EXHIBIT 4.11
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NOBEL EDUCATION DYNAMICS, INC.
INVESTMENT AGREEMENT
$10,000,000 SENIOR SUBORDINATED NOTE
DATED AS OF
JUNE 30, 1998
FUNDS PROVIDED BY
ALLIED CAPITAL CORPORATION
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INVESTMENT AGREEMENT
THIS INVESTMENT AGREEMENT (this "Agreement") is made as of the 30th
day of June, 1998 by and among: (i) Bad News Bears, Inc.Nobel Education
Dynamics, Inc., a Delaware a California limited liability company corporation
("Nobel"); (ii) Imagine Educational Products, Inc., a Delaware corporation,
Merryhill Schools, Inc., a California corporation, Merryhill Schools Nevada,
Inc., a Nevada corporation, NEDI, Inc., a California corporation and Lake Forest
Park Montessori School, Inc., a Washington corporation (collectively, the
entities listed in this clause (ii) shall be referred to as the "Subsidiaries")
(Nobel and the Subsidiaries, on a consolidated basis, being collectively
referred to as the "Company"); and (iii) ALLIED CAPITAL CORPORATION and its
successors and assigns ("Lender").
RECITALS:
A. Lender wishes to invest the aggregate sum of Ten Million Dollars
($10,000,000) in the Company in exchange for a Senior Subordinated Note and
certain warrants to purchase shares of Common Stock of the Company.
B. The parties desire to set forth herein their understandings and
agreements pertaining to this transaction.
NOW, THEREFORE, in consideration of the foregoing Recitals and the
mutual covenants contained herein, and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, Lender and the
Company hereby agree as follows:
ARTICLE I: DEFINITIONS
1.01 Definitions. In addition to the terms defined elsewhere herein,
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when used herein, the following capitalized terms shall have the meanings
indicated:
"Act of Bankruptcy," when used in reference to any Person, shall mean
the occurrence of any of the following with respect to such Person: (i) such
Person shall have made an assignment for the benefit of his or its creditors;
(ii) such Person shall have admitted in writing his or its inability to pay his
or its debts as they become due; (iii) such Person shall have filed a voluntary
petition in bankruptcy; (iv) such Person shall have been adjudicated a bankrupt
or insolvent; (v) such Person shall have filed any petition or answer seeking
for himself or itself any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under any present or
future Applicable Law pertinent to such circumstances; (vi) such Person shall
have filed or shall file any answer admitting or not contesting the material
allegations of a bankruptcy, insolvency or similar petition filed against such
Person; (vii) such Person shall have sought or consented to, or acquiesced in,
the appointment of any trustee, receiver, or liquidator of such Person or of all
or any substantial part (20% or more) of the properties of such Person; (viii)
60 days shall have elapsed after the commencement of an action
against such Person seeking reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under any present or
future Applicable Law without such action having been dismissed or without all
orders or proceedings thereunder affecting the operations or the business of
such Person having been stayed, or if a stay of any such order or proceedings
shall thereafter be set aside and the action setting it aside shall not be
timely appealed; or (ix) 60 days shall have expired after the appointment,
without the consent or acquiescence of such Person of any trustee, receiver or
liquidator of such Person or of all or any substantial part of the assets and
properties of such Person without such appointment having been vacated.
"Act of Dissolution," when used in reference to any Person (other than
an individual) shall mean the occurrence of any action initiating, or any event
that results in, the dissolution, liquidation, winding-up or termination of such
Person.
"Affiliate," when used in reference to any Person, shall mean any
Person that controls, is controlled by, or is under common control of, the
Person in question. For purposes of this definition, "control" shall mean the
holding of 20% or more of the equity interest of the Person in question or the
direct or indirect ability to manage the business and affairs of the Person in
question.
"Applicable Law(s)," when used in the singular, shall mean any
applicable federal, state or local law, ordinance, order, regulation, rule or
requirement of any governmental or quasi-governmental agency, instrumentality,
board, commission, bureau or other authority having jurisdiction, and, when used
in the plural, shall mean all such applicable federal, state and local laws,
ordinances, orders, regulations, rules and requirements.
"Bank" shall mean Summit Bank.
"Bank Loan Agreement" shall mean the Loan and Security Agreement dated
as of August 30, 1995, as amended, between Nobel and the Bank in the principal
amount of not more than $35,000,000 for the revolving line of credit and in
principal amount of not more than $35,000,000 for the term loan, together with
interest, fees and expenses not in excess of the limits contained in the
subordination agreement related thereto, and any modifications, renewals,
extensions and refinancings of any such indebtedness.
"Current Portion of Long Term Debt" shall mean the portion of the
Company's long term debt that must be discharged within a one year period,
determined in accordance with generally accepted accounting principles
consistently applied.
"Debt for Borrowed Money" shall mean total liabilities for borrowed
money including the current and long-term portion of all senior debt,
subordinated debt, seller notes arising from the Company's purchase of property
or business assets, capital leases and other funded debts of the Company
determined in accordance with generally accepted accounting principles
consistently applied.
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"Debt Service Coverage Ratio" shall mean EBITDA divided by Total Debt
Service.
"EBITDA" shall mean the Company's consolidated earnings before
interest expense, tax expense on federal, state and local income taxes,
depreciation expense and amortization expense, calculated in accordance with
generally accepted accounting principles, consistently applied.
"Exercise Price" shall mean the price of the Company's common stock
equal to the trailing 30 day average of the high and low price in the Company's
common stock on the date of Closing.
"Existing Secured Debt" shall mean the secured indebtedness of the
Company outstanding on the Closing Date in an aggregate principal amount of
$21,504,735, as set forth on Exhibit 1.01A, which exhibit shall describe the
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lender, the borrower, the principal amount, the repayment terms and the
collateral relating to each debt.
"Loan Documents" shall mean, collectively, this Agreement, the Note
and all other instruments and documents executed and delivered in connection
with the Loan.
"Loan Party(ies)" when used in the singular, shall mean the Company
and any other party (other than the Lender) to any of the Loan Documents, and
when used in the plural, shall mean the Company and all other parties to any of
the Loan Documents (other than the Lender).
"Net Income" shall mean the excess of revenues and gains of the
Company for a period over all expenses and losses for the period of the Company,
determined in accordance with generally accepted accounting principles
consistently applied.
"Net Worth" shall mean the excess of all tangible and intangible
assets of the Company for a period over all liabilities of the Company for the
period, determined in accordance with generally accepted accounting principles
consistently applied.
"Non Cash Expense" shall mean the Company's expenses for a period that
do not require the expenditure of cash in such period, determined in accordance
with generally accepted accounting principles consistently applied.
"Obligations" shall mean, collectively, all of the Company's
indebtedness, liabilities and obligations arising under this Agreement and each
of the other Loan Documents and any renewals, modifications, and extensions
thereof, including, but not limited to, the principal, interest, late charges
and other sums due and owing under the Note and any other obligations of the
Company to the Lender, including such other or additional financing that the
Lender may extend to the Company at any time in the Lender's sole discretion.
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"Permitted Encumbrances" shall mean any lien, mortgage, security
interest or other encumbrance that results from any of the following: (i) liens
for taxes and assessments not delinquent or actively being contested in good
faith by the Company; (ii) deposits or pledges for goods or services made in the
ordinary course of the Company's business; (iii) title of a bona fide lessor of
tangible personal property to the Company; (iv) customary liens in favor of
mechanics and materialmen which arise by operation of law and not by Company's
agreement incurred in the ordinary course of Company's business; (v) liens,
mortgages or security interests securing purchase money obligations, including
Permitted Seller Debt, as defined below; (vi) liens, mortgages or security
interests securing the Permitted Senior Debt, as defined below; (vii) liens,
mortgages or security interests securing the Existing Secured Debt, as defined
above; (viii) encumbrances created or arising pursuant to operating leases
entered into in connection with real property constructed to the Company's
specifications; and (ix) those liens and encumbrances described on Exhibit 1B
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attached hereto.
"Permitted Seller Debt" shall mean all indebtedness of the Company to
the seller of property to the Company which indebtedness is: (i) evidenced by
that certain subordinated promissory note made by Nobel to Corydon Day Care
Center, Inc., in the principal amount of $1,125,000 dated August 25, 1995; or
(ii) evidenced by those certain subordinated promissory notes made by Nobel to
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇ and ▇▇▇▇ ▇▇▇▇▇▇▇▇ in the aggregate principal
amount of $750,000 each dated January 7, 1977.
"Permitted Senior Debt" shall mean all indebtedness (as initially
incurred or as refinanced) of the Company to a bank or other financial
institution (whether funded or available pursuant to a written commitment, loan
agreement, or other obligation) which as of the Closing Date is (i) secured by
liens on all or a part of the property of the Company, (ii) a full recourse
obligation of the Company, (iii) senior in right of repayment and lien priority
to the Obligations hereunder and under the Note, pursuant to a subordination
agreement executed by Lender, and (iv) in aggregate principal amount as
specified in the Subordination Agreement, which principal amount may be
increased following the Closing Date subject to the conditions set forth in
Section 6.10(a).
"Person" shall mean any individual, corporation, partnership, joint
venture, limited liability company, unincorporated association, trust, or other
legal entity.
