors of the Company authorizing the Company's execution and delivery of
this Agreement and consummation of the transactions contemplated hereby.
SECTION 10.5 CONSENTS AND APPROVALS. All consents and approvals,
including approval by Investor's Board of Directors, necessary for the
consummation of the transaction contemplated by this Agreement shall have been
obtained and copies thereof shall have been delivered to the Investor.
SECTION 10.6 OPINION OF COUNSEL. The Company shall have delivered to
the Investor the written opinion of Bass, Xxxxx & Xxxx PLC, counsel to the
Company, which opinion shall be in form and substance reasonably satisfactory to
the Investor, dated as of the Closing Date.
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SECTION 10.7 SHAREHOLDERS AGREEMENTS. The Company, the Investor and the
Shareholders (as defined in the Shareholders Agreement) shall have entered into
a Shareholders agreement in the form attached as Exhibit B (the "Shareholders
Agreement"). The Company and its other shareholders shall have entered into a
shareholders agreement in form and substance reasonably satisfactory to
Investor.
SECTION 10.8 NO MATERIAL ADVERSE CHANGE. As of the Closing Date or the
date of the subsequent Term Loan, as the case may be, there shall not have been
any Material Adverse Change since November 30, 1999 except as set forth in the
schedules hereto.
SECTION 10.9 SUBSEQUENT LOANS. Any Term Loan made after the Closing
Date shall be subject to the requirement that (i) the Bring-Down Representations
are true and correct in all material respects on and as of the date of such
subsequent Term Loan and (ii) the condition contained in SECTION 10.8 shall be
deemed repeated as of the date of each advance of a Term Loan. The initial Term
Loan shall be subject to the receipt of (i) evidence of the insurance required
pursuant to SECTION 8.1(3) and (ii) an opinion from a Massachusetts counsel to
the Company, in a form reasonably acceptable to Investor, that either (a) the
courts of Massachusetts would enforce the choice of law provision in SECTION
15.2 of this Agreement, or (b) the rights and obligations pursuant to this
Agreement are enforceable under Massachusetts law.
ARTICLE 11
CONDITIONS TO CLOSING BY THE COMPANY
The obligations of the Company to consummate the transactions
contemplated by this Agreement and the obligation of the Company to issue and
sell the Purchased Shares on the Closing Date is subject to the satisfaction of
each of the following conditions precedent prior to or on such date:
SECTION 11.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF
COVENANTS. The representations and warranties contained in SECTION 6 hereof
shall be true and correct in all material respects on and as of the Closing Date
with the same force and effect as if made on and as of such date and the
Investor shall have performed and complied in all material respects with the
covenants and agreements contained in this Agreement required to be performed or
complied with on or before the Closing Date.
SECTION 11.2 OFFICER'S CERTIFICATE. The Company shall have received a
certificate of the principal executive officer of the Investor as to the matters
set forth in SECTION 11.1 of this Agreement, dated the Closing Date.
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ARTICLE 12
INDEMNIFICATION
SECTION 12.1 SURVIVAL. Unless a different survival period is
specifically provided for with respect to any representation, warranty or
covenant in this Agreement, all representations, warranties, covenants and
agreements made by the Company in this Agreement or in any exhibit, schedule,
certificate or agreement delivered in accordance with this Agreement
(collectively, the "Related Documents") shall survive the execution and delivery
of this Agreement and the consummation of the transactions contemplated hereby
until termination of this Agreement as contemplated in SECTION 13.
SECTION 12.2 INDEMNIFICATION BY THE COMPANY. From and after the
Closing, the Company shall indemnify, reimburse, hold harmless and, to the
extent provided in SECTION 12.3.1, defend the Investor, its subsidiaries,
shareholders, affiliates, officers, directors, employees, agents, successors and
assigns (collectively, the "Indemnified Persons") from and against, and
reimburse each of the Indemnified Persons with respect to, any and all losses,
damages, liabilities, costs, and expenses, including interest from the date of
such loss to the time of payment, penalties and reasonable attorneys' fees
(collectively, "Damages") incurred by any of the Indemnified Persons by reason
of or arising out of or in connection with: (a) any breach or inaccuracy of any
representation or warranty of the Company made in this Agreement or any Related
Document or (b) any failure by the Company to perform any covenant required to
be performed by them pursuant to this Agreement or any Related Document. This
indemnification extends to any Damages suffered by any of the Indemnified
Persons, whether or not a claim is made against any of the Indemnified Persons
by any third party.
