EXHIBIT 10.6
__________________________________________
CORINTHIAN SCHOOL, INC.
SUBORDINATED SECURED NOTE
AND
WARRANT PURCHASE AGREEMENT
__________________________________________
Dated as of June 30, 1995
TABLE OF CONTENTS
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Page
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BACKGROUND................................................................................................... 1
A. Company.................................................................................... 1
B. Acquisition Transaction.................................................................... 1
C. Purchase and Sale of Capital Stock......................................................... 2
D. Senior Loans............................................................................... 2
E. Purchase and Sale of Notes................................................................. 2
F. Use of Proceeds from Issuance and Sale of Purchased Capital Stock........................... 3
H. Security for Payment of the Notes.......................................................... 3
STATEMENT OF AGREEMENT....................................................................................... 3
Section 1. Defined Terms............................................................................ 4
Section 2. Purchase and Sale of the Notes........................................................... 16
Section 3. Issuance of Warrants..................................................................... 18
Section 4. Conditions to Closings................................................................... 19
Section 5. Representations and Warranties of Company................................................ 23
Section 6. Representations and Warranties of the Purchasers......................................... 26
Section 7. Financial Reporting...................................................................... 28
Section 8. Affirmative Covenants.................................................................... 32
Section 9. Negative Covenants....................................................................... 33
Section 10. Financial Tests.......................................................................... 37
Section 11. Events of Default........................................................................ 38
Section 12. Consequences of Event of Default......................................................... 40
Section 13. Miscellaneous............................................................................ 40
Form of Note Between Company and Purchasers......................................................Exhibit A
SUBORDINATED SECURED NOTE AND
WARRANT PURCHASE AGREEMENT
This is a SUBORDINATED SECURED NOTE and WARRANT PURCHASE AGREEMENT dated as
of June 30, 1995 ("Agreement") by and among Corinthian Schools, Inc.
("Company"), a Delaware corporation, Primus Capital Fund III Limited Partnership
("Primus"), an Ohio limited partnership and Banc One Capital Partners II,
Limited Partnership ("BOCP II"), a Delaware limited partnership. Primus and BOCP
II are referred to collectively as "Purchasers."
The Company and the Purchasers are referred to individually as a "Party"
and collectively as the "Parties."
BACKGROUND
A. COMPANY.
The Company is engaged in the business of acquiring and operating post-
secondary, vocational training schools (the "Schools"). Prior to June 30, 1995,
the Company did not own, operate or administer any Schools and had not engaged
in any other business.
B. ACQUISITION TRANSACTION.
The Company is a party to an Asset Purchase Agreement dated as of June 28,
1995 (the "Asset Purchase Agreement"), among the Company, National Education
Centers, Inc., a California corporation (the "Seller"), and National Education
Corporation, a Delaware corporation. The Asset Purchase Agreement provides for
the acquisition by the Company from the Seller of Purchased Assets (as defined
in the Asset Purchase Agreement) related to the operation and administration of
twelve (12) Schools consisting of "Tier I Schools", "Tier II Schools" and "Tier
III Schools" as designated on Exhibit A to the Asset Purchase Agreement (the
"Acquisition Transaction").
The Asset Purchase Agreement provides that payment for the Purchased Assets
shall be made (i) at the time of the completion of the purchase and sale of that
portion of the Purchased Assets that relate solely to the Tier I Schools, the
Accounts Receivable (as defined in the Asset Purchase Agreement), the Lead Bank
Data (as defined in the Asset Purchase Agreement) and the Headquarters Assets
(as defined in the Asset Purchase Agreement) (the "Tier I Closing"), (ii) at the
time of the completion of the purchase and sale of that portion of the Purchased
Assets that relate solely and directly to the Tier II Schools (the "Tier II
Closing"), and (iii) at the time of the completion of the purchase and sale of
that portion of the Purchased Assets that relate solely and directly to the Tier
III Schools (the "Tier III Closing").
C. PURCHASE AND SALE OF CAPITAL STOCK.
Pursuant to the terms of a Purchase Agreement dated as of June 30, 1995
(the "Stock Purchase Agreement") among the Company, BOCP II and Primus, the
Purchasers have agreed to purchase an aggregate of (i) 18,125 shares of the
Class A Preferred Stock, par value $1.00 per share of the Company (the "Class A
Preferred"), (ii) 60,410 shares of the Class A Common Stock, par value $.01 per
share of the Company (the "Class A Common"), and (iii) 8,340 shares of the Class
B Common Stock, par value $.0l per share of the Company (the "Class B Common")
for a total cash consideration of $2,500,000 at a closing which shall take place
on the date of the Tier I Closing (the "Tier I Closing Date"). The Class A
Preferred, Class A Common and Class B Common purchased pursuant to the terms of
the Stock Purchase Agreement are sometimes hereinafter collectively referred to
as the "Purchased Capital Stock."
D. SENIOR LOANS.
Pursuant to a Credit Facility Agreement dated as of June 30, 1995 ("Senior
Credit Agreement") by and between BOCP II ("Senior Lender") and the Company, the
Senior Lender has agreed to make loans to the Company on a revolving credit
basis up to a maximum aggregate principal amount of $2,000,000 at any one time
outstanding ("Senior Loans") to be used solely for working capital purposes.
None of the Senior Loans are to be applied to the Acquisition Transaction.
Pursuant to the terms of the Senior Credit Agreement, the note evidencing the
Senior Loans must be paid in full on or before June 30, 1996. It is anticipated,
however, that the Company will refinance its obligations under the Senior Credit
Agreement prior to June 30, 1996 pursuant to the terms of an agreement with a
third party bank or financial institution providing for revolving credit loans
secured by the Collateral. Such agreement shall be subject to the consent of the
Purchasers, which consent shall not be unreasonably withheld, and the lender
with respect thereto shall be granted a first perfected security interest in the
Collateral on terms substantially equivalent to those set forth in the Security
Agreement.
E. PURCHASE AND SALE OF NOTES.
Upon the terms and subject to the conditions set forth in this Agreement,
the Company shall issue and sell to BOCP II Subordinated Secured Notes in the
aggregate principal amount of $2,000,000, and to Primus Subordinated Secured
Notes in the aggregate principal amount of $500,000, each due June 30, 2000
(collectively, the "Notes"). The Company shall sell to the Purchasers and the
Purchasers shall purchase from the Company (i) on the date of the Tier II
Closing (the "Tier II Closing Date"), Notes in the aggregate principal amount
equal to the Tier II Principal Balance to fund a portion of the cash
consideration payable by the Company for the Purchased Assets at the Tier II
Closing, (ii) on the date of the Tier III Closing (the "Tier III Closing Date")
Notes in the aggregate principal amount equal to the Tier III Principal Balance
to fund a portion the cash consideration payable by the Company for the
Purchased Assets at the Tier III Closing, and (iii) if necessary, on any date on
which the a payment of the unpaid principal amount, if any, of the Deferred
Payment Note is due (a "Deferred Payment Note Closing Date"), Notes in the
aggregate principal amount equal to the Deferred Payment Note Principal Payment.
The Tier I Closing Date, Tier II Closing Date, Tier III Closing Date, Final
Payment Date and Deferred Payment Note Closing Date are sometimes hereinafter
individually
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referred to as a "Closing Date" and collectively referred to as the "Closing
Dates." BOCP II and Primus shall be obligated to purchase 80% and 20%,
respectively, of the principal amount of any Notes being sold by the Company and
purchased by the Purchasers on a Closing Date.
F. USE OF PROCEEDS FROM ISSUANCE AND SALE OF PURCHASED CAPITAL STOCK.
The Purchasers shall not be obligated to purchase any Notes unless and
until the Company shall have used the proceeds from the issuance and sale of the
Purchased Capital Stock pursuant to the terms of the Stock Purchase Agreement to
pay an aggregate of $2,500,000 of the cash consideration payable by the Company
at the Tier I Closing and the Tier II Closing.
G. WARRANTS.
Upon the terms and subject to the conditions set forth in this Agreement,
the Company shall issue and sell to BOCP II warrants to purchase 5,000 shares of
Class B Common, and to Primus warrants to purchase 1,250 shares of Class A
Common ("Warrants").
The shares of Class A Common and Class B Common issuable upon exercise of
the Warrants are referred to collectively as the "Warrant Shares" and represent,
as of the date hereof, in the aggregate approximately 5% of the Outstanding
Common Stock after giving effect to the issuance of such Warrant Shares.
H. SECURITY FOR PAYMENT OF THE NOTES.
Pursuant to the Security Agreement, the Company has, as security for the
obligations hereunder, granted to the Purchasers a security interest in all
assets of the Company, whether now owned or hereafter acquired, second only to
the security interest in such assets of the Senior Lender.
STATEMENT OF AGREEMENT
In consideration of their mutual promises set forth in this Agreement, the
Parties hereby agree as follows.
SECTION 1. DEFINED TERMS.
As used herein, the following terms shall have the following meanings,
unless the context otherwise requires, as modified, amended or restated from
time to time as provided for herein.
1.1 "Accountant" means the Company's independent public accountant
selected and approved in the manner provided for in this Agreement.
1.2 "Accounts Receivable" shall have the meaning set forth in the Asset
Purchase Agreement.
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1.3 "Accountant's Statement" means, with respect to each Annual Financial
Statement, a written statement of such Accountant stating in effect that in the
course of their Audit with respect to such Financial Statement no Default has
come to their attention, or, if a Default has come to their attention, stating
the nature and period of existence of such Default.
1.4 "Accounting Periods" means the Fiscal Year, Quarter or Month, as
applicable.
1.5 "Accounting Statements" means collectively, with respect to any
Accounting Period, statements of income, changes in financial position (cash
flow) and shareholders' equity for such Accounting Period and a statement of
financial condition as at the end of such Accounting Period.
1.6 "Acquisition Transaction" shall have the meaning set forth in
Paragraph B.