"Total Debt Service" shall mean the aggregate amount of installment
payments of principal and interest paid or payable on Debt for Borrowed Money
during the relevant period.
"Transfer of Company's Business" shall mean one or more transactions
undertaken by the Company resulting in either: (i) the Transfer (as defined
below) of all or substantially all of the assets of the Company to any other
Person (as defined above), other than a Wholly-Owned Affiliate of the Company
existing as of the date hereof; (ii) a merger or consolidation of the Company
with another Person where the Company is not the surviving or successor entity
(other than a merger or consolidation of the Company into or with a Wholly-Owned
Affiliate of the Company existing as of the date hereof) which results in a
Person or
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group of Persons acting in concert (other than any stockholders of the Company
that own as of the date hereof in excess of 30% of the issued and outstanding
Common Stock of the Company) owning stock in the surviving entity having more
than 50% of the voting power in the election of directors; or (iii) 3the
Transfer by any of the stockholders of the Company of any of his, its or their
ownership interest in the Company, or the issuance or sale by the Company of any
capital stock or securities convertible into or exchanged for capital stock,
which results in a Person or group of Persons acting in concert (other than any
stockholders of the Company that own as of the date hereof in excess of 30% of
the issued and outstanding Common Stock of the Company) owning in excess of 50%
of the outstanding capital stock of the Company.
"Transfer" shall mean the sale, assignment, lease, transfer,
mortgaging, encumbering or other disposition, whether voluntary or involuntary,
and whether or not consideration is received therefor.
"Wholly-Owned Affiliate," when used in reference to a particular
Person, shall mean an Affiliate of that Person, where the Person in question
holds 100% of the legal and beneficial interests in the Affiliate.
ARTICLE II: LOAN TERMS
2.01 Funding. At the closing under this Agreement (the "Closing"),
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Nobel and the Subsidiaries, jointly and severally, will borrow, and the Lender
will lend, in immediately available funds, the aggregate sum of Two Million Six
Hundred Fifty-Five Thousand and 00/100 DollarsTWO MILLION SIX HUNDRED FIFTY-FIVE
THOUSAND AND 00/100 DOLLARS ($10,000,000) (the "Loan"), such indebtedness to be
evidenced by, and to be repaid according to the terms of, a Senior Subordinated
Note (the "Note") in the form attached hereto as Exhibit 2.01. The entire
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principal sum will be advanced at Closing.
2.02 Permitted Senior Debt; Permitted Seller Debt and Existing
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Secured Debt. The indebtedness under the Note and the Lender's rights herein
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and therein shall be subordinate as to right of payment only to Permitted Senior
Debt. In connection therewith, the Bank and the Lender have entered into a
Subordination Agreement in the form of Exhibit 2.02 (the "Subordination
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Agreement").
2.03 Prepayment. The Note may be prepaid at any time, in whole or in
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part, without premium or penalty.
2.04 Due On Sale or Change in Control. The Company's obligations
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under the Note and this Agreement are not assumable, and to the extent provided
in the Note, the Note and all of the other Obligations are payable in full in
connection with a Transfer of Company's Business.
2.05 Closing. Closing must occur on or before the close of business
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on the date hereof, unless extended in writing by Lender, in Lender's sole
discretion.
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2.06 Conditions Precedent to Lender's Obligations. The obligation of
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Lender to make the Loan is subject to the satisfaction of the following
conditions precedent at or prior to Closing (unless waived in writing by Lender
prior to Closing):
(a) Each of the representations and warranties contained in this
Agreement must be true and accurate in all material respects as of the date of
Closing, and the Company and all other Loan Parties (if any) must have performed
all of their respective obligations hereunder, including execution and delivery
of all of the documents, instruments, opinions and certificates required by this
Agreement in such forms as are satisfactory to Lender and its counsel; and
(b) Lender shall have completed a due diligence report that
reflects favorably on the Company and its management. In this regard, the
Company covenants and agrees to furnish to Lender such information as Lender may
request in order to enable Lender to complete the required due diligence.
2.07 Funding; Remittance to Nobel as Agent. The Loan will be fully
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funded at Closing. All funding of the Loan shall be made by disbursement to
Nobel, as agent for all of the Subsidiaries, and each of the Subsidiaries
expressly consents to such funding arrangement and appoints Nobel as its
attorney-in-fact to receive the proceeds of the Loan on its behalf.
2.08 Representations and Warranties of Lender. Lender represents and
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warrants to the Company that:
(a) it was not organized for the specific purpose of purchasing
the Note and Warrants purchased by it hereunder;
(b) the address of its principal place of business is ▇▇▇▇ ▇
▇▇., ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇.▇. ▇▇▇▇▇;
(c) the Note and Warrants to be purchased by it, and any shares
of Common Stock (the "Warrant Shares") acquired upon exercise of such Warrants
(collectively, the "Securities") are being or will be, as the case may be,
acquired by Lender for its own account, not as a nominee or agent, and not with
a view to resale or distribution within the meaning of the Securities Act of
1933, as amended (the "Securities Act"), and the rules and regulations
thereunder, and Lender will not distribute the Note, Warrants or Warrant Shares
in violation of the Securities Act;
(d) it understands that (i) the Securities have not been
registered under the Securities Act by reason of their issuance in a transaction
exempt from the registration requirements of the Securities Act; (ii) the
Securities must be held indefinitely unless a subsequent disposition thereof is
registered under the Securities Act or is exempt from such registration; and
(iii) the Securities will bear a legend as follows:
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, NOR UNDER
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STATE SECURITIES LAWS. THESE SECURITIES HAVE BEEN ACQUIRED FOR
INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED
IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT
OR SUCH STATE SECURITIES LAWS COVERING SUCH SECURITIES, OR AN OPINION
OF COUNSEL TO THE COMPANY STATING WITHOUT RESERVATION THAT SUCH
REGISTRATION IS NOT REQUIRED.
(e) it is an "accredited investor" as such term is defined in
Rule 501 promulgated under the Securities Act, and an "institutional investor"
within the meaning of the Pennsylvania Securities Act of 1972 and the
regulations promulgated thereunder;
(f) its financial situation is such that it can afford to bear
the economic risk of holding the Securities for an indefinite period of time;
(g) its knowledge and experience in financial and business
matters are such that it is capable of evaluating the merits and risks of its
purchase of the Securities as contemplated by this Agreement; and
(h) the purchase of the Securities by it has been duly and
properly authorized and this Agreement has been duly executed by it or on its
behalf.
ARTICLE III: EQUITY
3.01 Sale of Warrants. At Closing, Nobel will issue and sell to
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Lender certain Stock Purchase Warrants (the "Warrants") to acquire shares of
Nobel's Common Stock, par value $.001 (the "Common Stock"), the form of which is
set forth as Exhibit 3.01(b), which will entitle Lender to purchase 531,255
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shares of Nobel's authorized but unissued Common Stock at the Exercise Price at
any time after Closing.
3.02 Registration Rights. At Closing, Nobel and Lender will execute
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the First Amended and Restated Registration Rights Agreement, the form of which
is set forth as Exhibit 3.02.
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3.03 Put Rights.
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(a) Price. At any time after that date which is five years from
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the date of Closing and prior to the Expiration Date (as defined in the Warrant)
if Nobel's Common Stock is not listed on a national stock exchange or included
on The Nasdaq Stock Market, Lender may by written demand require Nobel to
purchase all or a portion of its Warrants and the shares of stock issued
thereunder at the highest of the following prices (the "Put Price") (in each
case deducting the Exercise Price of the Warrant to determine the Put Price),
determined at the time of the exercise of this right:
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(i) five times EBITDA for the year just ended, plus cash but
less total debt, times the Lender's percentage of equity
ownership or potential equity ownership of Nobel's capital
stock, as the case may be, as determined on a fully diluted
basis and expressed as a decimal fraction;
(ii) 15 times the Company's profits after taxes for the year
just ended, times the Lender's percentage of equity
ownership or potential equity ownership of Nobel's capital
stock, as the case may be, as determined on a fully diluted
basis and expressed as a decimal fraction; or
(iii) The Appraised Value, pursuant to Section 3.03(b) below, of
the Lender's equity ownership and potential equity
ownership of Nobel's capital stock, as the case may be,
which appraisal shall be based on determinations of
earnings and book value and other appropriate items.
The rights set forth in this Section 3.03 (a) shall not be
effective following the occurrence of an event contemplated by Section 4 of the
Warrant, unless the property thereupon issuable upon exercise or conversion of
the Warrant includes common stock or other securities convertible into or
exercisable for common stock.
(b) Appraised Value. The "Appraised Value" shall be determined
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by the following method:
(i) Each of the Company and Lender shall select an appraiser
who shall each determine a value;
(ii) If the values determined by such two appraisers are the
same (or the lower value determined by an appraiser is
within one percent of the value determined by the other),
then such value (or the average of such two values) shall
be the Appraised Value;
(iii) If the foregoing two appraisals are not the same and the
lower value determined by an appraiser differs by more than
one percent of the value determined by the other, then the
appraisers shall together select a third appraiser to
determine a value;
(iv) If the determination of the third appraiser is greater than
the largest of the first two appraisals or less than the
smallest of the first two appraisals, then the average of
the first two appraisals shall be the Appraised Value; and
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(v) If the determination of the third appraiser is between the
first two appraisals, then the average of the third
appraisal and the closest of the first two appraisals shall
be the Appraised Value.