SECTION 12.3 INDEMNIFICATION PROCEDURE.
12.3.1 THIRD PARTY CLAIMS.
(a) Each Indemnified Person will, with reasonable
promptness after obtaining knowledge thereof, provide the
Company (the "Indemnifying Party") with written notice of all
third party actions, suits, proceedings, claims, demands or
assessments that may be subject to the indemnification
provisions of this SECTION 12 (collectively, "Third Party
Claims"), including, in reasonable detail, the basis for the
claim, the nature of Damages and a good faith estimate of the
amount of Damages.
(b) The Indemnifying Party shall have fifteen (15)
days after its receipt of the claim notice to notify the
Indemnified Person in writing whether the Indemnifying Party
agrees that the claim is subject to this SECTION 12 and, if
so, whether the Indemnifying Party elects to undertake,
conduct and control, through counsel of their choosing
(subject to the consent of the Indemnified Person, such
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consent not to be withheld unreasonably), and at their sole
risk and expense, the good faith settlement or defense of the
Third Party Claim.
(c) If within fifteen (15) days after its receipt of
the claim notice the Indemnifying Party notifies the
Indemnified Person that it elects to undertake the good faith
settlement or defense of the Third Party Claim, the
Indemnified Person shall reasonably cooperate with the
Indemnifying Party in connection therewith including, without
limitation, by making available to the Indemnifying Party all
relevant information material to the defense of the Third
Party Claim. The Indemnified Person shall be entitled to
participate in the settlement or defense of the Third Party
Claim through counsel chosen by the Indemnified Person, at its
expense, and to approve any proposed settlement that would
impose any obligation or duty on the Indemnified Person, which
approval may, in the sole discretion of the Indemnified
Person, be withheld. So long as the Indemnifying Party is
contesting the Third Party Claim in good faith and with
reasonable diligence, the Indemnified Person shall not pay or
settle the Third Party Claim. Notwithstanding the foregoing,
the Indemnified Person shall have the right to pay or settle
any Third Party Claim at any time, provided that in such event
it waives any right to indemnification therefor by the
Indemnifying Party.
(d) If the Indemnifying Party does not provide notice
that it elects to undertake the good faith settlement or
defense of the Third Party Claim, or if the Indemnifying Party
fails to contest the Third Party Claim or undertake or approve
settlement, in good faith and with reasonable diligence, the
Indemnified Person shall thereafter have the right to contest,
settle or compromise the Third Party Claim at its exclusive
discretion, at the risk and expense of the Indemnifying Party
and the Indemnifying Party will thereby waive any claim,
defense or argument that the Indemnified Person's defense or
settlement of such Third Party Claim is in any respect
inadequate or unreasonable.
(e) A party's failure to give timely notice will not
constitute a defense (in part or in whole) to any claim for
indemnification by such party, except if. and only to the
extent that, such failure results in any material prejudice to
the Indemnifying Party.
12.3.2 NON-THIRD PARTY CLAIMS.
(a) Each Indemnified Person will, with reasonable
promptness, deliver to the Indemnifying Party written notice
of all claims for indemnification under this SECTION 12, other
than Third Party Claims, including, in reasonable detail, the
basis for the claim, the nature of Damages and a good faith
estimate of the amount of Damages.
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(b) The Indemnifying Party shall have thirty (30)
days after its receipt of the claim notice to notify the
Indemnified Person in writing whether the Indemnifying Party
accepts liability for all or any part of the Damages described
in the claim notice. If the Indemnifying Party does not so
notify the Indemnified Person, the Indemnifying Party shall be
deemed to accept liability for all the Damages described in
the claim notice.
(c) A party's failure to give timely notice will not
constitute a defense (in part or in whole) to any claim for
indemnification by such party, except if, and only to the
extent that, such failure results in any material prejudice to
the Indemnifying Party.
SECTION 12.4 RIGHTS NOT EXCLUSIVE. The Indemnified Person's rights to
indemnification under this SECTION 12 are in addition to, and not in lieu of,
any other rights to which the Indemnified Person may be entitled at law or in
equity.