1.7 "Adjusted Net Worth" means, as to any period, the total amount of
stockholders' equity of the Company that would appear on the balance sheet of
the Company prepared in accordance with GAAP after excluding therefrom (i) any
reevaluation or other write-up in the book value of assets subsequent to the
Tier I Closing Date other than upon the acquisition of assets or stock acquired
in a transaction to be accounted for by purchase accounting under GAAP made
within twelve (12) months after the acquisition of such assets, and (ii) an
amount equal to the excess, if any, of the amount reflected for the securities
of any Person which is not a Subsidiary over the lesser of cost or market value
(as determined in good faith by the Company).
1.8 "Affiliate" means any Person directly or indirectly controlling,
controlled by, or under direct or indirect common control with, the Company or
another specified Person, except a Subsidiary. A Person shall be deemed to
control a corporation if such Person possesses, directly or indirectly, the
power to direct or cause the direction of the management and policies of such
corporation, whether through the ownership of voting securities, by contract or
otherwise.
1.9 "Agreement" means this agreement.
1.10 "Affirmative Covenants" means the covenants of the Company set forth
in Section 8.
1.11 "Annual Financial Statements" means, with respect to each Fiscal
Year, the consolidated and consolidating Accounting Statements of the Company
with respect to such Fiscal Year, presented with corresponding Accounting
Statements for the preceding Fiscal Year, which Accounting Statements shall be
Audited, prepared in accordance with GAAP and presented in reasonable detail
(including appropriate footnotes) and in a form satisfactory to the Purchasers.
1.12 "Asset Purchase Agreement" shall have the meaning set forth in
Paragraph B.
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1.13 "Audit" or "Audited" means, with respect to the consolidated Annual
Financial Statements, an examination without limitation as to scope by the
Accountant in accordance with generally accepted auditing standards for the
purpose of expressing an opinion of such Accounting Statements.
1.14 "Audit Report" means, with respect to the consolidated (but not the
consolidating) Annual Financial Statements, the report of the Accountant
indicating the scope of the Audit with respect to such Statements and setting
forth the opinion of such Accountant with respect to such Annual Financial
Statements as a whole, or an assertion to the effect that an overall opinion
cannot be expressed. The Audit Report shall set forth any qualification to such
opinion and, when such an overall opinion cannot be expressed, set forth the
reasons therefore.
1.15 "Base Compensation" means the collective base compensation (excluding
any cash bonuses) paid to the Management Group which shall be (i) $750,000 for
the twelve months following the closing of the Acquisition Transaction, and (ii)
thereafter the compensation of the Management Group will be set by the Board of
Directors, based upon the recommendation a Compensation Committee consisting of
certain members of the Board of Directors, at levels consistent with the then
prevailing market standards.
1.16 "Base Rate" means the per annum rate of interest most recently
determined by Banc One Capital Corporation as the Weekly Adjustable Rate Index
applicable to 30-day AA rated commercial paper.
1.17 "Board of Directors" means the board of directors of the Company and,
as applicable and to the extent permitted by law, any committee of such board of
directors authorized to exercise the powers of the board of directors.
1.18 "BOCP II" means Banc One Capital Partners II, Limited Partnership, a
Delaware limited partnership, together with its successors and assigns.
1.19 "Business Day" means any day other than a Saturday, Sunday or day
upon which banking institutions are authorized or required by law or executive
order to be closed in the City of Columbus, Ohio.
1.20 "Capital Stock" of any Person means, any and all shares, interests,
participations or other equivalents (however designated) of corporate stock,
including each class of common stock and preferred stock of such Person or
partnership interests and any warrants, options or other rights to acquire such
stock or interests.
1.21 "Cash Equivalents" means (i) securities issued or directly and fully
guaranteed or insured by the United States Government or any agency or
instrumentality thereof which mature within 90 days from the date of
acquisition, and (ii) time deposits and certificates of deposit, which mature
within 90 days from the date of acquisition, of any domestic commercial bank
having capital and surplus in excess of $200,000,000, which has, or the holding
company of which has, a commercial paper rating of at least A-1 or the
equivalent thereof by Standard & Poors Corporation or P-1 or the equivalent
thereof by ▇▇▇▇▇'▇
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1.22 "CFO Certificate" means, with respect to the Quarterly Financial
Statements and the consolidating Annual Financial Statements, a certificate
signed by the chief financial officer of the Company stating in effect that such
Financial Statements, when delivered, (i) were, to the best of his knowledge,
complete and correct in all material respects, (ii) were prepared in accordance
with GAAP, and (iii) fairly present the results of operations for the applicable
Accounting Period and the financial condition as at the end of such Accounting
Period. The CFO Certificate shall be presented in a standard form reasonably
satisfactory to the Purchaser.
1.23 "Change of Control" means (i) an event or series of events by which
any Person or Persons or other entities acting in concert as a partnership or
other group (a "Group of Persons") shall, as a result of a tender or exchange
offer, open market purchases, privately negotiated purchases, merger,
consolidation or otherwise, have become the beneficial owner (within the meaning
of Rule 13d-3 under the Securities Exchange Act), of 50% or more of the Voting
Power of the Company, (ii) the Company is merged with or into another
corporation with the effect that immediately after such transaction the
stockholders of the Company immediately prior to such transaction hold less than
a majority of the combined Voting Power of the Person surviving the transaction,
or (iii) the direct or indirect, sale, lease, exchange or other transfer of all
or substantially all of the assets of the Company to any Person or group of
Persons.
1.24 "Class A Common" shall have the meaning set forth in Paragraph C.
1.25 "Class B Common" shall have the meaning set forth in Paragraph C.
1.26 "Class A Preferred" shall have the meaning set forth in Paragraph C.
1.27 "Closing Date" and "Closing Dates" shall have the meanings set forth
in Paragraph E.
1.28 "Code" means the Internal Revenue Code of 1986, as amended from time
to time.
1.29 "Collateral" means the collateral collectively described in the
Security Agreement.
1.30 "Common Stock" means the shares of Class A Common and Class B Common
of the Company treated as a single class of stock, at any time outstanding.
1.31 "Common Stock Purchase Agreement" shall have the meaning set forth in
Paragraph G.
1.32 "Company" means Corinthian Schools, Inc., a Delaware corporation,
together with its successors and assigns.
1.33 "Compensation Committee" means the compensation committee established
by the Board of Directors to review and make recommendations as to the
compensation of the Management Group.
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1.34 "Compliance Certificate" means, with respect to each Fiscal Year and
each Quarter, a certificate signed by the chief financial officer of the Company
(i) stating that no Default has occurred and is continuing, (ii) stating that,
to the best of his knowledge, the Company is in compliance with each of the
Affirmative Covenants and each of the Negative Covenants, and (iii) setting
forth in reasonable detail a computation of each of the Financial Tests as of
the end of the applicable Fiscal Year or Quarter. The Compliance Certificate
shall be presented in a standard form reasonably satisfactory to the Purchaser.
1.35 "Convertible Securities" shall have the meaning set forth in the
Warrant Certificates.
1.36 "Current Assets" means, with respect to the Company at any date, the
aggregate amount of all assets of the Company that would be classified as
current assets, each computed in accordance with GAAP.
1.37 "Current Liabilities" means, with respect to the Company at any date,
the aggregate amount of all liabilities of the Company (including tax and other
proper accruals) that would be classified as current liabilities, computed in
accordance with GAAP.
1.38 "Default" means an Event of Default, or an event which with notice,
lapse of time or both, as provided for in Section 11 would constitute an Event
of Default.
1.39 "Deferred Payment Note" shall have the meaning set forth in the Asset
Purchase Agreement.
1.40 "Deferred Payment Note Closing" shall have the meaning set forth in
Section 2.1(d)
1.41 "Deferred Payment Note Closing Date" shall have the meaning set forth
in Paragraph E.
1.42 "Deferred Payment Note Principal Balance" shall have the meaning set
forth in Section 2.1(d).
1.43 "Deferred Payment Note Principal Payment" shall have the meaning set
forth in Section 2.1(d).
1.44 "Disposition" means (i) a merger, consolidation or other business
combination in which the Company is the surviving entity and the Company's
stockholders receive cash or non-cash consideration in exchange for or in
respect of their shares of Capital Stock of the Company or (ii) the sale, lease,
conveyance, transfer or other disposition (other than the grant of a security
interest) in any single transaction or series of related transactions of all or
substantially all of the assets of the Company.
1.45 "Dividends" in respect of any corporation means:
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(i) Cash distributions or any other distributions on, or in
respect of, any class of equity security of such
corporation, except for distributions made solely in shares
of securities of the same class; and
(ii) Any and all funds, cash or other payments made in respect of
the redemption, repurchase or acquisition of such
securities.
1.46 "EBITDA" means, as of any date, the earnings (before extraordinary
items, interest income or expense, taxes, depreciation, amortization, other non-
cash charges and rents) of the Company for the preceding four (4) Quarters
determined in accordance with GAAP (but until four (4) complete Quarters have
passed after the Tier I Closing Date, such calculation shall only include the
preceding one (1), two (2) or three (3) Quarters, as appropriate and commencing
with the Quarter commencing July 1, 1995.
1.47 "Environmental Laws" means any and all laws, statutes, judgments,
ordinances, rules, regulations, orders, determinations, interpretations, or
guidance of any governmental authority pertaining to health or the environment
in effect in any and all jurisdictions in which the Company and its
subsidiaries, if any, is conducting or at any time has conducted business, or
where any property of the Company and its subsidiaries, if any, whether leased
or owned, is located, or where any hazardous substances generated or disposed of
by the Company and its subsidiaries, if any, are located, including, without
limitation, the Federal Clean Air Act, as amended, the Comprehensive
Environmental, Response, Compensation and Liability Act of 1980, as amended, the
Federal Clean Water Act, as amended, the Occupational Safety and Health Act of
1970, as amended, the Resource Conversion and Recovery Act of 1976, as amended,
the Safe Drinking Water Act, as amended, the Toxic Substances Control Act, as
amended, the Superfund Amendments and Reauthorization Act of 1986, as amended,
the Emergency Planning and Community Right-to-Know Act, as amended, the Oil
Pollution Act of 1990, the National Environmental Policy Act, as amended, the
Hazardous Materials Transportation Act, as amended, the Atomic Energy Act, as
amended, the Federal Insecticide, Fungicide and Rodenticide Act, as amended, and
other environmental conservation or protection laws, now existing or hereafter
enacted.