Each party shall pay the fees and costs of the appraiser it selects, and the
fees and costs of the third appraiser, if any, shall be paid equally by Company
and Lender.
(c) Remedies. Failure to comply with the terms of the put right
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set forth in this Section 3.03 within 30 days of Lender's demand thereunder
shall entitle Lender to all of the rights and remedies available to Lender under
this Agreement and at law or equity, including, without limitation, the right of
specific performance.
(d) Financing of Put. Upon the exercise of the put rights
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described in this section, the Company shall pay the Put Price in cash, to the
extent the Company (i) has funds legally available, and (ii) has available cash
or short term investments which may be liquidated. To the extent the Company is
unable to pay the Put Price in cash, Lender will provide financing to the
Company to pay the Put Price through subordinated debt without equity at an
interest rate of 12% and on other commercially reasonable terms. The Company
shall not be required to finance the Put Price by issuing additional equity
securities.
(e) Limitation on Exercise of Put. In no event may Lender
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exercise its rights hereunder if doing so would cause the Company to violate the
terms of the Bank Loan Agreement, or any successor document, or any similar
agreement entered into by the Company with a lender of Permitted Senior Debt.
3.04 Personal Gain Upon Sale. In the event of a Transfer of
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Company's Business, then any personal gain relating to such Transfer of
Company's Business and flowing to any officer, director or principal shareholder
of the Company otherwise than through direct payment for their equity ownership
in the Company, or through dividends or return of capital paid in respect
thereof or through severance arrangements entered into prior to commencement of
negotiations with respect to such Transfer, shall be added to the direct
consideration for the sale in calculating the total sale price for purposes of
determining any share thereof which the Lender may be entitled to receive. Such
personal gain shall include without limitation any salaries or consulting fees
in excess of fair market compensation payable in connection with the Company's
operations after such sale or any points or fees paid to induce such sale. In
the event of any disputes arising hereunder, the parties shall obtain a fairness
opinion from an investment banker chosen by the parties. In the event the
parties cannot agree on an investment banker, the Company shall select one
investment banker, Lender shall select one investment banker and the two
investment bankers shall select a third investment banker who shall be retained
to render the fairness opinion. The Company and Lender shall equally share the
expenses related hereto.
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ARTICLE IV: REPRESENTATIONS AND WARRANTIES
To induce Lender to enter into this transaction, the Company
represents and warrants to Lender as follows (which representations and
warranties shall survive the execution and delivery of this Agreement):
4.01 Organization.
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(a) Nobel and each of the Subsidiaries is a corporation formed,
validly existing and in good standing under the laws of the jurisdiction of its
formation. Attached hereto as Exhibit 4.01(a) are true, correct and complete
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copies of the certificate of incorporation, bylaws, all amendments to the
foregoing and all other constituent documents of the Company, and all
amendments and supplements to any of the foregoing (collectively, the "Company
Constituent Documents"). All of the Company Constituent Documents are in full
force and effect as of the date hereof.
(b) The authorized capital stock of Nobel (immediately prior to
the Closing) consists of 20,000,000 shares of Common Stock, $.001 par value per
share of which 6,121,365 shares are issued and outstanding; and 10,000,000
shares of Preferred Stock, $.001 par value per share, of which (i) 2,500,000
shares are classified as Series A Convertible Preferred Stock, 1,028,694.11 of
which shares are issued and outstanding; (ii) 2,500,000 shares are classified as
Series C Convertible Preferred Stock of which 2,500,000 shares are issued and
outstanding; and (iii) 1,063,830 shares are classified as Series D Convertible
Preferred Stock, 1,063,830 of which are issued and outstanding.
All of the issued and outstanding shares of Common Stock and Preferred
Stock have been duly authorized and validly issued and are fully paid and
nonassessable. Except as set forth in Exhibit 4.01(b) hereto or provided in
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this Agreement, (i) no subscription, warrant, option, convertible security or
other right (contingent or otherwise) to purchase or acquire any shares of
capital stock of the Company is authorized or outstanding, (ii) there is no
commitment of the Company to issue any subscription, warrant, option,
convertible security or other such right or to issue or distribute to holders of
any shares of its capital stock any evidences of indebtedness or assets of the
Company, and (iii) the Company has no obligation (contingent or otherwise) to
purchase, redeem or otherwise acquire any shares of its capital stock or any
interest therein or to pay any dividend or make any other distribution in
respect thereof. Except as provided in this Agreement or as disclosed in the
Exhibits hereto, no person or entity is entitled to (x) any preemptive or
similar right with respect to the issuance of any capital stock of the Company,
or (y) any rights with respect to the registration of any capital stock of the
Company under the Securities Act. All of the issued and outstanding shares of
Common Stock and Preferred Stock have been offered, issued and sold by the
Company in compliance with applicable Federal and state securities laws.
4.02 Qualification. The Company is duly qualified to conduct
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business as it is currently being conducted and is in good standing as a foreign
corporation in all jurisdictions in which the nature of its business or location
of its properties require such qualification, except
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where failure to be so qualified or in good standing would not have a materially
adverse effect on the Company's business or financial condition, and except as
set forth on Exhibit 4.02 hereto.
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4.03 Power and Authority. The Company has full corporate power and
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authority to enter into this Agreement and each of the other Loan Documents, to
incur the Obligations as contemplated hereby, and to carry out the provisions of
this Agreement and each of the other Loan Documents. The Company has taken all
corporation action necessary for the execution and delivery of this Agreement
and each of the other Loan Documents and for the performance by Company of each
of its obligations hereunder and thereunder, as evidenced by the resolution(s)
of the Company's Board of Directors or other authorization set forth in Exhibit
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4.03 attached hereto.
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4.04 Enforceability. Upon execution and delivery by each of the
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parties thereto, this Agreement and each of the other Loan Documents shall be
the legal, valid and binding obligations of the Company and each other Loan
Party, to the extent the Company or such other Loan Party(ies) is a party
thereto and shall be enforceable against the Company and such other Loan
Party(ies) in accordance with its respective terms. The Company has caused its
counsel to deliver an opinion of counsel in the form attached hereto as Exhibit
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4.04.
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4.05 Litigation. The Company has not been made a party to or, to the
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best of the Company's knowledge, threatened by any suits, actions, claims,
investigations by governmental bodies or legal, administrative, arbitration or
mediation proceedings, except as set forth in the schedule of litigation
attached hereto as Exhibit 4.05 ("Litigation Schedule"), and except where such
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litigation would not have a materially adverse effect on the Company's business
or financial condition. The Company does not know of any basis or grounds for
any such suit, action, claim, investigation or proceeding.
4.06 Orders; Decrees; Judgments. Except as set forth on Exhibit
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4.06, there are no outstanding orders, judgments, writs, injunctions or decrees
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of any court, government agency or arbitration or mediation panel or tribunal
against or affecting the Company any other Loan Party, or any of the other
properties, assets or business of the Company or any other Loan Party.
4.07 Non-Contravention. Except for matters set out in the Litigation
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Schedule, neither the Company nor any other Loan Party is in breach of, default
under, or in violation of: (a) any Applicable Law, decree, or order which may
materially and adversely affect them; or (b) any deed, lease, loan agreement,
commitment, bond, note, deed of trust, restrictive covenant, license, indenture,
contract, or other agreement, instrument or obligation to which any of them is a
party or by which any of them is bound or to which any of their respective
assets are subject, except where such breach, default or violation would not
have a material and adverse effect on the Company's business or financial
condition. Neither the execution and delivery of this Agreement and the Loan
Documents nor the performance by the Company or any other Loan Party of their
respective obligations hereunder and thereunder will cause any such breach,
default or violation or will require the consent or approval of any court,
governmental or regulatory agency or body, except as expressly contemplated by
the terms of this Agreement.
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4.08 Company's Business. The Company is primarily engaged in the
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business of operating educational institutions and child care facilities.
4.09 Title. The Company has good, complete, indefeasible and
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marketable title to, and ownership of, all of the real or personal property it
purports to own (if any), free and clear of all liens, defects, claims, security
interests and encumbrances other than the Permitted Encumbrances.
4.10 Taxes. The Company has filed all federal, state and local tax
-----
returns which are required to be filed, and the Company has duly paid or fully
reserved for all taxes or installments thereof (including any interest or
penalties) as and when due pursuant to the filed returns or pursuant to any levy
or assessment received by the Company. The Company has previously delivered to
Lender true, correct and complete copies of all tax returns (including all
required schedules) for the Company for tax year 1997.
4.11 Financial Condition.
-------------------
(a) Attached hereto as Exhibit 4.11(a) is a true and complete
---------------
copy of the audited consolidated financial statements summarizing the financial
results of operation of the Company for the fiscal year ending December 31, 1997
provided to Lender by the Company (the "Audited Financials"). The Audited
Financials were prepared in accordance with generally accepted accounting
principles consistently applied, and present fairly, in all material respects,
the consolidated financial position of the Company and the results of its
operations at such dates and for the periods then ended. The auditors have
issued an unqualified statement to the Company concerning the Audited
Financials, a copy of which is included with the Audited Financials in Exhibit
-------
4.11(a) attached hereto; and
-------
(b) Attached hereto as Exhibit 4.11(b) is a true and complete copy of
---------------
preliminary, unaudited consolidated financial statements summarizing the
financial results of operation of the Company for the three-month period ended
March 31, 1998 (the "Interim Financials"). The Interim Financials were prepared
in accordance with generally accepted accounting principles consistently
applied, and present fairly, in all material respects, the consolidated
financial position of the Company and the results of its operations at such
dates and for the periods then ended, subject to normal year-end adjustments.