ARTICLE 13
TERMINATION
Except as otherwise expressly provided in this Agreement, this
Agreement, including all of the representations, warranties, indemnities and
other obligations described herein, shall terminate on the later of (i) a
Qualified Public Offering, or (ii) the conversion of all of the aggregate unpaid
principal amount of the Term Loans and any Advanced Commitment pursuant to
SECTION 3.1; provided, however, that any such termination shall not terminate or
otherwise affect any claim which had already accrued as of the termination date.
Notwithstanding the foregoing, SECTION 14.1, 15.7 and SECTION 15.11 shall
survive any termination hereof.
ARTICLE 14
NONSOLICITATION
SECTION 14.1 NONSOLICITATION OF EMPLOYEES. Until termination of this
Agreement in accordance with ARTICLE 13 and for a period of one year thereafter,
each of the Investor (including its subsidiaries and such other entities defined
as the KinderCare Companies in SECTION 14.2 below) and the Company agrees,
covenants and promises not to directly or indirectly, act as follows:
(a) discourage or in any way influence any employee
of the other party from remaining in their current position;
or
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(b) solicit employees of the other party to work for
any person other than the employee's current employer.
For purposes of this Section, the term "solicit" shall mean to directly
urge, petition, request, ask, entice, encourage, implore or in any way directly
contact, individually or as a group, the current employees of either Investor or
the Company, as the case may be.
SECTION 14.2 NONSOLICITATION OF MANAGEMENT CONTRACTS. Investor, its
subsidiaries and any company that Investor controls (the "KinderCare
Companies"), agree not to solicit, directly or indirectly, and agree to use
commercially reasonable efforts to cause its employees, officers and directors
not to solicit, directly or indirectly, the Company's client charter schools or
client school districts to cancel their charter school management contract with
the Company or transfer their charter school management business to another
charter management company. For purposes of this SECTION 14.2, Investor shall be
deemed to "control" an entity if Investor, directly or indirectly, owns greater
than 50% of the voting securities of such entity.
SECTION 14.3 BREACH OF COVENANT. Investor and the Company acknowledge
that a breach of SECTION 14.1 or 14.2 of this Agreement will result in
irreparable injury to either Investor or Company, as the case may be, and that
the remedies at law for such a breach will be inadequate and extremely difficult
to calculate or determine. Accordingly, Investor and the Company agree and
consent that upon such a breach or threatened breach by either Investor or the
Company of SECTION 14.1 or 14.2, Investor or the Company, as the case may be, in
addition to all other remedies available at law and in equity, shall be entitled
to a temporary restraining order, preliminary and interlocutory injunctions, and
permanent injunctions to prevent or halt such a breach or threatened breach.
ARTICLE 15
MISCELLANEOUS
SECTION 15.1 NO IMPLIED WAIVER, CUMULATIVE REMEDIES. No failure on the
part of the Company or an Investor to exercise, and no delay in exercising, any
right, power, or privilege under this Agreement shall operate as a waiver
thereof, nor shall any single or partial exercise of any right, power, or
privilege under this Agreement preclude any other or further exercise thereof or
the exercise of any other such right, power, or privilege. The remedies provided
herein are cumulative and not exclusive of any remedies provided by law.
SECTION 15.2 GOVERNING LAW. This Agreement and the Note shall be
governed by and construed in accordance with the law (without regard to the
choice of law rules) of Oregon.
SECTION 15.3 NOTICES. Except as otherwise specified herein, all
notices, requests, demands, and other communications to or upon the parties
hereto shall be in writing or by tested or otherwise authenticated telecopier,
telex, telegram, or cable and shall be deemed to have been
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duly given or made two business days after deposit in the mails, certified and
postage prepaid, or transmitted by telecopier or telex or delivered to the
telegraph office, addressed to the party to which such notice, request, demand,
or other communication is requested or permitted to be given or made hereunder
at the addresses set forth below (or to any telecopier or telex number published
as belonging to such party at such address) or at such other address of which
such party shall have notified in writing the other parties hereto.
If to Investor: KinderCare Learning Centers, Inc.
c/o Xxx X. Xxxxxxxxx
Vice President and General Counsel
000 XX Xxxxxxxx, Xxxxx 0000
Xxxxxxxx, Xxxxxx 00000
Facsimile No. (000) 000-0000
With a copy to: Stoel Rives LLP
000 XX Xxxxx Xxxxxx, Xxxxx 0000
Xxxxxxxx, Xxxxxx 00000
Attn: Xxxx X. Xxxxxx, Esq.