1.48 "ERISA" means the Employee Retirement Security Act of 1974, as
amended from time to time.
1.49 "ERISA Affiliate" means all members of the group of corporations and
trades or businesses (whether or not incorporated) which, together with the
Company, are treated as a single employer under Section 414 of the Code.
1.50 "ERISA Plan" means any pension benefit plan subject to Title IV of
ERISA or Section 412 of the Code maintained or contributed to by the Company or
any ERISA Affiliate with respect to which the Company has a fixed or contingent
liability.
1.51 "Event of Default" shall have the meaning set forth in Section 11.
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1.52 "Excess Compensation" means compensation paid to the Management Group
in any twelve month period to the extent in excess of Base Compensation for such
period.
1.53 "Exchange Act" means the Securities Exchange Act of 1934, as amended,
and
1.54 "Financial Statements" means the Annual Financial Statements and
Quarterly Financial Statements of the Company.
1.55 "Financial Tests" means the financial tests with respect to the
Company set forth in Section 10, which tests are based upon the Annual and
Quarterly Financial Statements and determined as of the end of each Fiscal Year
and Quarter.
1.56 "Fiscal Year" means each year ended on June 30, or other fiscal year
of the Company adopted in the manner provided for in this Agreement. Each Fiscal
Year consists of four Quarters.
1.57 "Fixed Charges" means, as of any date, interest expense, principal
payments, taxes and rent expense (including payments under any operating leases)
for the preceding four (4) Quarters (but until four (4) complete Quarters have
passed after the Tier I Closing Date, such calculations shall only include the
preceding one (1), two (2) or three (3) Quarters, as appropriate and commencing
with the Quarter commencing July 1, 1995.
1.58 "GAAP" means those generally accepted accounting principles and
practices which are recognized as such by the Financial Accounting Standards
Board (or any generally recognized successor).
1.59 "Headquarters Assets" shall have the meaning set forth in the Asset
Purchase Agreement.
1.60 "Indebtedness" means with respect to the Company, as of any date of
determination, the sum (without duplication) at such date of (i) all
indebtedness of the Company for borrowed money or for the deferred purchase
price of property or services or which is evidenced by a note, bond, debenture,
or similar instrument, reflected on the most recent Financial Statements, (ii)
all obligations of the Company under any financing lease, (iii) all obligations
of the Company in respect of letters of credit, acceptances, or similar
obligations issued or created for the account of the Company, (iv) all guaranty
obligations of the Company, and (v) all liabilities secured by any lien on any
property owned by the Company, whether or not the Company has assumed or
otherwise become liable for the payment thereof.
1.61 "Initial Public Offering" means the first offer and sale to the
public by the Company or any holders of shares of any class of its Capital
Stock, pursuant to a registration statement that has been declared effective by
the SEC; provided, however, that the gross proceeds of the shares issued and
sold by the Company are at least $10,000,000.
1.62 "Interest Rate" shall have the meaning set forth in Section 2.2(b).
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1.63 "Investment" means any loan, advance or capital contribution to, or
investment in, or purchase or otherwise acquisition of any Capital Stock,
securities or evidences of Indebtedness of any Person.
1.64 "Key Man Policies" shall have the meaning set forth in Section 4.
1(d)(vii).
1.65 "Lead Bank Data" shall have the meaning set forth in the Asset
Purchase Agreement.
1.66 "Lender Reports" means, without duplication of statements,
certificates, notices or reports furnished to the Purchasers pursuant to Section
7.1 of this Agreement, copies of all financial statements, certificates,
notices, reports or other information furnished to any bank, financial
institution or note purchaser pursuant to the requirements of any loan or note
purchase or similar agreement with respect to any material Indebtedness of the
Company.
1.67 "Lien" means any mortgage, pledge, hypothecation, assignment, deposit
arrangement, encumbrance, lien (whether statutory or otherwise), or preference,
priority or other security agreement or preferential arrangement of any kind or
nature whatsoever (including, without limitation, any conditional sale or other
title retention agreement, any financing lease having substantially the same
economic effect as any of the foregoing, and the filing of any financing
statement under the uniform commercial code or comparable law of any
jurisdiction in respect of any of the foregoing).
1.68 "Management Group" means collectively, ▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇▇▇ St.
Pierre, ▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ and ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇.
1.69 "Management Letters" means any letter or report furnished by the
Accountants to management of the Company in connection with any Audit or
otherwise describing findings or recommendations with respect to the accounting
or management practices or procedures of the Company and, including, all reports
submitted to the Company by the Accountant in connection with any interim or
special audit made by the Accountant.
1.70 "Maturity Date" means with respect to the Notes, June 30, 2000.
1.71 "Minutes" means all minutes, minutes of written action or reports
(including schedules and exhibits thereto) of a shareholder's meeting or actions
and all meetings of actions of the board of directors or any committee thereof
or appointed thereby of the Company or any subsidiary.
1.72 "Month" means a calendar month.
1.73 "Monthly Financial Statements" means, with respect to each Month, the
consolidated Accounting Statements of the Company with respect to such Month,
which Accounting Statements shall be prepared and presented in the manner
customary for purposes of dissemination for management of the Company.
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1.74 "Negative Covenants" means the covenants of the Company set forth in
Section 9.
1.75 "Non-Surviving Combination" means any merger, consolidation or other
business combination by the Company with one or more other entities in a
transaction in which the Company is not the surviving entity.
1.76 "Notes" means $2,000,000 aggregate principal amount Subordinated
Secured Notes issued and sold by the Company to BOCP II and the $500,000
aggregate principal amount of Subordinated Senior Notes issued and sold to
Primus, pursuant to this Agreement, each due June 30, 2000 and "Note" means any
one of such Notes. The Notes are in the form of Exhibit A.
1.77 "Obligations" means (i) all amounts owed by the Company to the
Purchasers evidenced by the Notes, and (ii) all other present and future
indebtedness and obligations of the Company to the Purchasers however created,
arising or evidenced, direct or indirect, absolute or contingent, due or to
become due, now or hereafter existing (other than under the Warrant Certificates
or the Purchased Capital Stock).
1.78 "Outstanding Common Stock" means, as of any date, all shares of
Common Stock then outstanding plus the maximum number of shares of Common Stock
issuable in respect of Convertible Securities and options and warrants to
purchase shares of Common Stock or Convertible Securities outstanding on such
date (whether or not the rights to convert, exchange or exercise thereunder are
presently exercisable), including the maximum number of shares issuable under
the Warrants; provided that the maximum number of shares of Common Stock
issuable in respect of Convertible Securities and options and warrants to
purchase shares of Common Stock or Convertible Securities outstanding on such
date shall be adjusted in accordance with the "treasury stock" method determined
under generally accepted accounting principles pursuant to Accounting Principles
Board Opinion 15.
1.79 "Parties" means the Company and the Purchasers collectively, and
"Party" means any one of the Parties.
1.80 "Permitted Liens" means Liens securing Senior Indebtedness.
1.81 "Person" means any individual, corporation, limited liability
company, partnership, joint venture, association, joint stock company, trust,
unincorporated organization, governmental authority or any other form of equity.
1.82 "Primus" means Primus Capital Fund III Limited Partnership, an Ohio
limited partnership, together with its successors and assigns.
1.83 "Purchase Shares" shall have the meaning set forth in the Warrant
Certificate.
1.84 "Purchased Assets" shall have the meaning set forth in the Asset
Purchase Agreement.
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1.85 "Purchased Capital Stock" shall have the meaning set forth in
Paragraph C.
1.86 "Purchasers" means BOCP II and Primus.
1.87 "Put Option" means the option of the holders of the Warrants to
require the Company to purchase all of the Warrants, Warrant Shares and certain
other shares of Common Stock owned by such holder upon the exercise of such
option as provided for in the Warrant Certificates.
1.88 "Quarter" means each quarter annual period of the Fiscal Year. Each
Quarter consists of three Months.
1.89 "Quarterly Financial Statements" means, with respect to each
Quarter, the consolidated Accounting Statements of the Company with respect to
such Quarter and the current Fiscal Year to date, presented with corresponding
Accounting Statements for the same Quarter and Fiscal Year to date period for
the preceding Fiscal Year, which Accounting Statements shall be prepared in
accordance with GAAP (subject to applicable year end adjustments) and presented
in reasonable detail (but omitting footnotes that would substantially duplicate
footnotes contained in the most recent Annual Financial Statements).
1.90 "Related Documents" means the Security Agreement and the
Warrant Certificates.
1.91 "Responsible Officer" means the chief executive officer, chief
operating officer, chief financial officer or chief accounting officer of the
Company or any other officer of the Company involved principally in its
financial administration of its controllership function.
1.92 "Restricted Payments" means any of the following:
(i) any dividend on any class of the Company's Capital Stock;
(ii) any other distribution on account of any class of the
Company's Capital Stock;
(iii) any redemption, purchase or other acquisition, direct or
indirect, of any shares of the of the Company's Capital
Stock;
(iv) any Excess Compensation; and
(v) any management, consulting and other fees paid to any Person
which owns, or is an Affiliate of a Person which owns,
capital stock of the Company.
Notwithstanding the foregoing, Restricted Payments shall not include (A)
---
dividends paid, or distributions made, in Capital Stock of the Company; or (B)
exchanges of Capital Stock of the Company for another class of Capital Stock of
the Company, except to the extent that cash or other non-stock value is involved
in such exchange.
12
1.93 "Schools" shall have the meaning set forth in Paragraph A.