4.12 Solvency. As of the date hereof, giving effect to the
--------
transactions contemplated by this Agreement, the present fair saleable value of
the Company's assets as a going concern is greater than the amount required to
pay the Company's total indebtedness (contingent or otherwise), and is greater
than the amount that will be required to pay such indebtedness as it matures and
as it becomes absolute and matured. The transactions contemplated hereby were
effectuated without actual intent to hinder, delay or defraud present or future
creditors of the Company; it is the Company's express intention that it will
maintain a solvent financial condition, giving effect to the debt incurred
hereunder, as long as any of the Obligations remain outstanding or the Company
is obligated to the Lender in any other manner
-12-
whatsoever. The Company has sufficient capital to carry on its business and
transactions as now conducted and as planned to be conducted in the future.
4.13 Material Leases. Attached hereto as Exhibit 4.13 is an accurate
--------------- ------------
and complete list of all material leases of Real Property to which the Company
is a party or by which the Company or any of the Company's assets is bound,
together with all amendments or supplements thereto (collectively, the "Leases")
which list provides with respect to each lease the landlord, commencement date,
rent and termination date. True and complete copies of each of the Leases have
been made available to Lender prior to the date hereof. To the best of the
Company's knowledge, each of the Leases is valid, binding and enforceable in
accordance with its terms and remains in full force and effect. Except as set
forth on Exhibit 4.13, the Company is not in default or alleged to be in default
------------
with respect to any of its obligations under any of the Leases (nor would be in
default or alleged to be in default with the giving of notice, passage of time,
or both), and, to the best of the Company's knowledge, no party other than the
Company is in default with respect to such party's obligations under any of the
Leases (or would be in default or alleged to be in default with the giving of
notice, passage of time, or both). The Company's possession of any property
leased by it has not been disturbed, nor has any claim been asserted against the
Company that is or could be adverse to the Company's interests under any of the
Leases. None of the Leases is subject to any rights of set-off, recoupment or
similar deduction or offset. Except as disclosed on Exhibit 4.13, the Company
------------
has not assigned or encumbered any of its rights, title or interest in or under
any of the Leases nor agreed to any oral modifications of any of the provisions
of any of the Leases.
4.14 Material Contracts. To the Company's knowledge, it is not in
------------------
default with respect to any of its obligations under any material contract. No
claim has been asserted against the Company that is or could be adverse to the
Company's interest thereunder. The Company has previously delivered to Lender
an accurate and complete list of all facilities for borrowed money in existence
on the date hereof and not being paid off on or prior to the date of the
Closing, including financing arrangements with sellers in connection with
acquisitions by the Company.
4.15 [INTENTIONALLY DELETED.]
4.16 [INTENTIONALLY DELETED.]
4.17 No Untrue Statements or Omissions. Neither this Agreement nor
---------------------------------
the Exhibits attached hereto contains any untrue statement of material fact or,
to the best of the Company's knowledge, omits any statement of material fact
necessary to make the statements contained herein or therein not misleading.
4.18 Management History. Except as set forth on Exhibit 4.18, during
------------------ ------------
the past five years (with respect to non-management directors) and during the
past ten years (with respect to management directors), no director, officer or
member of management of the Company (including, but not limited to, any other
Loan Party) has been arrested for, or convicted of, any criminal offense, has
been the subject of an Act of Bankruptcy or has served as an officer, director,
general partner, member, or manager of any Person that has been or is the
subject of an Act of Bankruptcy or an Act of Dissolution. With respect to non-
management directors, this
-13-
representation is made to the extent of the Company's knowledge, and based
solely on questionnaires completed in February 1998 by such non-management
directors.
4.19 Nobel Affiliates and Subsidiaries. Attached hereto as Exhibit
--------------------------------- -------
4.19 is an accurate and complete list of all Affiliates of Nobel, including all
----
of its subsidiaries.
4.20 Other Debts. Except for the debts reflected on the balance
-----------
sheets included in the Audited Financials and Interim Financials attached hereto
as Exhibit 4.11(a) and Exhibit 4.11(b), respectively, the Company has no
--------------- ---------------
indebtedness, liabilities or obligations of any nature at the dates of the
balance sheets included in such Audited Financials and Interim Financials that
were required under generally accepted accounting principles to be reflected on
such balance sheets on such dates (whether liquidated or unliquidated, mature or
not yet mature, absolute or contingent, secured or unsecured).
4.21 Ownership and Control. Attached hereto as Exhibit 4.21 is an
--------------------- ------------
accurate and complete list of the following information: a list of all
officers, directors and stockholders of the Company that, to the best of the
Company's knowledge, hold greater than five percent (5%) of the capital stock of
Nobel on a fully-diluted basis. Except as listed in Exhibit 4.01(b) attached
---------------
hereto, there are no outstanding options, rights of first refusal or other
preemptive rights with respect to equity securities granted or conveyed by the
Company to any person as of the date hereof.
4.22 No Material Change. Except as set forth on Exhibit 4.22
------------------ ------------
attached hereto, or elsewhere in this Agreement or any Exhibit to this
Agreement, since the ending date of the Interim Financials, the Company has not:
(i) suffered any material change in its condition (financial or otherwise) or
its overall business prospects; (ii) entered into any material transactions or
incurred any debt for borrowed money other than the Obligations; (iii) sustained
any material loss or damage to its real property or personal property, whether
or not insured; (iv) suffered any material interference with its business or
operations, present or proposed; and (v) made any Transfer, abandonment or other
disposition of any of its real property or personal property or any interest
therein or relating thereto, that is material to the financial position or
prospects of the Company.
4.23 No Side Agreements. Neither the Company nor any director,
------------------
officer nor members of management of the Company (collectively, "Company
Management") are party to any material agreement outside the ordinary course of
the Company's business with any Person (including Lender) other than pursuant to
formal, written contracts executed by the Company. Other than this Agreement,
the other Loan Documents, and documents relating to transactions described
herein, the Company's SEC filings and in the Exhibits, neither the Company, nor
Company Management is a party to any material agreement calling for any action
by the Company or such party outside the ordinary course of their respective
businesses. To the best of the Company's knowledge, there exists no agreement
or understanding calling for any payment or consideration from a customer or
supplier of the Company to the Company Management with respect to any
transaction between the Company and such supplier or customer. Except for
arrangements attached hereto as Exhibit 4.23, no Affiliate of the Company (other
------------
than the
-14-
subsidiaries (whether or not Subsidiaries) and The Sagemont School, L.L.C.)
directly or indirectly, transacts any business with the Company, except for
employment arrangements covered by the terms of Section 6.08 below.
4.24 SBA Forms and Representations. Attached hereto as Exhibits
----------------------------- --------
4.24(a), 4.24(b), 4.24(c) and 4.24(d), respectively, are complete copies of the
-------------------------------------
Size Status Declaration (SBA Form 480), the Assurance of Compliance for Non-
Discrimination (SBA Form 652), the Portfolio Financing Report (SBA Form 1031)
and the Economic Impact Assessment signed where required by the Company and
furnished to Lender (collectively, the "SBA Forms").
4.25 Investment Company Act Representations. The Company is not and
--------------------------------------
does not intend to become, an "investment company", as such term is defined in
the Investment Company Act of 1940, as amended (the "40 Act"), and neither the
Company nor any of its officers, directors, partners or controlling persons is
an "associate" of any Lender, as such terms are defined in Section 107.3 of the
amended Regulations promulgated under the SBA Act, nor an "affiliated person" of
any Lender, as such term is defined in Section 2(a)(3) of the 40 Act.
4.26 General Legal Compliance. To the best of the Company's
------------------------
knowledge, the Company is not in violation of any Applicable Law that would
apply to it or to its business, the violation of which would have a material
adverse effect on the Company, its business, or its prospects.
4.27 Environmental Legal Compliance. Without limiting the generality
------------------------------
of the representation and warranty made in Section 4.26 above, to the best of
the Company's knowledge, the Company is not in violation of any applicable
Environmental Law, which violation would have a material adverse effect on the
Company or its business or prospects, and the Company has not been notified of
any action, suit, proceeding or investigation which calls into question
compliance by the Company with any Environmental Laws or which seeks to suspend,
revoke or terminate any license, permit or approval necessary for the
generation, handling, storage, treatment or disposal of any Hazardous Material.
As used in this Agreement, the term "Environmental Law" shall mean,
collectively, the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended, 42 U.S.C. (S)9601 et seq. ("CERCLA"); the
Solid Waste Disposal Act, as amended, 42 U.S.C. (S)6901 et seq.("SWDA")
including the Resource Conservation and Recovery Act of 1976, as amended, 42
U.S.C. (S)6901 et seq. ("RCRA"); the Clean Water Act, as amended, 42 U.S.C.