Facsimile No. (000) 000-0000
If to the Company: Beacon Education Management LLC
000 Xxxxxxxx Xxxx, Xxxxx 000
Xxxxxxxxxxx, Xxxxxxxxxxxxx 00000
Attn: Xxxxxxx X. XxXxxxxx, Xx.
Facsimile No. (000) 000-0000
With a copy to: Bass, Xxxxx & Xxxx PLC
0000 Xxxxx Xxxxxxxx Xxxxxx
Xxxxxxxxx, Xxxxxxxxx 00000-0000
Attn: Xxxxxx X. Xxxxx III
Facsimile No. (000) 000-0000
SECTION 15.4 COUNTERPARTS. This Agreement may be executed in one or
more counterparts, which taken together shall constitute one and the same
instrument, and any party hereto may execute this Agreement by signing any such
counterpart.
SECTION 15.5 ASSIGNMENT. This Agreement shall be binding upon and inure
to the benefit of the parties hereto, and their respective successors, heirs and
permitted assigns. but neither this Agreement nor any of the rights, interests
or obligations hereunder shall be assigned by any party hereto without the prior
written consent of the other party (other than to an affiliate of Investor, in
which event the term "Investor" herein shall be deemed where appropriate to
refer to such affiliate), nor is this Agreement intended to confer upon any
other person except the parties hereto any rights or remedies hereunder.
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SECTION 15.6 AMENDMENTS. This Agreement may not be amended or modified,
nor may any of its provisions be waived, except by an instrument in writing
signed by the Company and the Investor.
SECTION 15.7 CONFIDENTIALITY. The Investor and the KinderCare Companies
will maintain the confidentiality of nonpublic information regarding the Company
and/or its affiliates received by the Investor from the Company, subject to (i)
the obligation to disclose such information pursuant to applicable laws and
regulations and subpoenas and other applicable legal process, (ii) the right to
disclose such information to the Investor's auditors, counsel, and other
professional advisors (provided that any such auditors, counsel, and advisors
are requested to maintain the confidentiality of such information to the extent
set forth in this SECTION 15.7), (iii) the right to disclose such information in
connection with litigation involving the Company or an affiliate of the Company,
or (iv) the right to disclose such information in connection with any transfers
by the Investor permitted under this Agreement or the Shareholders Agreement.
The Company will maintain the confidentiality of nonpublic information regarding
the Investor received by the Company pursuant to this Agreement, subject to (i)
the obligation to disclose such information pursuant to applicable laws and
regulations and subpoenas and other applicable legal process, and (ii) the right
to disclose such information to the Company's auditors, counsel, and other
professional advisors (provided that any such auditors, counsel, and advisors
are requested to maintain the confidentiality of such information to the extent
set forth in this SECTION 15.7).
SECTION 15.8 TITLES AND SUBTITLES. The titles and subtitles in this
Agreement are for convenience only and in no way define, limit or describe the
scope or intent of any provision of this Agreement.
SECTION 15.9 SEVERABILITY. If any provision of this Agreement shall be
held invalid or unenforceable by any court of competent jurisdiction, such
holding shall not invalidate or render unenforceable any other provision hereof.
SECTION 15.10 LEGAL EXPENSES. The Company and the Investors shall each
be responsible for their own legal expenses incurred in connection with
negotiating and reviewing this Agreement and consummating the transactions
contemplated hereby.
SECTION 15.11 ATTORNEYS' FEES. If suit or action is filed by any party
to enforce the provisions of this Agreement or otherwise with respect to the
subject matter of this Agreement. the prevailing party shall be entitled to
recover reasonable attorneys' fees as fixed by the trial court and, if any
appeal is taken from the decision of the trial court, reasonable attorneys' fees
as fixed by the appellate court. For purposes of this Agreement, the term
"prevailing party" shall be deemed to include a party that successfully opposes
a petition for review filed with an appellate court.
SECTION 15.12 ENTIRE AGREEMENT. This Agreement, the Note and the
Shareholders Agreement constitute the entire agreement between the parties with
respect to the subject matter hereof and shall supersede any prior written or
oral agreements, statements or understandings of
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the parties with respect to the subject matter of this Agreement. Any waiver or
consent, if made, shall be effective only in the specific instance and for the
specific purpose given.
SECTION 15.13 BINDING EFFECT. This Agreement shall be binding and
deemed effective when executed by the parties hereto.