1.94 "SEC" means the United States Securities and Exchange Commission (or
any governmental body or agency succeeding to its functions).
1.95 "Securities Act" means the Securities Act of 1933, as amended, and
any successor law.
1.96 "Security Agreement" means the Security Agreement, dated as of the
date hereof among the Company, the Senior Lender and the Purchasers, as
modified, amended or restated from time to time, together with any other
agreements securing the payment of the obligations evidenced by the Senior Loans
and the Notes or under Senior Credit Agreement or this Agreement.
1.97 "Security Reports" means all financial statements, proxy statements,
notices and reports furnished to the shareholders or securities holders of the
Company and all registration statements and reports (including reports on Forms
10-K, 10-Q and 8-K) filed with the SEC.
1.98 "Seller" means National Education Centers, Inc., a California
Corporation, together with its successors and assigns.
1.99 "Senior Credit Agreement" shall have the meaning set forth in
Paragraph D, and including all extensions, renewals and refinancings thereof.
1.100 "Senior Lender" means BOCP II, in its capacity as lender under the
Senior Credit Agreement, together with its successors and assigns in such
capacity.
1.101 "Senior Loans" shall have the meaning specified in Paragraph D,
including all extensions, renewals and refinancings thereof.
1.102 "Senior Indebtedness" means the Senior Loans, and Indebtedness
incurred pursuant to the terms of any agreement (other than the Senior Credit
Agreement) between the Company and any bank or financial institution providing
for revolving credit loans secured by the Collateral; provided, that any such
other agreement shall have been consented to by the Purchasers, which consent
shall not be unreasonably withheld, and the lender with respect thereto shall
have been granted a first perfected security interest in the Collateral on terms
substantially equivalent to those set forth in the Security Agreement.
1.103 "Stock Purchase Agreement" shall have the meaning specified in
Paragraph C.
1.104 "Subordinated Debt" means Indebtedness of the Company which is
subordinated, in a manner satisfactory to and approved in writing by the
Purchasers, to the Indebtedness of the Company evidenced by the Notes.
1.105 "Subordinated Security Agreement" shall have the meaning
set forth in Section 4.2(d).
13
1.106 "Subsidiary" means any corporation, all of the stock of every class
of which, except directors' qualifying shares, shall at the time as of which any
determination is being made, be owned by the Company either directly or through
Subsidiaries.
1.107 "Tier I Closing" shall have the meaning set forth in Paragraph B.
1.108 "Tier I Closing Date" shall have the meaning set forth in Paragraph
E.
1.109 "Tier II Closing" shall have the meaning set forth in Paragraph B.
1.110 "Tier II Closing Date" shall have the meaning set forth in Paragraph
E.
1.111 "Tier III Closing" shall have the meaning set forth in Paragraph B.
1.112 "Tier III Closing Date" shall have the meaning set forth in
Paragraph E.
1.113 "Tier II Principal Balance" shall have the meaning set forth in
Section 2.1(b).
1.114 "Tier III Principal Balance" shall have the meaning set
forth in Section 2.1(c).
1.115 "Tier I Schools" shall have the meaning set forth in the Asset
Purchase Agreement.
1.116 "Tier II Schools" shall have the meaning set forth in the Asset
Purchase Agreement.
1.117 "Tier III Schools" shall have the meaning set forth in the Asset
Purchase Agreement.
1.118 "Total Liabilities" of any Person shall mean, as of any date, all
amounts which would be included as liabilities on a balance sheet of such Person
as of such date prepared in accordance with GAAP.
1.119 "Transfer" means, with respect to any item, the sale, exchange,
conveyance, lease, transfer or other disposition of such item.
1.120 "Trigger Event" means any of the following events: (i) an Initial
Public Offering; (ii) a Change of Control; (iii) a Disposition; or (iv) a Non-
Surviving Combination.
1.121 "UCC" means the Uniform Commercial Code as in effect in
the State of Ohio.
1.122 "Voting Power" means with respect to any corporation the power to
vote for or designate members of the board of directors of such corporation,
whether exercised by virtue of the record ownership of stock, under a close
corporation or similar agreement or under an irrevocable proxy.
14
"Tier II School" shall have the meaning set forth in the Asset
Purchase
"Tier III School" shall have the meaning set forth in the Asset
Purchase
1.123 "Warrant Certificates" means the certificates issued by the Company
to the Purchasers evidencing the Warrants.
1.124 "Warrant Shares" means the shares of Class A Stock of the Company
issuable to Primus and the shares of Class B Stock of the Company issuable to
BOCP II upon exercise of the Warrants, together with other shares of Common
Stock or Convertible Securities purchased or acquired as provided for in the
Warrant Certificates.
1.125 "Warrants" means the warrants to purchase an aggregate of 1,250
shares of Class A Common issued and sold to Primus by the Company and 5,000
shares of Class B Common issued and sold to BOCP II by the Company pursuant to
this Agreement. The Warrants are evidenced by Warrant Certificates.
Section 2. Purchase and Sale of the Notes.
Upon the terms and subject to the conditions set forth in this Agreement,
the Company shall issue and sell to BOCP II and BOCP II shall purchase from the
Company Notes in the aggregate principal amount of $2,000,000, for a purchase
price of $2,000,000 and the Company shall issue and sell to Primus and Primus
shall purchase from Company Notes in the aggregate principal amount of $500,000,
for a purchase price of $500,000. Such purchases and sales shall be consummated
on the Closing Dates as provided for in this Agreement, and on each such date
the Purchasers shall make payment of the purchase price of the Notes being
purchased by wire transfer to an account designated by the Company. BOCP II and
Primus shall be obligated to purchase 80% and 20%, respectively, of the
principal amount of any Notes being sold by the Company and purchased by the
Purchasers on a Closing Date.
2.1 Closings
The Purchasers shall be obligated to purchase Notes at such time or times
and in such amounts as hereinafter provided to provide funds to the Company to
pay a portion of the cash consideration for the Purchased Assets or to pay a
portion of the principal balance of the Deferred Payment Note, if any, pursuant
to the terms of the Asset Purchase Agreement.
(a) Tier I Closing. The Purchasers shall have no obligation to purchase
any Notes in connection with the Tier I Closing since the entire cash
consideration payable at the Tier I Closing will be provided from the proceeds
of the issuance and sale of the Purchased Capital Stock to the Purchasers
pursuant to the terms of the Stock Purchase Agreement.
(1)) Tier II Closing. In connection with the Tier II Closing, the Company
shall sell to the Purchasers and the Purchasers shall purchase from the Company
Notes in the aggregate principal amount equal to $2,125,000 less the Tier I
Deferred Amount (as defined in the Asset Purchase Agreement) (the "Tier II
Principal Balance").
(c) Tier III Closing. In connection with the Tier III Closing, the
Company shall sell to the Purchasers and the Purchasers shall purchase from the
Company Notes in the
15
aggregate principal amount equal to $375,000 (i) plus the Tier I Deferred
Amount, (ii) minus the Tier II Deferred Amount (as defined in the Asset Purchase
Agreement) (the "Tier
(d) Deferred Payment Note Closing. On any date on which the payment
-----------------------------
of all or part of the principal amount, if any, of the Deferred Payment Note is
due (a "Deferred Payment Note Closing"), the Company shall sell to the
Purchasers and the Purchasers shall purchase from the Company Notes in the
aggregate principal amount equal to the principal amount of, and accrued
interest on, the Deferred Payment Note then due (the "Deferred Payment Note
Principal Payment") but in no event shall the aggregate of all Notes purchased
hereunder to make Deferred Payment Note Principal Payments exceed (i) $2,500,000
(ii) minus the sum of (a) the Tier II Principal Balance, and (b) the Tier III
Principal Balance (the "Deferred Payment Note Principal Balance").
2.2 TERMS OF THE NOTES
The Notes shall include the following terms and shall be substantially in
the form of Exhibit A.
(a) Term. The Notes shall be dated the date of this Agreement and
----
shall be due and payable in full on or before the Maturity Date.
(b) Interest Rate. The Notes shall accrue interest (computed on the
-------------
basis of the actual number of days elapsed over a 360 day year with daily
compounding) on the unpaid principal balance thereof at a floating rate per
annum equal to the Base Rate in effect from time to time plus a fixed spread
determined as of the Tier II Closing Date equal to a percentage which when added
to the Base Rate as of the Tier II Closing Date will equal 12%, compounded
daily ("Interest Rate"). The spread so determined shall remain fixed throughout
the term of this Agreement. The Interest Rate shall reset weekly and shall not
be less than 10% per annum nor more than the lesser of 14% per annum or the
maximum permitted by law.
(c) Interest Payment Dates. Interest on each Note shall be payable
----------------------
monthly in arrears on the last Business Day of each Month commencing on the last
Business Day of the Month immediately succeeding the month in which such Note
was issued.
(d) Principal Payments. The unpaid principal amount of the Notes
-------------------
shall be due and payable in a single installment on the Maturity Date.
(e) Prepayments. The Notes may be prepaid in whole or in part in
-----------
amounts of not less than $100,000. Each prepayment of principal shall be
accompanied by the payment of all accrued but unpaid interest through the date
of prepayment.
(f) Subordination. The Notes will be subordinated, with respect to
-------------
the Collateral, to all Senior Indebtedness of the Company outstanding or
incurred in a manner permitted by this Agreement and, specifically, shall be
subordinated to the Senior Loans, including all renewals, extensions,
continuations and refinancings thereof.
16
(g) Payments. All payments or prepayments to be made by the Company,
--------
with respect to principal or interest on the Notes shall be due at 1:30 p.m.
Columbus, Ohio time on the day when due and shall be made to the Purchasers in
federal funds or other immediately available lawful money of the United States
of America. Whenever any payment to be made hereunder shall be due other than on
a Business Day, such payment shall be made on the Business Day preceding the due
date.