(S)1251 et seq.("CWA"); the Clean Air Act, as amended, 42 U.S.C. (S)7401 et
seq.; any "superfund" or "superlien" law; and any other Applicable Law
regulating, relating to, or imposing liability or standards of conduct
concerning, any hazardous, toxic or dangerous waste, substance or material, and
the term "Hazardous Material" shall mean and include any hazardous, toxic or
dangerous waste, substance or material, the generation, handling, storage,
disposal, treatment or emission of which is subject to any Environmental Law.
4.28 Employee Benefit Matters. There is no existing single-employer
------------------------
plan defined in Section 4021(a) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA") as to which the Company is, or immediately after
the Closing will be, an
-15-
"employer" or a "substantial employer" as defined in Sections 3(5) and
4001(a)(2) of ERISA, respectively. Attached hereto as Exhibit 4.28 is an
------------
accurate and complete list of each plan described in Section 4021(a) of ERISA,
as to which the Company is assuming any liability or will be liable to make
contributions or for the payment of benefits. The Company has made available to
Lender true and complete copies of each of the plans listed on Exhibit 4.28
------------
attached hereto. To the best knowledge of the Company, there have been no
"reportable events" as set forth in Section 4043(b) of ERISA with respect to any
such plan, and no termination of any such plan since the effective date of ERISA
which could result in any tax, penalty or liability being imposed upon the
Company. The Company has not participated in, and the execution and delivery of
this Agreement by the Company will not involve, any "prohibited transaction" (as
defined in Section 4975 of the Internal Revenue Code of 1986, as amended) that
could subject the Company to any tax or penalty imposed by Section 4975 of the
Internal Revenue Code of 1986, as amended. To the best knowledge of the Company,
no predecessor-in-interest to the Company has participated in any "prohibited
transaction" (as defined in Section 4975 of the Internal Revenue Code of 1986,
as amended) that could subject the Company to any tax or penalty imposed by
Section 4975 of the Internal Revenue Code of 1986, as amended. Since the
effective date of ERISA, neither the Company, nor, to the best knowledge of the
Company, any predecessor-in-interest to the Company, has incurred any
"accumulated funding deficiency", as such term is defined in Section 302 of
ERISA, to which the Company could be subject or for which it might be liable.
The Company is not, and immediately after the Closing will not be, a party to,
and none of the operations of the Company is, or after the Closing will be,
covered by, a "multiemployer plan", as defined in Section 3(37) of ERISA.
4.29 Collective Bargaining. The Company is not, and after the
---------------------
Closing will not be, a party to or subject to any collective bargaining
agreements or union contracts. There are no labor disputes pending or
threatened against the Company or, to the best knowledge of the Company, between
the Company and its employees which have affected, or so far as the Company can
reasonably foresee may affect, materially and adversely the business or
condition of the Company or the Company's business or prospects.
4.30 Employees. Attached hereto as Exhibit 4.30 is an accurate and
--------- ------------
complete list of all employment and compensation contracts, including all
retirement benefit agreements not disclosed on Exhibit 4.28, between the Company
------------
and officers and executives of the Company. The Company has made available to
the Lender accurate and complete copies of all such contracts. No officer of
the Company has advised the Company (orally or in writing) that he or she
intends to terminate employment with the Company.
4.31 Brokers. The Company has no knowledge of any brokerage fees due
-------
for the transactions contemplated hereby and will indemnify Lender for any
claims with respect thereto.
-16-
ARTICLE V: AFFIRMATIVE COVENANTS
Until the Note is repaid in full and each of the other Obligations has
been satisfied in full and discharged and as long as Lender holds an equity
interest in Nobel, the Company covenants and agrees to do all of the following:
5.01 Monthly Financials. The Company shall forward, or cause to be
------------------
forwarded, to Lender the Company's monthly year-to-date financial statements
prepared in accordance with generally accepted accounting principles,
consistently applied within 45 days from the end of each month, together with a
monthly one-page management summary description of operations. In addition, the
Company shall forward, or cause to be forwarded, to Lender any materials
distributed to the members of the board of directors.
5.02 Certification of Non-Default. The Company shall provide to
----------------------------
Lender in writing each calendar quarter an officer's certificate, signed by
Nobel's President or Chief Financial Officer or Comptroller, certifying that no
Event of Default has occurred under this Agreement, or if any such Event of
Default exists, stating the nature of such Event of Default. The Company shall
provide to Lender in writing at the end of each fiscal year a certificate,
signed by the Company's independent auditors, certifying that no Event of
Default has occurred under Section 5.07 of this Agreement, or if any such Event
of Default exists, stating the nature of such Event of Default.
5.03 Notice of Filings. Except as otherwise provided herein, within
-----------------
30 days of filing, the Company shall provide Lender with copies of all returns
and documents (other than federal, state and local tax returns, which shall be
provided only upon request) filed by the Company with federal, state or local
government agencies, including, without limitation, the U.S. Internal Revenue
Service, the U.S. Environmental Protection Agency, the U.S. Occupational Safety
& Health Administration, the U.S. Small Business Administration and the U.S.
Securities & Exchange Commission (the "SEC").
5.04 Forms 10-Q and 10-K. The Company shall provide to Lender all
-------------------
SEC Form 10-Q's within 50 days after the end of each quarterly period (except
the last quarter of each fiscal year) and Form 10-K's within 95 days after the
end of each fiscal year; provided, however, that any extension for filing such
forms pursuant to SEC and NASDAQ regulations will automatically extend the above
time periods for the length of the extension.
5.05 Notice of Litigation. The Company shall notify Lender of any
--------------------
material litigation to which the Company is a party by mailing to Lender, by
U.S. registered mail, within 30 days of receipt thereof, a copy of the
Complaint, Motion for Judgment or other such pleadings served on or by the
Company. As to any material litigation to which the Company is not a party but
which could substantially affect the operation of the Company, the Company shall
notify Lender by mailing to Lender, by U.S. registered mail, a copy of all
pleadings obtained by the Company in regard to such litigation, or if no
pleadings are obtained, a letter setting out the facts known about the
litigation within 30 days of receipt thereof; provided, however, that the
-17-
Company shall not be obliged by this Section 5.05 to give notice of suits where
the Company is a creditor seeking collection of one or more accounts receivable.
5.06 Notice of Defaults or Judgments. The Company shall give the
-------------------------------
Lenders notice of any default declared with respect to any material lease or
loan of the Company or any judgment entered against the Company, by mailing an
accurate and complete copy thereof to Lender within 10 days of receipt thereof
by the Company.
5.07 Financial Covenants. The Company shall, at all times, comply
-------------------
with and maintain the financial covenants set forth below:
(a) Debt for Borrowed Money. The Company will maintain on a
-----------------------
consolidated basis a ratio of Debt for Borrowed Money to EBITDA of not more than
4.6 to 1.0 as of the end of each fiscal quarter, calculated on a rolling four
quarter basis.
(b) Debt Service Coverage Ratio. The Company will maintain on a
----------------------------
consolidated and rolling 12 month basis a Debt Service Coverage Ratio of not
less than 1.2 to 1.0 as of the date of Closing and as of the last day of each
calendar quarter thereafter.
5.08 Insurance. Attached hereto as Exhibit 5.08 is an accurate and
--------- ------------
complete list of all insurance policies and binders presently providing coverage
to the Company or any of its assets. The Company has made available to Lender
copies of appropriate insurance certificates and accurate and complete copies of
the insurance binders or policies for all of the insurance listed in Exhibit
-------
5.08. At all times until all of the Obligations have been satisfied in full,
----
the Company shall maintain all such insurance or equivalent replacement
insurance in full force and effect.
5.09 Use of Proceeds. The Company shall use the proceeds from the
---------------
Note to reduce the outstanding balance of senior revolving term debt, for
expansion capital and for general corporate purposes.
5.10 Payments and Obligations. The Company shall promptly make all
------------------------
payments of principal, interest and other charges as and when due under the
Note, shall timely perform or comply with, as the case may be, all of the other
Obligations, and shall comply in all respects with all terms, conditions and
covenants of this Agreement and the other Loan Documents.
5.11 Other Debts. The Company shall promptly make all payments of
-----------
principal and interest as and when due under any other debt obligations of the
Company, but nothing herein shall require the Company to pay any amounts that it
in good faith believes is not due and owing or as to which it believes it has
adequate defenses; provided, however, that this covenant shall not be construed
as permitting any other debt obligations of the Company or as permitting the
making of any payments on account of any other debt obligations of the Company
that are not otherwise permitted by the terms and conditions of this Agreement.
-18-
5.12 Information Requests. The Company shall furnish from time to
--------------------
time to Lender all information Lender may reasonably request to enable Lender to
prepare and file any form required of Lender by the SEC, or any other regulatory
authority.