SECTION 15.14 FURTHER ASSURANCES. At any time on or after the Closing
Date, each party hereto shall upon reasonable request of the other party perform
such acts, execute and deliver such instruments, assignments, endorsements and
other documents and do all such other things consistent with the terms of this
Agreement as may be reasonably necessary to accomplish the transaction
contemplated in this Agreement or otherwise carry out the purpose of this
Agreement.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
THE COMPANY: BEACON EDUCATION MANAGEMENT, INC.
By /s/ X.X. XxXxxxxx, Xx.
---------------------------------------
Its Chairman
---------------------------------------
THE INVESTOR: KINDERCARE LEARNING CENTERS, INC.
By /s/ Xxxxx Xxxxxxx
--------------------------------------
Its: Chief Executive Officer
--------------------------------------
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AMENDMENT TO LOAN AGREEMENT
The Equity Purchase and Loan Agreement ("Loan Agreement") dated
February 17, 2000 between Beacon Education Management, Inc. and KinderCare
Learning Centers, Inc., is hereby amended effective September 28, 2000 as
follows:
1. SECTION 2.1 PRINCIPAL AMOUNT AND MATURITY. The first paragraph
of Section 2.1 shall be "A." and a new paragraph "B." shall be added as follows:
"B. Upon the terms and subject to the conditions of and in
reliance on the Bring-Down Representations and conditions contained in
SECTION 10.9 of this Agreement, the Investor agrees to make a loan (the
"Temporary Loan") to the Company; provided, that the aggregate
principal amount of such loan outstanding hereunder shall not exceed
$3,000,000 (the "Temporary Loan Commitment"). The Temporary Loan shall
be disbursed in increments of $100,000 as the Company may request from
time to time with the aggregate amount of such disbursements not to
exceed $2,300,000. The remaining balance of the Temporary Loan
Commitment may be borrowed by the Company upon Investor's consent, to
be given in its sole discretion. The Temporary Loan Commitment is a
fixed loan, and subject to the terms and conditions hereof, the Company
must repay the Temporary Loan on or before March 31, 2001 (the
"Repayment Date"). If the Temporary Loan is not paid in full on the
Repayment Date, Investor shall have the continuing right to convert any
unpaid principal amount of the Temporary Loan or a portion thereof and,
subject to SECTION 2.2, any accrued and unpaid interest on such
Temporary Loan in accordance with ARTICLE 3. The Temporary Loan shall
be evidenced by a master promissory note in substantially the form of
EXHIBIT C, attached hereto (the "Temporary Loan Note"). The aggregate
principal amount of the Temporary Loan Note (to the extent disbursed)
and accrued but unpaid interest shall be due and payable on March 31,
2001."
For purposes of the Loan Agreement, unless otherwise provided, any
terms applicable to the "Note," as defined in. the Loan Agreement, shall be
applicable to the Temporary Loan Note.
2. SECTION 2.2 INTEREST/PAYMENT OF ACCRUED INTEREST. The first
paragraph of Section 2.2 shall be "A." and a new paragraph "B." shall be added
as follows:
"B. Principal outstanding under the Temporary Loan Note shall
bear interest from the date of the Temporary Loan Note until paid in
full at a rate equal to (i) the higher of (A) 8% per annum or (B) 25
basis points in excess of the weighted average rate per annum
(calculated on a monthly basis) applicable to the revolving credit
loans under the Credit Agreement dated as of February 13, 1997 among
Investor, The Chase Manhattan Bank, as Administrative Agent and the
other lenders party thereto, or (ii) if lower than the rate determined
in accordance with (i), the maximum percentage permitted by law,
payable in full when the principal becomes due and payable. Within ten
(10) business days after receipt of notice of the Investor's election
to convert all or a portion, subject to Section 3.1(A), of the
principal amount of any Temporary Loan, and subject to the terms of
Section 3.2(A) hereof, the Company will have the option to pay to the
Investor any
49
unpaid interest accrued to the date of conversion of the Temporary Loan
on the principal amount so converted."
3. SECTION 2.4 PREPAYMENTS. Section 2.4 shall be amended in its
entirety as follows:
"The Term Loans and/or the Temporary Loan may be prepaid by
the Company upon notice to the Investor. The principal amount of the
Term Loans prepaid may be reborrowed by the Company pursuant to Section
2.1(A) hereof. No such prepayment of the Term Loans shall affect the
right of Investor to advance and convert such amounts pursuant to
SECTION 3.1."