(h) Security. As security for the payment of the Notes and for the
--------
performance of, and compliance with all of the terms, covenants, conditions and
stipulations and agreements contained in this Agreement and in the Notes, the
Company, by the Security Agreement and by other instruments, including UCC
financing statements, shall, as provided in the Security Agreement, assign and
grant to the Purchasers a perfected security interest in all assets of the
Company, whether now owned or hereafter acquired, which shall be second in
priority solely to the first perfected security interest in the Collateral
granted to the Senior Lender pursuant to the terms of the Security Agreement or
any replacement agreement arising in connection with a refinancing of the Senior
Loans.
(i) Financing Fee. As additional consideration for the purchase of
-------------
the Notes, the Company shall pay to BOCP II a financing fee of $40,000 and to
Primus Venture Partners Limited Partnership.
SECTION 3. ISSUANCE OF WARRANTS.
Upon the terms and subject to the conditions set forth in this Agreement,
the Company shall issue and sell to Primus and Primus shall purchase from
Company for a purchase price of $100 Warrants to purchase 1,250 shares of Class
A Common, and the Company shall issue and sell to BOCP II and BOCP II shall
purchase from the Company for a purchase price of $100 Warrants to purchase
5,000 shares of Class B Common, which shares collectively represent, as of the
date hereof, in the aggregate 5% of the Outstanding Common Stock, of the
Company, after giving effect to the issuance of such Warrant Shares. Such sales
and purchases shall be consummated on the Tier I Closing Date as provided for in
this Agreement. The terms and conditions of exercise of such Warrants, including
the time of exercise, the number of Warrant Shares which may be purchased upon
exercise shall be as provided in the Warrant Certificates.
SECTION 4. CONDITIONS TO CLOSINGS.
The obligations of the Purchasers to purchase the Notes and the Warrants on
each Closing Date is subject to the fulfillment of the conditions precedent for
each such Closing Date as hereinafter set forth.
4.1 PURCHASE OF WARRANTS ON TIER I CLOSING DATE
The obligations of the Purchasers to purchase the Warrants on the Tier I
Closing Date is subject to the fulfillment, in a manner reasonably satisfactory
to the Purchasers and their counsel, of each of the following conditions
precedent.
17
(a) No Event of Default. No Event of Default or event which with
-------------------
notice, lapse of time or both would constitute an Event of Default has occurred.
(b) Representations and Warranties. Each of the representations and
------------------------------
warranties of the Company set forth in this Agreement and the Security Agreement
shall be true and correct in all material respects as of the Tier I Closing
Date.
(c) Senior Credit Agreement. The Senior Credit Agreement shall have
-----------------------
been duly executed and delivered by the Company and the Senior Lender, shall be
in full force and effect, and no event of default under such agreement or event
which with notice, lapse of time or both would constitute an event of default
under such agreement shall have occurred thereunder.
(d) Execution and Delivery of Documents. Each of the following
-----------------------------------
documents, in form and substance reasonably satisfactory to the Purchasers and
their counsel, shall have been duly executed and delivered:
(i) Warrant Certificates for the purchase of 1,250 Warrant
Shares issued in the name of Primus and 5,000 Warrant
Shares issued in the name of BOCP II;
(ii) Security Agreement;
(iii) Senior Credit Agreement;
(iv) Certified copies of the corporate resolutions of the
Company authorizing the execution, delivery and
performance of its obligations under this Agreement, the
Notes, the Related Documents and any other documents to be
delivered pursuant to this Agreement;
(v) Certified copies of the Company's Certificate of
Incorporation, including any and all amendments thereto,
and a certified copy of the bylaws of the Company as in
effect on the Tier I Closing Date;
(vi) A certificate of the Secretary of the Company certifying
the names of the officers of the Company authorized to
sign this Agreement, the Notes, the Warrant Certificates,
the Related Documents and any other documents or
certificates to be delivered pursuant to this Agreement by
the Company, together with the true signatures of such
officers;
(vii) Evidence of the issuance to the Company of a key man life
insurance policy in the amount of One Million Five Hundred
Thousand Dollars ($1,500,000) on the life of ▇▇▇▇▇ ▇.
▇▇▇▇▇, and One Million Dollars ($1,000,000) on the life of
▇▇▇▇ St.
18
Pierre, naming the Company as the sole beneficiary ("Key
Man Policies");
(viii) Evidence satisfactory to the Purchasers of the
consummation of the purchase of the Purchased Capital
Stock pursuant to the terms of the Stock Purchase
Agreement;
(ix) Payment of the closing fees of $40,000 and $10,000 shall
have been made to BOCP II and Primus Venture Partners
Limited Partnership, respectively;
(x) An opinion of counsel for the Company, addressed to the
Purchasers, in form and substance satisfactory to the
Purchasers and their counsel; and
(xi) Such other opinions, certificates, affidavits, documents
and filings, including any and all UCC filings, as the
Purchasers may deem reasonably necessary or appropriate.
(e) Asset Purchase Agreement. The Asset Purchase Agreement shall be
------------------------
in full force and effect as of the Tier I Closing Date and shall not have been
amended or modified. The conditions precedent to the obligations of the Company
to complete the purchase of the Purchased Assets pursuant to the terms of the
Asset Purchase Agreement shall have been satisfied in full (without reliance on
any waiver by the Company) and the Tier I Closing shall have been consummated in
accordance with the terms of the Asset Purchase Agreement. The Seller shall not
have any right under the Asset Purchase Agreement to terminate, and shall not
have terminated, the Company's right to purchase or manage any of the Schools.
4.2 PURCHASE OF NOTES ON TIER II CLOSING DATE
The obligations of the Purchasers to purchase Notes on the Tier II Closing
Date in the aggregate principal amount equal to the Tier II Principal Balance is
subject to the fulfillment, in a manner reasonably satisfactory to the
Purchasers and their counsel, of each of the following conditions precedent.
(a) No Event of Default. No Event of Default or event which with
-------------------
notice, lapse of time or both would constitute an Event of Default has occurred.
(b) Representations and Warranties. Each of the representations and
------------------------------
warranties of the Company set forth in this Agreement and the Security Agreement
shall be true and correct in all material respects as of the Tier II Closing
Date.
(c) Execution and Delivery of Notes. Notes in the aggregate principal
-------------------------------
amount equal to the Tier II Principal Balance shall have been duly executed and
delivered to the Purchasers.
19
(d) Execution and Delivery of Subordinated Security Agreement. The
---------------------------------------------------------
Company shall have executed and delivered a subordinated security agreement in
the form attached to the Asset Purchase Agreement (the "Subordinated Security
Agreement") as security for the performance of the Company's obligations under
the Asset Purchase Agreement including payment of all principal and interest on
the Deferred Payment Note. The security interest in the Purchased Assets granted
to the Seller pursuant to the terms of the Subordinated Security interest shall
be subordinate to the security interest of the Lender and the Purchasers in the
Collateral granted pursuant to the terms of the Security Agreement.
(e) Acquisition Transaction. The Asset Purchase Agreement shall be in
-----------------------
full force and effect as of the Tier II Closing Date and shall not have been
amended or modified. The Tier II Closing shall have been consummated in
accordance with the terms of the Asset Purchase Agreement. The Seller shall not
have any right under the Asset Purchase Agreement to terminate, and shall not
have terminated, the Company's right to purchase or manage any of the Schools.
4.3 PURCHASE OF NOTES ON TIER III CLOSING DATE
The obligations of the Purchasers to purchase Notes on the Tier III Closing
Date in the aggregate principal amount equal to the Tier III Principal Balance
is subject to the fulfillment, in a manner reasonably satisfactory to the
Purchasers and their counsel, of each of the following conditions precedent.
(a) No Event of Default. No Event of Default or event which with
-------------------
notice, lapse of time or both would constitute an Event of Default has occurred.
(b) Representations and Warranties. Each of the representations and
------------------------------
warranties of the Company set forth in this Agreement and the Security Agreement
shall be true and correct in all material respects as of the Tier III Closing
Date.
(c) Execution and Delivery of Notes. Notes in the aggregate
-------------------------------
principal amount equal to the Tier III Principal Balance shall have been duly
executed and delivered to the Purchasers.
(d) Acquisition Transaction. The Asset Purchase Agreement shall be
-----------------------
in full force and effect as of the Tier III Closing Date and shall not have been
amended or modified. The Tier III Closing shall have been consummated in
accordance with the terms of the Asset Purchase Agreement. The Seller shall not
have any right under the Asset Purchase Agreement to terminate, and shall not
have terminated, the Company's right to purchase or manage any of the Schools.
4.4 PURCHASE OF NOTES ON A DEFERRED PAYMENT NOTE CLOSING DATE
The obligations of the Purchasers to purchase Notes on a Deferred Payment
Note Closing Date in the aggregate principal amount equal to the Deferred
Payment Note Principal Payment
20
is subject to the fulfillment in a manner reasonably satisfactory to the
Purchasers and their counsel, of each of the following conditions precedent.
(a) No Event of Default. No Event of Default or event which with
-------------------
notice, lapse of time or both would constitute an Event of Default has occurred.
(b) Representations and Warranties. Each of the representations and
------------------------------
warranties of the Company set forth in this Agreement and the Security Agreement
shall be true and correct in all material respects as of the Deferred Payment
Note Closing Date.
(c) Execution and Delivery of Notes. Notes in the aggregate
-------------------------------
principal amount equal to the Deferred Payment Note Principal Payment shall have
been duly executed and delivered to the Purchasers.
(d) Acquisition Transaction. The Asset Purchase Agreement shall be
-----------------------
in full force and effect as of the Deferred Payment Note Closing Date and shall
not have been amended or modified. The Seller shall not have any right to
terminate, and shall not have terminated, the Company's right to purchase or
manage the Schools.
(e) Release of Security Interest in Purchased Assets. In the event
------------------------------------------------
that, after giving effect to any Deferred Payment Note Principal Payment the
principal balance of the Deferred Payment Note is zero, the Company shall have
delivered to the Purchasers evidence satisfactory to them that the Seller's
security interest in the Purchased Assets granted pursuant to the terms of the
Subordinated Security Agreement has been released.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF COMPANY.