5.13 Credit Checks; Access to Records. The Company shall permit any
--------------------------------
authorized representative(s) of Lender and their attorney(s) and accountant(s)
to obtain credit and other background information on the Company, and to
inspect, examine and make copies and abstracts of the books of account and
records of the Company at reasonable times during normal business hours. The
Company shall allow Lender or its agent(s) to conduct reasonable interviews with
the Company's outside accountants, who, by this covenant, are hereby irrevocably
instructed to respond to such inquiries as fully as if made by the Company
itself. Lender shall, and shall cause its authorized representatives, attorneys
and accountants to, hold all non-public information furnished to them under this
Agreement pertaining to the Company or its directors and officers in confidence
and shall not disclose it to any person, other than Lender's counsel,
accountants, or financial advisers, or use it for any purpose other than in
connection with Lender's investment in the Company.
5.14 Maintain Copies. The Company shall maintain an original or a
---------------
true copy of this Agreement and any modifications hereof, which shall be
available for inspection as called for herein or in the Note.
5.15 Maintain Existence. The Company shall take or cause to be taken
------------------
all steps and perform or cause to be performed all actions necessary or
appropriate to preserve and keep in full force and effect its existence as a
corporation and its right to conduct its business in a prudent and lawful manner
in all jurisdictions in which it conducts business. Nothing in this Section
5.15 shall prohibit a Subsidiary from merging, consolidating or dissolving with
or into (i) Nobel or another Subsidiary, or (ii) any other entity, to the extent
necessary to complete an acquisition of such entity or its assets by the
Company.
5.16 Board of Directors Meetings. Nobel shall hold meetings of its
---------------------------
Board of Directors not less than once per quarter, and shall provide Lender with
reasonable notice of such meetings. If requested by Lender, Nobel shall use its
best efforts to cause the election to Nobel's Board of Directors one member
nominated by Lender. Certain stockholders of Nobel have agreed to vote for one
member of Nobel's Board of Directors nominated by Lender. If Lender chooses
not to participate on the Board, it shall have the right to have an observer
attend each Board meeting. Nobel shall reimburse the Lender Board member or one
observer from Lender for his reasonable out-of-pocket travel and lodging
expenses. The Lender representative on the Board of Directors or Lender
observer at Board meetings shall be either ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ or ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇,
or such other person designated by Lender as may be reasonably satisfactory to
the Company. Notwithstanding the foregoing, no provision of this Section 5.16
or this Agreement shall entitle Lender to more than one representative on
Nobel's Board of Directors or more than one observer at Board meetings.
5.17 MIS Systems. The Company shall provide to Lender a draft
-----------
management information systems ("MIS") implementation plan within six months
from Closing for
-19-
establishing adequate integrated management information systems for the Company,
such plan to include specific milestones with reasonable periods of time to
achieve such milestones. The Company shall work diligently to finalize and
implement such MIS plan.
5.18 Termination of Affirmative Covenants. At such time as the Note
------------------------------------
has been paid in full and the Warrants have not been exercised (each to the
extent as provided in the following sentence), the obligations set forth in
Sections 5.02, 5.03, 5.04, 5.07, 5.08 and 5.09 shall terminate. Thereafter, at
such time as Lender has purchased at least 75% of the shares of Common Stock
purchasable under the Warrants, or the Warrants shall have expired, all of the
remaining obligations set forth in this Article V shall terminate.
ARTICLE VI: NEGATIVE COVENANTS
Until the Note is repaid in full and each of the other Obligations has
been satisfied in full and discharged and so long as Lender holds an equity
interest in the Company, the Company covenants and agrees with Lender not to do
---
any of the following, without the prior written consent of Lender (which consent
may be withheld by Lender in Lender's discretion for any reason whatsoever,
except in the case of the action contemplated by Section 6.01 as to which Lender
agrees not to unreasonably withhold its approval):
6.01 Change of Chairman and Chief Executive Officer. Nobel shall not
----------------------------------------------
change its Chairman or Chief Executive Officer, ▇.▇. ▇▇▇▇▇ (except due to his
death or disability) except if the Board of Directors at Nobel replaces ▇. ▇.
▇▇▇▇▇ with a new candidate who is reasonably acceptable to Lender. If Nobel
violates this covenant, Lender has the option, within 90 days after notification
of such event, to demand that the Company purchase all or a portion of the Note
at a price equal to 100% of its par value.
6.02 Dividends. Nobel shall not declare or pay any cash, stock or
---------
other dividend or distribution on (i) any common stock without Lender's approval
or (ii) on any preferred stock, so long as a material default hereunder, or
under the Note, exists.
6.03 Change of Site, Etc. The Company shall not expend or invest any
--------------------
funds in any manner not related to the education or child care business.
6.04 Judgments. The Company shall not permit any material judgment
---------
obtained against the Company to remain unpaid for over thirty 30 days without
obtaining a stay of execution or bond.
6.05 Sale or Disposition. The Company shall not Transfer or in any
-------------------
other manner convey or dispose of any equitable, beneficial or legal interest in
any of its assets, other than in the ordinary course of business, if the total
operating income generated by the Company in the most recently completed 12
months by such assets sold in any 12 month period would exceed 25% of Nobel's
operating income for the most recently completed 12 months.
-20-
6.06 No Encumbrances. The Company shall not permit to exist against
---------------
any of its material assets any lien, mortgage, pledge, security interest, title
retention device, or other encumbrance, except for the Permitted Encumbrances.
6.07 Major Expenditures. The Company shall not make expenditures for
------------------
capital improvements, acquisitions or otherwise in any fiscal year in excess of
Five Hundred Thousand Dollars ($500,000), unless and to the extent such
expenditures are included in an annual budget approved by the Company's Board of
Directors each year (the "Annual Budget"), or made in connection with
acquisitions that have been approved by the Board of Directors of the Company.
6.08 Employee Compensation. The Company shall not pay wages,
---------------------
salaries, loans, advances, or other payments to, or on behalf of, any officer of
the Company (any such, "Employee Compensation") which, in total, are in excess
of the amounts established by a Compensation Committee, of which a majority of
the committee members are non-management directors.
6.09 Inside Transactions; Mergers.
----------------------------
(a) The Company shall not purchase or sell any property or
services, nor borrow or lend money or property from or to, or co-invest in, any
transaction with any officer, director, or Affiliate (other than the
subsidiaries (whether or not Subsidiaries), and The Sagemont School, L.L.C.) of
the Company, unless such transaction has been approved by a majority of the
directors of the Company who are not parties to the transaction in question, and
except for employment compensation arrangements consistent with the requirements
imposed pursuant to Section 6.08 above.
(b) The Company shall not merge or consolidate with or into any
entity unless Nobel is the surviving entity or controls the consolidated entity,
remains a U. S. corporation and, after giving effect to such merger or
consolidation, no Event of Default exists.
6.10 Additional Senior Debt.
----------------------
(a) From and after the date hereof, the Company may not increase
Permitted Senior Debt unless:
(i) the Company provides pro forma financial statements to
Lender showing the 12-month period ended with the month in which the additional
senior debt is to be provided and assuming it was provided to the Company in the
first day of such 12-month period; and
(ii) Such pro forma financial statements demonstrate that,
giving effect to such senior debt financing, the Company would have been in
compliance with the applicable financial covenants, set forth in Section 5.07 as
of the end of the 12-month period depicted in such pro forma financial
statements.
-21-
(b) In the event the Company incurs Permitted Senior Debt in
compliance with this Agreement, Lender hereby agrees to execute a subordination
agreement with the lender of the Permitted Senior Debt on terms substantially
similar to those of the Subordination Agreement, or otherwise reasonably
acceptable to Lender.
6.11 No Adverse Actions. The Company shall not, by amendment to the
------------------
Company Constituent Documents or through any reorganization, reclassification,
consolidation, merger, sale of assets, Act of Dissolution, issuance or Transfer
of securities or any other action, avoid or seek to avoid the observance or
performance of any of the terms, covenants and conditions of this Agreement or
any of the other Loan Documents, but shall at all times carry out in good faith
all such terms and take all such actions as may be necessary or appropriate to
protect the rights of the Lender hereunder and under each of the Loan Documents.
6.12 Termination of Negative Covenants. At such time as the Note has
---------------------------------
been paid in full, but the Warrants have not been exercised (to the extent as
provided in the following sentence), the obligations set forth in Sections 6.01,
6.02, 6.03, 6.04, 6.05, 6.06, 6.07 and 6.10 shall terminate. Thereafter, at
such time as Lender has purchased at least 75% of the shares of Common Stock
purchasable under the Warrants, all of the remaining obligations set forth in
this Article VI shall terminate.
6.13 Operating Leases. Nothing herein shall prohibit the Company
----------------
from selling its real estate and leasing it back under leases that will be
treated as operating leases for financial reporting purposes, or from entering
into build-to-suit arrangements with any persons pursuant to which they will
build new schools and centers to the Company's specifications and lease them to
the Company under leases treated as operating leases for financial reporting
purposes.
ARTICLE VII: FEES, EXPENSES AND INDEMNIFICATION
7.01 Fees and Expenses. The Company shall pay:
-----------------
(a) A commitment fee to Lenders of Eighty Thousand Dollars
($80,000), of which Twenty Thousand Dollars ($20,000) was paid at the time of
the execution and delivery of the commitment letter and the balance of Sixty
Thousand Dollars ($60,000) is due and payable in full at Closing;
(b) All reasonable fees and disbursements for work done for
Lender by Lender's attorneys and legal staff (whether by outside counsel or the
legal staff of Lender); and
(c) A processing fee equal to all reasonable out-of-pocket
costs and expenses up to a maximum of $1,000, incurred by Lender in connection
with performing a due diligence examination of the Company and the Company's
business.