4. SECTION 3.1 CONVERSION. Paragraph "B." shall become Paragraph
"C." and be amended as follows, and a new Paragraph "B." shall be added as
follows:
"B. The Investor shall have the right, subject to the terms
and provisions of this ARTICLE 3, at the option of the Investor, at any
time after March 31, 2001, to convert the aggregate unpaid principal
amount of the Temporary Loan or a portion thereof, and, subject to
SECTION 2.2(B), any accrued and unpaid interest on such Temporary Loan
into fully paid Shares or any other securities into which such Shares
shall have been changed or any other securities resulting from a
reclassification; provided, however, that notwithstanding the
foregoing, in no event will Investor be entitled to convert less than
$100,000 of the outstanding Temporary Loan. The Temporary Loan shall
continue to be convertible so long as any unpaid principal amount of
the Temporary Loan or a portion thereof, and, subject to SECTION 2.2,
any accrued and unpaid interest on such Temporary Loan remains
outstanding.
C. For convenience, the conversion pursuant to this ARTICLE 3
of all or a portion of the unpaid principal amount of the Temporary
Loan and Term Loans (and, subject to SECTION 2.2, of accrued and unpaid
interest if elected by the Investor) and Commitment into Shares is
herein sometimes referred to as the "Conversion of Loans"."
5. SECTION 3.2 MECHANICS OF CONVERSION. The phrase in Section
3.2(A) "(i) aggregate amount of unpaid principal of the Term Loans, interest, if
any," shall be amended to read "(1) aggregate amount of unpaid principal of the
Temporary Loan, Term Loans, interest, if any,".
6. SECTION 3.3 CURRENT CONVERSION PRICE. The term "Conversion
Price" as it applies to the Temporary Loan Note shall mean initially $3.00 per
Share, subject to adjustment as set forth in SECTION 3.4 thereof.
7. SECTION 4.1. SUBORDINATION. The first sentence of Section 4.1
shall be amended in its entirety as follows: "The Temporary Loan and the Term
Loans shall be subordinate to the prior payment in full in cash of the principal
of, premium (if any), and interest on all Senior Indebtedness."
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8. Terms. For purposes of the Loan Agreement, except as otherwise
provided herein, the terms applicable to "Term Loans" shall also apply to the
Temporary Loan.
9. Conditions to Loan. Investor's obligation to provide the
Temporary Loan or any subsequent Temporary Loan pursuant to the Temporary Loan
Commitment is subject to the requirement that (i) the Bring- Down
Representations are true and correct in all material respects on and as of the
date of such Temporary Loan and (ii) the condition contained in Section 10.8
shall be deemed repeated as of the date of each Temporary Loan.
10. Except as expressly modified in this Amendment, the terms and
conditions of the Agreement shall remain in full force and effect.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties have executed this Amendment on the
date first written above.
KINDERCARE LEARNING BEACON EDUCATION
CENTERS, INC. MANAGEMENT, INC.
By: /s/ Xxxxx X. Xxxxxxx By: /s/ Xxxxxxx Xxxxx
----------------------------- ------------------------------
Its: CEO Its: COO
----------------------------- ------------------------------
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SECOND AMENDMENT TO LOAN AGREEMENT
This SECOND AMENDMENT TO LOAN AGREEMENT (this "Agreement") is made as
of March 31, 2001, by and between Beacon Education Management, Inc. (the
"Company") and KinderCare Learning Centers, Inc. ("Investor"). Capitalized terms
used but not otherwise defined herein shall have the meanings ascribed thereto
in the Loan Agreement (as defined below).