The representations and warranties of the Company set forth in this Section
5 shall survive the purchase and sale of the Notes and Warrants, and any
investigation made by the Purchasers shall not diminish the right of the
Purchasers to rely upon such representations and warranties. The Company
represents and warrants to the Purchasers as follows.
(a) Organization. The Company is a corporation duly organized and
------------
validly existing under the laws of the state of its incorporation and the
execution, delivery and performance of this Agreement, each of the Related
Documents and of any instrument or agreement required by this Agreement and each
of the Related Documents are within the Company's powers, have been duly
authorized, and are not in conflict with the terms of any charter, bylaw or
other organizational documents of the Company.
(b) Subsidiaries. Immediately after the date of Closing, the
------------
Company will not have any subsidiaries or own any Capital Stock, partnership
interest, membership interest or other equity interest in or of any other
entity.
(c) Good Standing. The Company is properly licensed and in good
--------------
standing in each state in which the Company is doing business and the Company
has qualified under, and complied with, where required, the fictitious name
statute of each state in which the Company
21
is doing business and where the failure to do so would have a material adverse
affect on the Company's financial condition or operations.
(d) Information Submitted. Any audited consolidated Annual Financial
---------------------
Statements and unaudited Quarterly Financial Statements of the Company submitted
by the Company to the Purchasers have been prepared in accordance with GAAP
consistently applied, are true and correct in all material respects and are
complete insofar as may be necessary to give the Purchasers a true and accurate
knowledge of the subject matter thereof.
(e) No Material Adverse Change. There has been no material adverse
--------------------------
change in the consolidated financial condition of Company since the later of (i)
May 31, 1995, and (ii) date of the most recent Financial Statements submitted to
the Purchasers.
(f) Disclosure. Neither this Agreement nor any other document,
----------
opinion, Accounting Statement, certificate or statement by an officer of the
Company furnished or made by or on behalf of the Company in connection with the
transactions contemplated in this Agreement, including Acquisition Transaction,
contains any untrue statement of a material fact or omits to a state a material
fact necessary in order to make the statements contained therein not misleading.
There is no fact peculiar to the Company which materially and adversely affects
or in the future may (so far as the Company can reasonably foresee) materially
and adversely affects the business, property or assets or financial condition of
the Company which has not been disclosed to the Purchasers in this Agreement or
in other documents, opinion, Accounting Statements, certificates or statements
furnished to or made by or on behalf of the Company to the Purchasers in
connection with the transactions contemplated by this Agreement.
(g) No Conflicts. The execution, delivery and performance of this
------------
Agreement, the Related Documents and any other instrument or agreement required
by this Agreement are not in conflict with any law or any material indenture,
agreement or undertaking to which the Company is a party or by which the Company
is bound or affected.
(h) Enforceability. This Agreement is a legal, valid and binding
--------------
agreement of the Company, enforceable against the Company in accordance with its
terms and each Related Document, and any instrument or agreement required under
this Agreement, when executed and delivered, will be similarly legal, valid,
binding and enforceable in accordance with their respective terms, except, in
either case, as enforcement thereof may be affected by bankruptcy, moratorium,
insolvency or similar laws affecting creditors' rights generally or by the
application by a court of equitable principles.
(i) Ownership of Collateral. All Collateral is owned by the Company
-----------------------
free and clear of all security interests, liens, encumbrances and rights of
others except for the rights of the Senior Lender and the Purchasers under the
Security Agreement, the rights of the Seller under the Subordinated Security
Agreement and those consented to in writing by the Senior Lender and the
Purchasers.
(j) Perfected Security Interest in Collateral. Except for the filing
-----------------------------------------
of financing statements with respect to the Collateral and the delivery to the
Purchasers of any Collateral as
22
to which possession is the only method of perfecting a security interest
therein, no further action is necessary in order to establish and perfect the
Purchasers' lien on or perfected security interest in the Collateral, which lien
shall be second only to the lien of the Senior Lender.
(k) Compliance with Laws. To the best of the knowledge of the
--------------------
Company, the Company has complied with all federal, state and local laws, rules
and regulations affecting the business of the Company.
(l) Environmental Compliance. The Company and all of its properties
------------------------
and facilities have, at all time and in all respects, complied with all
Environmental Laws, except where the failure to comply would not have a material
adverse effect on the business, condition (financial or otherwise) or operations
of the Company, assuming all such instances of noncompliance were brought to the
attention of appropriate governmental authorities.
(m) Labor and Employee Relations Matters.
------------------------------------
(i) The Company is not and does not expect to be the subject
of any union organizing activity or labor dispute, nor has
there been any strike of any kind called or, to the
knowledge of the Company, threatened to be called against
the Company; and the Company has not violated any
applicable federal or state law or regulation relating to
labor or labor practices.
(ii) No present or former employees of the Company have
advanced claims in writing against the Company (whether
under any foreign, federal, state or common law, through a
government agency, under an employment agreement,
collective bargaining agreement, personal service or
independent contractor agreement or otherwise) that are
currently pending for (a) overtime pay, other than
overtime pay for the current payroll period; (b) wages,
salaries or profit sharing (excluding wages, salaries or
profit sharing for the current payroll period); (c)
vacations, time off (including, without limitation,
potential sick leave) or pay in lieu of vacation or time
off, other than vacation or time off (or pay in lieu
thereof) earned in respect of the current Fiscal Year; (d)
any violation of any statute, ordinance or regulation
relating to minimum wages or maximum hours of work; (e)
discrimination against employees on any basis; (f)
unlawful employment or termination practices; (g) unfair
labor practices or alleged violations of collective
bargaining agreements; (h) any violation of occupational
safety and/or health standards; (i) benefits under any
employee plans or compensation arrangement; and (j) breach
of any employment, personal service or independent
contractor agreement, except any such claims which, in the
aggregate, do not exceed $100,000.
23
(iii) There is not pending against the Company or, to the
knowledge of the Company threatened, any labor dispute,
strike or work stoppage that does or may materially affect
or materially interfere with the Company's operations.
(iv) There is not pending or, to the knowledge of the Company
threatened, any charge or complaint against the Company by
or before the National Labor Relations Board, any
representative thereof, or any comparable foreign or state
agency or authority.
(v) All collective bargaining agreements to which the Company
is a party have been furnished to the Purchaser hereto.
(n) No Event of Default. No event has occurred and is continuing or
-------------------
would result from the transactions described in this Agreement which constitutes
or would constitute an Event of Default or which, upon a lapse of time or notice
or both, would become an Event of Default.
(o) Litigation. There is no litigation, tax claim, proceeding or
----------
dispute pending, or, to the knowledge of the Company threatened, against or
affecting the Company or its property, the adverse determination of which will
have a material adverse affect the Company's financial condition or operation or
impair the Company's ability to perform its obligations hereunder or under any
instrument or agreement required hereunder.
(p) Taxes. All tax returns required to be filed by the Company in
-----
any jurisdiction have been filed or extended and all taxes, assessments, fees
and other governmental charges upon the Company or upon any of its properties,
income or franchises have been paid prior to the time that such taxes could give
rise to a lien thereon, unless protested in good faith by appropriate
proceedings and with respect to which reserves in conformity with GAAP have been
established on the books of the Company. The Company has no knowledge of any
proposed tax assessment against the Company.
(q) Securities Act. The Company has not issued any unregistered
--------------
securities in violation of the registration requirements of the Securities Act,
any applicable state securities law, or of any other requirement of law, and is
not violating any rule, regulation, or requirement under the Securities Act or
the Securities and Exchange Act. The Company is not required to qualify an
indenture under the Trust Indenture Act of 1939, as amended, in connection with
its execution and delivery of the Notes.
(r) Indebtedness. Immediately after the date of Closing, the
------------
Company will not have any outstanding Indebtedness other than the Notes, the
Senior Loans, accounts payable and other indebtedness incurred in the ordinary
course of business.
(s) ERISA Plan. The Company has no ERISA Affiliates and does not
----------
currently maintain, contribute to, have any requirements to contribute to or
have any liability, whether absolute or contingent, with respect to any ERISA
Plan.
24
SECTION 6. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS.
The representations and warranties of the Purchasers set forth in this
Section 6 shall survive the purchase and sale of the Notes and Warrants, and any
investigation made by the Company shall not diminish the right of the Company to
rely upon such representations and warranties. The Purchasers represent and
warrant to the Company as follows.
(a) Organization. Each Purchaser represents and warrants that it
------------
is a limited partnership duly organized and validly existing under the laws of
the state of its formation and the execution, delivery and performance of this
Agreement, each of the Related Documents and of any instrument or agreement
required by this Agreement, or each of the Related Documents are within its
powers, have been duly authorized, and are not in conflict with the terms of any
provision of its partnership agreement or other organizational papers.
(b) No Conflicts. The execution, delivery and performance of
------------
this Agreement, the Related Documents and any other instrument or agreement
required by this Agreement are not in conflict with any law or of any material
indenture, agreement or undertaking to which either Purchaser is a party or by
which either Purchaser is bound or affected.
(c) Enforceability. This Agreement is a legal, valid and binding
--------------
agreement of each Purchaser, enforceable against each Purchaser in accordance
with its terms, the Related Documents and any other instrument or agreement
required under this Agreement, when executed or delivered, will be legal, valid,
binding and enforceable.
(d) Authorization and Consents. No approval, consent,
--------------------------
compliance, exemption, authorization or other action by, or notice to, or filing
with, any governmental authority or any other Person pursuant to applicable law,
and no lapse of the waiting period under the applicable law, is necessary or
required in connection with the execution, delivery and performance by each
Purchaser or enforcement against each Purchaser of this Agreement or the
transactions contemplated hereby.