All amounts described in this Section 7.01 shall be due and payable in
full by the Lenders at the Closing.
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7.02 Indemnification. In addition to its indemnification provisions
---------------
contained elsewhere herein and in the other Loan Documents, the Company agrees
to indemnify, defend and hold harmless Lender and each of its respective
officers, directors, partners, employees, agents and controlling persons
(collectively, the "Indemnified Parties") from and against any and all losses,
claims, damages, liabilities and related expenses, including reasonable
attorneys' fees and expenses, incurred by or asserted against any of the
Indemnified Parties by any third parties arising out of, in any way in
connection with, or as a result of: (i) this Agreement and the other Loan
Documents, (ii) the performance by Lender and the Loan Parties of their
respective obligations hereunder and thereunder and consummation of the
transactions contemplated hereby and thereby; (iii) the occurrence of any Event
of Default hereunder or any event that would constitute an Event of Default but
for the giving of notice and/or passage of time; (iv) any federal, state or
local transfer or recording taxes or filing fees which may become payable in
connection with this transaction; (v) the spilling, leaking, pumping, pouring,
unsettling, discharging, leaching or releasing of any Hazardous Materials on any
of the Real Property or any other property owned by the Company; (vi) any
violations by the Company of any other Environmental Law, regulation or
ordinance; (vii) any brokerage, finders, or other fees in connection with the
transactions contemplated by this Agreement; or (viii) any claim, litigation,
investigation or proceeding relating to any of the foregoing, whether or not any
of the Indemnified Parties is a party thereto; provided, however, any such
indemnity shall not apply to any such losses, claims, damages, liabilities or
related expenses arising from the gross negligence or willful misconduct of
Lender or breach of this Agreement by Lender.
7.03 Survival; Timing of Payments. The provisions of this Article
----------------------------
VII and any other indemnification provisions contained in this Agreement and the
other Loan Documents shall survive and remain operative and in full force and
effect regardless of the termination of this Agreement or expiration of the term
of this Agreement, the consummation of the transactions contemplated hereby, the
repayment of the Note and satisfaction and discharge of the other Obligations,
the invalidity or unenforceability of any term or provision of this Agreement or
the Note, or any investigation made by or on behalf of Lender. Except as
provided to the contrary, all amounts due under this Article VII shall be
payable on written demand therefor.
ARTICLE VIII: DEFAULT PROVISIONS
The occurrence of any of the events specified below in this Article
VIII (any such, an "Event of Default") shall constitute an immediate breach of,
and default under, this Agreement entitling Lender to exercise all of the rights
and remedies specified in this Agreement, in any other Loan Document, and under
all Applicable Laws, without the obligation to furnish any further notice or
opportunity to cure (beyond that specified in the applicable sections of this
Article VIII), all of which are hereby expressly waived by the Company and all
other Loan Parties:
8.01 Monetary Defaults. Any installment payment of principal,
-----------------
interest or other charge under the Note is not received by Lender within 15
calendar days of the due date thereof,
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or any other monetary Obligation is not fully paid and discharged within 15
calendar days of the due date thereof.
8.02 Other Breaches. The Company or any other Loan Party shall fail
--------------
to comply with their respective affirmative or negative covenants, agreements
and undertakings in this Agreement or the Note and such failure shall continue
for a period of 15 calendar days from the date of the delivery of written notice
thereof from Lender.
8.03 Misrepresentation. Any representation or warranty made by the
-----------------
Company in this Agreement or any of the other Loan Documents, shall be untrue in
any material respect and shall remain so after ten days' written notice.
8.04 Transfer of Company Business. Any Transfer of Company's
----------------------------
Business shall occur.
8.05 Act of Bankruptcy or Dissolution. Any Act of Bankruptcy or Act
--------------------------------
of Dissolution shall have occurred with respect to the Company or any other Loan
Party.
8.06 Other Loan Document Defaults. The Company or any other Loan
----------------------------
Party shall be in default under any of the other Loan Documents (after taking
into account the giving of any notice and the expiration of the applicable cure
period (if any) required pursuant to the applicable terms of such other Loan
Document or Loan Documents).
8.07 Other Payment Default. Any payment default shall have occurred
---------------------
(after giving effect to any applicable notice and/or grace periods) under any
material lease, material contract, or other material obligation of the Company.
For purposes of this Section 8.07, "material" shall mean requiring payment
during the term of such obligation of an amount equal to or greater than
$3,000,000.
8.08 Court Orders. Final judgment(s) or final order(s) of any court
------------
of competent jurisdiction in excess of $1,000,000 which is either (i)
uncontested, unappealed, unpaid or uninsured for a period of 45 days or (ii) is
unpaid for 45 days after all appeals are exhausted.
ARTICLE IX: CERTAIN REMEDIES
Upon the occurrence of an Event of Default under this Agreement,
subject to the rights of the holders of the Permitted Senior Debt under the
Subordination Agreement, Lender shall be entitled to exercise any or all of the
following rights and remedies, in addition to such other rights and remedies as
may be provided for in the other Loan Documents or as may be available at law or
in equity:
9.01 Acceleration. Following the occurrence of an Event of Default,
------------
Lender may, at its option, accelerate the maturity of the Note and all other
Obligations and demand immediate payment in full of all amounts payable under
the Note and all of the Obligations, without
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presentment, demand, protest, or further notice by Lender to the Company, all of
which are hereby expressly waived by the Company.
9.02 Costs. The Company shall pay all expenses of any nature,
-----
whether incurred in or out of court, and whether incurred before or after the
Note shall become due at their maturity date or otherwise (including, but not
limited to, reasonable attorneys' fees and costs) which Lender may deem
necessary or proper in connection with the collection of any of the Obligations.
Lender is authorized to pay at any time and from time to time any or all of such
expenses, to add the amount of such payment to the amount of principal
outstanding under the Note, and to charge interest thereon at the rate
specified in the Note.
9.03 Remedies Non-Exclusive. None of the rights, remedies,
----------------------
privileges or powers of Lender expressly provided for herein shall be exclusive,
but each of them shall be cumulative with, and in addition to, every other
right, remedy, privilege and power now or hereafter existing in favor of Lender,
whether pursuant to the other Loan Documents, at law or in equity, by statute or
otherwise.
ARTICLE X: MISCELLANEOUS
10.01 Non-Waiver. No course of dealing between Lender and any other
----------
party hereto or any failure or delay on the part of Lender in exercising any
rights or remedies hereunder shall operate as a waiver of any rights or remedies
of Lender under this or any other applicable instrument. No single or partial
exercise of any rights or remedies hereunder shall operate as a waiver or
preclude the exercise of any other rights or remedies hereunder.
10.02 Interest Not Impaired. The interest of Lender and its assigns
---------------------
shall not be impaired by Lender's sale, hypothecation or re-hypothecation of the
Note or by any indulgence, including, but not limited to:
(a) Any renewal, extension, or modification which Lender may
grant with respect to the Obligations or any part thereof; or
(b) Any indulgence granted in respect of any endorser,
guarantor or surety.
The purchaser, assignee, transferee or pledgee of the Note, any
guaranty, or any other Loan Document (or any of them), sold, assigned,
transferred, pledged or repledged shall forthwith become vested with, and
entitled to exercise, all powers and rights given by this Agreement to Lender,
as if said purchaser, assignee, transferee or pledgee were originally named in
this Agreement in place of Lender.
10.03 Notices. All notices or communications under this Agreement or
-------
the Note shall be mailed, postage prepaid, or delivered or sent by courier to
the following addresses (or to such other address as shall at any time be
designated by any party in writing to the other parties):
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To Lender: ERROR! REFERENCE SOURCE NOT FOUND.
▇▇▇▇ ▇ ▇▇▇▇▇▇, ▇.▇., ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇.▇. ▇▇▇▇▇
Attention: G. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ III, President
With a copy to: Piper & Marbury L.L.P.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇.▇.
▇▇▇▇▇▇▇▇▇▇, ▇.▇. ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esquire
To the Company: Nobel Education Dynamics, Inc.
Rose Tree Corporate Center II
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: Chief Executive Officer
with copies to: Nobel Education Dynamics, Inc.
Rose Tree Corporate Center II
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: General Counsel
Drinker ▇▇▇▇▇▇ & ▇▇▇▇▇ LLP
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esquire
Rejection or other refusal to accept, or the inability to deliver because
of a changed address of which no notice was given, shall not affect the
effectiveness or the date of delivery for any notice sent in accordance with the
foregoing provisions. Each such notice, request or other communication shall be
deemed sufficiently given, served, sent and received for all purposes at such
time as it is delivered to the addressee (with the return receipt, the delivery
receipt, or the affidavit of the messenger being deemed conclusive (but not
exclusive) evidence of such delivery) or at such time as delivery is refused by
addressee upon presentation.
10.04 Binding Agreement Limitation on Transfer. This Agreement shall
----------------------------------------
bind and inure to the benefit of Lender, the Company and the other Loan Parties,
and to the extent provided herein, their respective heirs, successors and
assigns. Lender shall not transfer or assign the Note or any of the Loan
Documents to any third party not affiliated with Lender without the prior
written consent of Nobel.