RECITALS:
WHEREAS, the Company and the Investor entered into an Equity Purchase
and Loan Agreement ("Loan Agreement") on February 17, 2000 and entered into an
amendment to the Loan Agreement on September 28, 2000 (the "Amendment");
WHEREAS, pursuant to the Amendment, the Investor loaned the Company
$2,300,000 (the "Temporary Loan"), as evidenced by a promissory note dated
September 28, 2000 (the "Promissory Note");
WHEREAS, the Company and the Investor desire to amend the terms of the
Temporary Loan and the Promissory Note;
WHEREAS, the Company desires to issue Investor certain warrants to
purchase the Company's common stock as a partial inducement for the Investor to
enter into this Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained in this Agreement, the parties hereby amend the Loan
Agreement, as amended by the Amendment, as follows:
1. SECTION 2.1 PRINCIPAL AMOUNT AND MATURITY. The title to Section 2.1
shall be changed to "SECTION 2.1 PRINCIPAL AMOUNT AND MATURITY; WARRANTS",
Paragraph B of Section 2.1 shall be amended in its entirety and a new paragraph
"C" shall be added, as follows:
"B. The Company and the Investor agree to enter into the Amended and
Restated Promissory Note in the principal amount of $2,300,000 in substantially
the form of Exhibit C, attached hereto (the "Temporary Loan Note"). The
aggregate principal amount of the Temporary Loan Note and accrued and unpaid
interest shall be due and payable on November 15, 2001 (the "Repayment Date").
At any time after June 30, 2001, Investor shall have the continuing right to
convert any unpaid principal amount of the Temporary Loan Note or a portion
thereof and, subject to Section 2.2, any accrued and unpaid interest on such
Temporary Loan Note in accordance with Article 3. The Temporary Loan Note shall
be secured, as set forth in the Pledge and Security Agreement, in substantially
the form of Exhibit D hereto (the "Pledge Agreement").
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C. Upon execution of the Temporary Loan Note by the Investor, the
Company agrees to issue the Investor a warrant, in substantially the form of
Exhibit E, attached hereto, to purchase 50,000 shares of Common Stock. If any
principal or accrued and unpaid interest is outstanding on the Temporary Loan
Note as of the close of business on June 30, 2001, September 30, 2001 or
November 15, 2001, the Company agrees to issue the Investor a warrant, in
substantially the form of Exhibit D, attached hereto, on each such date to
purchase 25,000 shares of Common Stock. Each of the warrants issued pursuant to
this Section 2.1 (the "Warrants") shall be exercisable at any time and from time
to time from the date of issuance until the close of business on November 15,
2004. Notwithstanding the foregoing, prior to a Liquidity Event the Warrants
will only be exercisable to the extent that the total number of shares of Common
Stock then held by the Investor and the total number of shares of Common Stock
that may be purchased upon exercise of the Warrants constitute not more than
18.99% of the Company's outstanding Common Stock."
For purposes of the Loan Agreement, unless otherwise provided, any
terms applicable to the "Note," as defined in the Loan Agreement, shall be
applicable to the Temporary Loan Note.
2. SECTION 2.2 INTEREST/PAYMENT OF ACCRUED INTEREST. Paragraph B of
Section 2.2 shall be amended in its entirety as follows:
"B. Principal outstanding under the Temporary Loan Note shall bear
interest from the date of the Temporary Loan Note until paid in full at a rate
equal to (i) (a) 11% per annum from April 1, 2001 through June 30, 2001, (b) 13%
per annum from July 1, 2001 through September 30, 2001 and (c) 15% per annum
thereafter, or (ii) if lower than the rate determined in accordance with (i),
the maximum percentage permitted by law, payable in full when the principal
becomes due and payable. Within ten (10) business days after receipt of notice
of the Investor's election to convert all or a portion, subject to Section
3.1(A), of the principal amount of the Temporary Loan Note, and subject to the
terms of Section 3.2(A) hereof, the Company will have the option to pay to the
Investor any unpaid interest accrued to the date of conversion of the Temporary
Loan Note on the principal amount so converted."
3. SECTION 2.4 PREPAYMENTS. Section 2.4 shall be amended in its
entirety as follows:
"A. The Term Loans and/or the Temporary Loan Note may be prepaid by the
Company upon notice to the Investor; provided, however, that any prepayment
shall first be applied to the Temporary Loan Note until the Temporary Loan Note
is paid in full. The principal amount of the Term Loans prepaid may be
reborrowed by the Company pursuant to Section 2.1(A) hereof. No such prepayment
of the Term Loans shall affect the right of Investor to advance and convert such
amounts pursuant to Section 3.1.
B. Within three (3) business days of the closing of the Company's
initial public offering of its Common Stock, the Company will be required to
prepay the
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54
principal and accrued and unpaid interest then due under the Temporary Loan
Note. Within three (3) business days of the closing of any private placement of
the Company's equity securities in which the Company has received an aggregate
of $5,000,000 or more of proceeds from such private placement and from all prior
private placements of the Company's equity securities occurring after March 31,
2001, the Company will be required to prepay the principal and accrued and
unpaid interest then due under the Temporary Loan Note to the extent that the
aggregate proceeds from such private placements exceed $5,000,000. Within three
(3) business days following any refinancing of the Notes (as defined in the
Pledge Agreement), the Company will be required to prepay, to the extent of the
refinancing (except to the extent such refinancing requires cash collateral),
principal and accrued and unpaid interest then due under the Temporary Loan
Note."