(e) Experience. Each Purchaser is an accredited investor within
----------
the meaning of Rule 501(a) of Regulation D promulgated under the Securities Act
and has substantial experience in evaluating and investing in securities of
companies similar to the Company and has made investments of securities other
than those of the Company. Each Purchaser acknowledges that by reason of its
business or financial experience and financial condition, it has the ability to
analyze and bear the entire risk of its investment pursuant to this Agreement.
(f) Investment Intent. Each Purchaser is acquiring its Notes,
-----------------
Warrant Certificate and Warrant Shares for investment for its own account, not
as a nominee or agent and not with a view to, or for resale in connection with,
any distribution thereof. Each Purchaser understands that the issuance and sale
of such securities purchased by it hereunder (and the issuance to each Purchaser
of Warrant Shares upon the conversion of the Warrant Certificate) have not been,
and will not be, subject to a registration statement filed under the Securities
Act or any applicable state securities law by reason of a specific exemption
from the registration provisions of the Securities Act and such state securities
laws which depend upon,
25
among other things, the bona fide nature of the investment intent and the
accuracy of each Purchaser's representation as expressed herein.
(g) Rule 144. Each Purchaser acknowledges that the securities
--------
which could be acquired hereunder are restricted securities within the meaning
of Rule 144 promulgated under the Securities Act and must be held indefinitely
unless subsequently registered under the Securities Act and applicable state
securities laws or unless an exemption from such registration is available. Each
Purchaser is aware of the provisions of Rule 144 promulgated under the
Securities Act which permits the limited resale of securities purchased in a
private placement subject to the satisfaction of certain conditions including,
without limitation, the existence of a public market for the securities, the
availability of certain current public information about the Company, the resale
occurring not less than two years after a party has purchased and paid for any
security to be sold, the sale being effected through a "broker's transaction" or
a transaction directly with a "market maker" as provided by Rule 144(f), and the
number of securities being sold during any three-month period not exceeding
specified limitations.
(h) No Public Market. Each Purchaser understands that no public
----------------
market now exists for any of the securities to be purchased by it hereunder and
that the Company has given no assurance that a public market will ever exist for
any of the Company's securities.
(i) Knowledge of Offer. Each Purchaser is aware of and has
------------------
investigated the Company's business, management and financial condition, has had
the opportunity to inspect the Company's facilities and has had access to such
other information about the Company as each Purchaser has deemed necessary and
desirable to reach an informed and knowledgeable decision to acquire the
securities to be purchased by it hereunder. The purchase of such securities is
not a result of an advertisement of an offering in connection with the sale of
such securities.
SECTION 7. FINANCIAL REPORTING.
The obligations and covenants of the Company set forth in this Section 7
shall terminate upon the later to occur of (i) the exercise of both of the Put
Options (as defined in the Warrant Certificates), and (ii) the date upon which
the Purchasers are no longer the holder of any Notes, Warrants, Warrant Shares
or Purchase Shares.
7.1 FINANCIAL REPORTS.
The Company shall deliver, or shall cause to be delivered to the
Purchasers the following financial reports within the applicable time periods
specified in this Section.
(a) Annual Financial Statements. The Annual Financial Statements
---------------------------
shall be delivered within ninety (90) days after the end of each Fiscal Year,
and shall be accompanied by the applicable Audit Report, Accountant's Statement,
CFO Certificate and Compliance Certificate.
(b) Quarterly Financial Statements. The Quarterly Financial
------------------------------
Statements shall be delivered within forty-five (45) days after the end of each
Quarter (other than the fourth
26
Quarter) of each Fiscal Year, and shall be accompanied by the applicable CFO
Certificate and Compliance Certificate.
(c) Monthly Financial Statements. The Monthly Financial Statements
----------------------------
shall be delivered promptly upon their dissemination to management of the
Company.
(d) Projected Financial Statements. The projected Financial
------------------------------
Statements with respect to each succeeding Fiscal Year shall be delivered with
sixty (60) days after the end of the preceding Fiscal Year.
(e) Securities Reports. Any Securities Reports shall be delivered
------------------
promptly upon their delivery to shareholders, securities holders or the SEC.
(f) Lender Reports. Any Lender Reports shall be delivered promptly
--------------
upon their delivery to any lender or note holder.
(g) Management Letters. Any Management Letters shall be delivered
------------------
promptly after receipt thereof.
(h) Minutes. Any Minutes shall be delivered promptly upon the
-------
recording of such Minutes in the records of the Company.
Notwithstanding the foregoing provisions, so long as the Stock Purchase
Agreement remains in full force and effect, the Company's obligation to deliver
the financial reports set forth in Sections 7.1(a) through 7.1(d) shall be
satisfied by the delivery to the Purchasers of the financial statements and
other information required to be delivered to the Purchasers pursuant to Section
3A of the Stock Purchase Agreement.
7.2 OTHER INFORMATION.
Promptly upon reasonable written request therefor, the Company shall
furnish (or cause to be furnished) to such Purchaser other financial or other
information with respect to the Company available in the books, records and
files of the Company; provided, however, that if such information cannot be
furnished without undue expense, the Company may require such Purchaser to
reimburse it for all reasonable out-of-pocket expenses incurred in connection
with furnishing such information.
7.3 RULE 144A.
The Company shall upon the reasonable written request of a Purchaser,
furnish to any qualified institutional buyer (as such term is defined in Rule
144A under the Securities Act) designated by the Purchaser, such financial or
other information as the Purchaser reasonably determines is necessary in order
to afford compliance with the applicable information requirements under Rule
144A under the Securities Act in connection with any proposed sale of the
Warrants, Warrant Shares, or Purchase Shares except at such times as the Company
is subject to the reporting requirements of Section 13 or 15(d) of the Exchange
Act.
27
7.4 PREPARATION OF ANNUAL AND QUARTERLY FINANCIAL STATEMENTS IN
ACCORDANCE WITH GAAP.
The Company shall cause the Company to maintain adequate books, accounts
and records, and to prepare all Annual and Quarterly Financial Statements
required to be delivered to the Purchasers pursuant to this Section in
accordance with GAAP applied in a manner consistent with the practices, policies
and procedures applied in connection with the preparation of the financial
statements of the Company initially delivered to the Purchasers, except for any
changes in such practices, policies and procedures permitted or approved in the
manner provided for in this Section.
7.5 CHANGES IN GAAP AND IN PRACTICES, POLICIES AND PROCEDURES.
(a) Notice of Proposed Change. In the event that the Company
-------------------------
proposes to make any material change in any of the practices, policies or
procedures applied in connection with the preparation of its Annual or Quarterly
Financial Statements, the Company shall:
(i) notify the Purchasers in writing of such proposed change
at least forty-five (45) days prior to the required
delivery date of the first Annual or Quarterly Financial
Statement that will be effected by such proposed change;
(ii) state in reasonable detail in such notice the reason for
such change, including, if applicable, a description of
any change in GAAP that occasion such change;
(iii) submit with such notice a written statement by the chief
financial officer of the Company and the Accountants
describing the anticipated effect, if any, of the proposed
change to the computation of the Financial Tests, or
stating that in their opinion such proposed change will
have no material effect on the computation of such
Financial Tests; and
(iv) in the event such proposed change will have a material
effect on the computation of such Financial Tests, submit
with each Compliance Certificate a written reconciliation
in reasonable detail demonstrating the computation of the
Financial Tests as if such change had not been made.
(b) Consent to Change. Unless such change in practices, policies or
-----------------
procedures is required by a change in GAAP, the Company shall not adopt any such
proposed change without the written consent of each Purchaser, which consent
shall not be unreasonably withheld by the Purchaser; provided, however, that the
Company shall not permit the Company to change its Fiscal Year without the
written consent of each Purchaser, which consent may be withheld in the exercise
of its sole discretion.
28
(c) Effect of Change on Financial Tests. In the event that any such
-----------------------------------
change in policies, practice or procedures would materially affect the
computation of any Financial Test, and unless this Agreement is amended to make
appropriate modifications to such Financial Test, compliance with all such
Financial Test shall be determined on a proforma basis without giving effect to
any such change.
7.6 NOTICE OF CERTAIN EVENTS.
The Company shall give prompt written notice to each Purchaser of the
occurrence of any of the following events:
(i) a Default;
(ii) the occurrence of any event which with notice, lapse of
time or both would constitute an event of default under
any Senior Indebtedness;
(iii) all litigation affecting the Company where the
amount claimed is Two Hundred Fifty Thousand
Dollars ($250,000) or more;
(iv) any substantial dispute which may exist between
the Company and any governmental regulatory
body or law enforcement authority;
(v) Any other matter which has resulted or might result in a
material adverse change in the Company's financial
condition or operations;
(vi) the loss or destruction of any material asset
of the Company; and
(vii) the occurrence of or the entering into any
agreement or letter of intent with respect to
any Trigger Event.
7.7 INSPECTIONS.
(a) Books. Records. Audits and Inspections. The Company shall
--------------------------------------
maintain adequate books, accounts and records and prepare all Annual, Quarterly
or Monthly Financial Statements required hereunder in accordance with GAAP
consistently applied, and in compliance with the regulations of any governmental
regulatory body having jurisdiction over the Company or the Company's business
and permit employees or agents of the Purchasers at any reasonable time to
inspect Company's properties, and to examine or audit the Company's books,
accounts and records and make copies and memoranda thereof. In the event any
properties, books, accounts or records are in the possession of or under the
control of a third party, the Company shall direct and hereby authorize such
third party to permit access to the Purchasers' employees or agents for the
purpose of performing the inspections, appraisals, examinations or audits
permitted under this Section, and to respond to any reasonable requests from the
Purchasers for information concerning the amount, status or condition of any
assets in a third party's possession or control.
29
SECTION 8. AFFIRMATIVE COVENANTS.
Until payment in full of the Notes and the performance by the Company of
all of its other obligations hereunder, the Company and any Subsidiaries, shall,
unless each Purchaser waives compliance therewith in writing:
(a) Insurance. Insure and maintain insurance upon all of its
---------
assets and business properties and public and product liability insurance with
responsible and reputable insurers of such character and in such amounts as are
usually maintained by companies engaged in like business.