10.05 Entire Agreement; Integration Clause. This Agreement, the
------------------------------------
Exhibits hereto, and the other Loan Documents set forth the entire agreements
and understandings of the
-26-
parties hereto with respect to this transaction, and any prior agreements are
hereby merged herein and terminated.
10.06 No Oral Modification or Waivers. The terms herein may not be
-------------------------------
modified or waived orally, but only by an instrument in writing signed by the
party against which enforcement of the modification or waiver (as the case may
be) is sought.
10.07 Relationship of the Parties; Advice of Counsel. This Agreement
----------------------------------------------
provides for the making of an investment in the form of loans made by Lender, in
its capacity as lender, to the Company, in its capacity as borrower, and for the
payment of interest and repayment of principal by the Company to Lender. The
provisions herein for compliance with financial covenants and delivery of
financial statements are intended solely for the benefit of Lender to protect
its interest as lender in assuring payments of interest and repayment of
principal, and nothing contained in this Agreement shall be construed as
permitting or obligating Lender to act as financial or business advisor or
consultant to the Company, as permitting or obligating Lender to control the
Company or to conduct the Company's operations, as creating any fiduciary
obligation on the part of Lender to the Company, or as creating any joint
venture, agency or other relationship between the parties other than as
explicitly and specifically stated in this Agreement. Lender is not (and shall
not be construed as) a partner, joint venturer, alter-ego, manager, controlling
person, operator or other business participant of any kind of the Company;
neither Lender nor the Company intend that Lender assumes such status and,
accordingly, Lender shall not be deemed responsible for (or a participant in)
any acts or omissions of the Company. The Company and each of the other Loan
Parties each represent and warrant to Lender that they have had the advice of
experienced counsel of their own choosing in connection with the negotiation and
execution of this Agreement and with respect to all matters contained herein.
10.08 Controlling Law. This Agreement and each of the other Loan
---------------
Documents shall be governed by, and interpreted and construed in accordance
with, the internal laws of the State of Maryland (without regard to its
conflicts of law principles).
10.09 Venue; Personal Jurisdiction; Full Faith and Credit; Personal
-------------------------------------------------------------
Service.
-------
(a) Venue for the adjudication of any claim or dispute arising
out of this Agreement or any of the other Loan Documents shall be proper only in
the state or federal courts of the State of Maryland, and all parties to this
Agreement and the other Loan Documents hereby consent to such venue and agree
that it shall not be not inconvenient and not subject to review by any court
other than such courts in Maryland;
(b) The Company and each of the other Loan Parties intend and
agree that the courts of the jurisdictions in which the Company is formed and in
which the Company conducts its business should afford full faith and credit to
any judgment rendered by a court of the State of Maryland against the Company or
any other Loan Party under this Agreement and the other Loan Documents, and the
Company and each other Loan Party under this Agreement and the other Loan
Documents each intend and agree that such courts should hold that the Maryland
courts have jurisdiction to enter a valid, in persona judgment against the
Company or such other Loan Party(ies), as the case may be;
-27-
(c) The Company and each other Loan Party agree that service
of any summons and complaint, and other process which may be served in any suit,
action or other proceeding, may be made by mailing via U.S. certified or
registered mail or by hand-delivering a copy of such process to the Company or
such other Loan Party (as applicable) at its address specified above; and
(d) The Company and each other Loan Party all expressly
acknowledge and agree that the provisions of this Section 10.09 are reasonable
and made for the express benefit of each of the Lenders.
10.10 Waiver of Trial by Jury. Each party to this Agreement agrees
-----------------------
that any suit, action or proceeding, whether claim, defense or counterclaim,
brought or instituted by any party hereto or any successor or assign of any
party on or with respect to this Agreement or any other Loan Document or which
in any way relates, directly or indirectly, to the Note or any event,
transaction or occurrence arising out of or in any way connected with this
Agreement, the other Loan Documents or the dealings of the parties with respect
thereto, shall be tried only by a court and not by a jury. EACH PARTY HEREBY
EXPRESSLY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY SUCH SUIT, ACTION OR
PROCEEDING, AND ACKNOWLEDGES THAT THIS IS A WAIVER OF A LEGAL RIGHT AND THAT IT
MAKES THIS WAIVER VOLUNTARILY AND KNOWINGLY AFTER CONSULTATION WITH, OR THE
OPPORTUNITY TO CONSULT WITH, COUNSEL OF ITS CHOICE.
10.11 Costs and Fees Related to Enforcement or a Successful Defense.
-------------------------------------------------------------
Without limiting Lender's entitlements under Section 9.02 above, the Company and
each other Loan Party, severally and not jointly (each, a "Reimbursing Party"),
hereby agrees to reimburse Lender for any and all costs and fees, including
reasonable attorneys' fees and expenses, incurred by Lender or its Affiliates in
connection with: (i) any suit, action, claim or other activity of Lender to
collect the Obligations or any portion thereof or to enforce any of the
provisions of this Agreement or any other Loan Document against such Reimbursing
Party; and (ii) any suit, action, claim or other liability asserted against
Lender or its Affiliates by such Reimbursing Party in any case in which such
Reimbursing Party does not prevail with respect to substantially all of its or
his claim.
10.12 Independent Covenant to Make Payments. The payment and
-------------------------------------
performance by the Company and any other Loan Party of all of the Obligations
shall be absolute and unconditional, irrespective of any defense or any rights
of set-off, recoupment or counterclaim the Company or any other Loan Party might
otherwise have against Lender, and the Company and each other Loan Party shall
pay and perform all of the Obligations (to the extent applicable to him or it),
free of any deductions and without abatement, diminution, recoupment,
counterclaim or set-off. Until payment in full of all of the Obligations, the
Company shall: (a) not suspend or discontinue any payments required pursuant to
the Notes, this Agreement or any other Loan Documents; and (b) perform and
observe all of the other terms and provisions of all of the Loan Documents.
-28-
10.13 Headings. The headings of the paragraphs and sub-paragraphs of
--------
this Agreement and the other Loan Documents are inserted for convenience only
and shall not be deemed to constitute a part of this Agreement or the other Loan
Documents.
10.14 Severability. To the extent any provision herein violates any
------------
applicable law, that provision shall be considered void and the balance of this
Agreement shall remain unchanged and in full force and effect.
10.15 Counterparts. This Agreement may be executed in as many
------------
counterpart copies as may be required. It shall not be necessary that the
signature of, or on behalf of, each party appear on each counterpart, but it
shall be sufficient that the signature of, or on behalf of, each party appear on
one or more of the counterparts. All counterparts shall collectively constitute
a single agreement. It shall not be necessary in any proof of this Agreement to
produce or account for more than a number of counterparts containing the
respective signatures of, or on behalf of, all of the parties.
10.16 Deliveries to Lender. To the extent the terms of this
--------------------
Agreement or any of the other Loan Documents require the Company to deliver any
documents or other materials to Lender, then, until such time as Lender (or one
or more of its Affiliates) shall no longer hold complete title to the Note, the
Company may fully satisfy and discharge such requirement by delivering a single
copy of the document(s) or other material(s) in question to the Lender's notice
party identified in Section 10.03 above in lieu of separate deliveries to
Lender. Following a complete or partial Transfer by Lender of any its right,
title or interest in and to the Note to one or more Persons that is not an
Affiliate of Lender, then the Company shall be required to deliver copies of the
document(s) or other material(s) in question to Lender separately.
10.17 Consent and Approval of Lender. To the extent the terms of
------------------------------
this Agreement or any of the other Loan Documents require the Company to obtain
the consent or approval of each of Lender, then until such time as Lender (or
one or more Affiliates of Lender) shall no longer hold complete title to each of
the Note, the Company may fully satisfy and discharge such requirement by
obtaining the consent or approval (in writing if necessary) of the holder of not
less than 55% of the outstanding principal balance of the Note in lieu of the
separate consent or approval of Lender. Following a complete or partial
Transfer by Lender of any its right, title or interest in and to the Note to one
or more Persons that is not an Affiliate of Lender, then the Company shall be
required to obtain the consent or approval (in writing if necessary) of Lender
holding not less than 75% of the outstanding principal balance of the Note.
IN WITNESS WHEREOF, the undersigned have executed and delivered this
Agreement as of the date first above written.
WITNESS/ATTEST: "COMPANY":
NOBEL EDUCATION DYNAMICS, INC.
a Delaware corporation
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By: ________________________ By:________________________________(SEAL)
IMAGINE EDUCATIONAL PRODUCTS, INC.
a Delaware corporation
By: ________________________ By:________________________________(SEAL)
MERRYHILL SCHOOLS, INC.
a California corporation
By: ________________________ By:________________________________(SEAL)
MERRYHILL SCHOOLS NEVADA, INC.
a Nevada corporation
By: ________________________ By:________________________________(SEAL)
Signatures continued on next page.
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NEDI, INC
a California corporation
By: ________________________ By:_______________________________(SEAL)
LAKE FOREST MONTESSORI SCHOOLS, INC.
a Washington corporation
By: ________________________ By:_______________________________(SEAL)
"LENDER":
ALLIED CAPITAL CORPORATION,
a Maryland corporation
By: ________________________ By:_______________________________(SEAL)
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