4. SECTION 3.1 CONVERSION. Paragraphs B and C of Section 3.1 shall be
amended in their entirety as follows:
"B. The Investor shall have the right, subject to the terms and
provisions of this Article 3, at the option of the Investor, at any time after
the close of business on June 30, 2001, to convert the aggregate unpaid
principal amount of the Temporary Loan Note or a portion thereof, and, subject
to Section 2.2(B), any accrued and unpaid interest on such Temporary Loan Note
into fully paid Shares or any other securities into which such Shares shall have
been changed or any other securities resulting from a reclassification;
provided, however, that notwithstanding the foregoing, in no event will Investor
be entitled to convert less than $100,000 of the outstanding Temporary Loan
Note. The Temporary Loan Note shall continue to be convertible so long as any
unpaid principal amount of the Temporary Loan Note or a portion thereof, and,
subject to Section 2.2, any accrued and unpaid interest on such Temporary Loan
Note remains outstanding.
C. For convenience, the conversion pursuant to this Article 3 of all or
a portion of the unpaid principal amount of the Temporary Loan Note and Term
Loans (and, subject to Section 2.2, of accrued and unpaid interest if elected by
the Investor) and Commitment into Shares is herein sometimes referred to as the
"Conversion of Loans"."
5. SECTION 3.2 MECHANICS OF CONVERSION. The phrase in Section 3.2(A)
"(i) aggregate amount of unpaid principal of the Temporary Loan, Term Loans,
interest, if any," shall be amended to read "(i) aggregate amount of unpaid
principal of the Temporary Loan Note, Term Loans, interest, if any,".
6. SECTION 3.3 CURRENT CONVERSION PRICE. The term "Conversion Price" as
it applies to the Temporary Loan Note shall mean initially $5.80 per Share,
subject to adjustment as set forth in Section 3.4 thereof.
7. SECTION 4.1 SUBORDINATION. The first sentence of Section 4.1 shall
be amended in its entirety as follows: "The Temporary Loan Note and the Term
Loans shall be subordinate to the prior payment in full in cash of the principal
of, premium (if any), and interest on all Senior Indebtedness."
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55
8. SECTION 8.3 NEGATIVE COVENANTS. New paragraphs "G." and "H." shall
be added as follows:
"G. Make any payments of principal or interest on or make any
modifications to that certain Amended and Restated Subordinated Promissory Note,
dated March 31, 2001, payable to Xxxxxxx X. XxXxxxxx, Xx. in the principal
amount of $200,000, if any principal or accrued and unpaid interest remains
outstanding under the Temporary Loan Note.
H. Make any payments or broker's or finder's fees or any other
commission or similar fee to X.X. Xxxxxxxxx & Co, LLC in connection with its
role as agent for the private placement of the Company's equity securities,
other than (i) in shares of Common Stock valued at $5.80 per share or (ii)
following the initial public offering of the Company's Common Stock."
9. SECTION 9.1 EVENTS OF DEFAULT. Investor hereby waives (i) the
defaults which arose under the Old Kent Line of Credit which was paid off in
full prior to December 31, 2000 and (ii) the defaults which arose under the Loan
Agreement (pursuant to the cross default provisions therein) as expressly stated
in the attached letter from NCB Capital Corporation to the Company.
10. TERMS. For purposes of the Loan Agreement, except as otherwise
provided herein, the terms applicable to "Term Loans" shall also apply to the
Temporary Loan Note.
11. Except as expressly modified in this Amendment, the terms and
conditions of the Loan Agreement, as amended by the Amendment, shall remain in
full force and effect.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties have executed this Agreement on the
date first written above.
KINDERCARE LEARNING BEACON EDUCATION
CENTERS, INC. MANAGEMENT, INC
By: /s/Xxxxx X. Xxxxxxx By: /s/ Xxxxxxx X. Xxxxx
------------------------- ------------------------------
Its: Chairman and CEO Its: CEO and President
------------------------- ------------------------------
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