(b) Payment of Taxes and Claims. Pay all taxes, assessments and
---------------------------
other governmental charges imposed upon its properties or assets or in respect
of any of its franchises, business, income or profits before any penalty or
interest accrues thereon, and all claims (including, without limitation, claims
for labor, services, materials and supplies) for sums which have become due and
payable and which by law have or might become due and payable or become a lien
or charge upon any of its properties or assets, provided that (unless any
material item of property would be lost, forfeited or materially damaged as a
result thereof) no such charge, tax, assessment or claim need be paid if the
amount, applicability or validity thereof is currently being contested in good
faith and if such reserve or other appropriate provision, if any, as shall be
required by GAAP shall have been made therefor.
(c) Compliance with Laws. Comply in all material respects with
--------------------
all applicable statutes, laws, ordinances and governmental rules, regulations
and orders including, but not limited to, all Environmental Laws, to which it is
subject or which are applicable to its business, properties and assets if
noncompliance therewith would materially adversely affect such business.
(d) Preservation of Existence. Preserve and maintain its
-------------------------
corporate existence, as the case may be, and its rights, franchises and
privileges in the jurisdiction of its incorporation and qualify and remain
qualified as a foreign corporation in each jurisdiction in which the failure to
do so would have a material adverse affect on the Company's financial condition
or operations.
(e) Maintenance of Tangible Assets. Maintain its tangible assets
------------------------------
in good condition and repair in accordance with the requirements of its business
and shall not permit any action or omission which might materially impair the
value thereof, normal wear and tear excepted.
(f) Performance of Contracts. Perform and comply with, in
------------------------
accordance with its terms, all material provisions of each and every material
contract, agreement or instrument now or hereafter binding upon it, except to
the extent it may contest the provisions thereof in good faith and by proper
proceedings.
30
SECTION 9. NEGATIVE COVENANTS.
Until payment in full of the Notes and the performance by the Company of
all of its other obligations hereunder, the Company and any Subsidiaries shall
not, unless the prior written consent of each Purchaser is obtained:
(a) Other Indebtedness. Create or incur, contract, assume, have
------------------
outstanding, guarantee or otherwise be or become directly or indirectly liable
in respect of any Indebtedness; provided, however, that this Section shall not
be deemed to prohibit:
(i) The Senior Indebtedness;
(ii) Up to $100,000 of Indebtedness of the Company
evidenced by Capitalized Lease Obligations of the
Company or incurred by the Company simultaneously with
its purchase of real or personal property;
(iii) Lease financing or purchase money for equipment which
is secured by the equipment so leased or purchased;
and
(iv) Indebtedness of any Subsidiary to the Company or
another Subsidiary.
(b) Prepayments. Pay any Indebtedness prior to its scheduled
-----------
maturity or scheduled payment date other than the Notes or the Senior Loans.
(c) Liens. Grant, create, incur, assume, permit or suffer to
-----
exist any Lien, upon any of its properties or assets, whether now owned or
hereafter acquired, except, to the extent not otherwise prohibited hereunder:
(i) Liens for taxes not yet due or which are being
actively contested in good faith by appropriate
proceedings;
(ii) other Liens incidental to the conduct of its business
or the ownership of its property and assets which do
not secure Indebtedness and which do not in the
aggregate materially detract from the value of its
property or assets or materially impair the use
thereof in the operation of its business;
(iii) Liens on property or assets of a Subsidiary to secure
obligations of such Subsidiary to the Company or
another Subsidiary;
(iv) Liens securing the Indebtedness permitted by Section
9(a)(ii) and Section 9(a)(iii); and
(v) Permitted Liens.
31
(d) Capital Assets. In any of its Fiscal Years, expend or incur
--------------
obligations (including the full amount capitalized under capital leases) of more
than $550,000 for the acquisition of fixed or capital assets.
(e) Leases. Enter into or permit to remain in effect any operating
------
lease as lessee, other than (i) operating leases with respect to
telecommunications equipment and (ii) other operating leases the aggregate
amount payable under which by the Company during any period of four consecutive
Quarters shall not exceed $600,000.
(f) Loans, Advances and Investments. Make any loan, advance, or
-------------------------------
capital contribution to, or investment in (including any investment in any
corporation, joint venture or partnership), or purchase or otherwise acquire any
of the Capital Stock, securities or evidences of indebtedness of, any Person
(collectively "Investment"), or otherwise acquire any interest in, or control
of, another Person, except for the following:
(i) Cash Equivalents;
(ii) Any acquisition of securities or evidences of indebtedness
of others when acquired by the Company in settlement of
accounts receivable or other debts arising in the ordinary
course of its business, so long as the aggregate amount of
any such securities or evidences of indebtedness is not
material to the business or condition (financial or
otherwise) of the Company;
(iii) Make or permit to remain outstanding travel and other
advances to officers and employees of the Company or a
Subsidiary in the ordinary course of business; and
(iv) other loans, advances and investments (including loans,
advances and investments to or in Subsidiaries), provided
that the aggregate amount thereof, at original cost, at no
time exceeds $100,000.
(g) No Acquisition or Merger. Acquire by purchase or otherwise all or
------------------------
substantially all of the assets or capital stock of any Person. Merge or
consolidate with or into any Person, except that:
(i) Any Subsidiary may merge or consolidate with or into the
Company, provided that the Company is the continuing or
--------
surviving corporation;
(ii) Any Subsidiary may merge or consolidate with or into
another Subsidiary; and
(iii) Subject to the provisions of Section 3 of the Warrant
Certificates, the Company may merge with any other solvent
corporation, provided that (A) the Company shall be the
--------
continuing or surviving
32
corporation and (B) no Event of Default exists or would
exist immediately after giving effect to such merger.
(h) Sale of Stock or Indebtedness of Subsidiaries. Sell or otherwise
---------------------------------------------
dispose of, or part with control of, any shares of stock or Indebtedness of any
Subsidiary, except to the Company or another Subsidiary, and except that all
shares of stock and Indebtedness of any Subsidiary at the time owned by or owed
to the Company and all Subsidiaries may be sold as an entirety for a cash
consideration which represents the fair value (as determined in good faith by
the Board of Directors of the Company) at the time of sale of the shares of
stock and Indebtedness sold; provided, that (A) such sale or other disposition,
--------
if treated as a transfer of assets of such Subsidiary, would be permitted by
Section 9(k) and (B) at the time of such sale, such Subsidiary shall not own,
directly or indirectly, any shares of stock or Indebtedness of any other
Subsidiary (unless all of the shares of stock and Indebtedness of such other
Subsidiary owned directly or indirectly, by the Company and all Subsidiaries are
simultaneously being sold as permitted by this Section 9(h).
(i) Sales and Leasebacks. Dispose of any of its assets except for
--------------------
full, fair and reasonable consideration, or enter into any sale and leaseback
agreement covering any of its fixed or capital assets.
(j) Restrictions on Dividends. Directly or indirectly declare or
-------------------------
make, or incur any liability to make any Dividend except those on the Class A
Preferred.
(k) Transfers, Liquidations and Dispositions of Substantial Assets.
--------------------------------------------------------------
Dissolve or liquidate or sell, transfer, lease or otherwise dispose of any
material portion of its property or assets or business, other than in the
ordinary course of business, except that:
(i) Any Subsidiary may Transfer assets to the Company or
another Subsidiary;
(ii) The Company or any Subsidiary may sell inventory in the
ordinary course of business; and
(iii) The Company or any Subsidiary may otherwise Transfer
assets, provided that the assets Transferred shall not
--------
exceed $250,000 in any twelve month period.
(l) Restricted Payments. Make, pay or declare, or commit to make, pay
-------------------
or declare, any Restricted Payment without the prior written consent of each
Purchaser except that so long as no Event of Default shall have occurred and be
continuing, or would result therefrom, the Company may (i) pay dividends on
Class A Preferred, and (ii) repurchase Common Stock from employees of the
Company upon termination of employment pursuant to arrangements approved by the
Board of Directors.
(m) Business Activities. Engage in any business activities or
-------------------
operations substantially different from or unrelated to its present business.
33
(n) Transactions with Affiliates. Enter into any transaction,
----------------------------
including without limitation, the purchase, sale or exchange of property or the
rendering of any services, with any affiliate or any partner, officer or
director thereof, enter into, assume or suffer to exist any employment or
consulting contract with any affiliate or any partner, officer or director
thereof or any former or current officer or director of the Company, except any
transaction or contract which is in the ordinary course of the Company's
business and which is upon fair and reasonable terms no less favorable to the
Company than it would obtain in a comparable arms-length transaction with a
person not an affiliate.
(o) Change of Control. Without the prior written consent of each
-----------------
Purchaser, permit the transfer, sale or other change of ownership in any twelve
month period of Common Stock exceeding 50% of the total issued and outstanding
Common Stock at the time of such transfer, sale or change of ownership, nor
permit at any time more than 70% of the total issued and outstanding Common
Stock to be owned by persons not employed by the Company.
(p) Fiscal Year. Method of Accounting. Change its Fiscal Year or
---------------------------------
make any material change in its method of accounting without prior written
notice to each Purchaser.
(q) ERISA Plans. Adopt or agree to maintain or contribute to any
-----------
ERISA Plan without the prior written consent of each Purchaser which consent
shall not be unreasonably withheld. The Company shall promptly notify each
Purchaser in writing in the event an ERISA Affiliate adopts and ERISA Plan.
(r) Change in Principal Office. Moves its principal office, executive
--------------------------
office or principal place of business without prior written notice to each
Purchaser.
SECTION 10. FINANCIAL TESTS.
Until payment in full of the Notes and the performance by the Company of
all its obligations hereunder, the Company shall, unless each Purchaser waives
compliance therewith in writing, meet the following Financial Tests.
(a) Current Ratio. At the end of each period set forth below, the
-------------
Company shall maintain a ratio of Current Assets to Current Liabilities greater
than the ratio set forth opposite such period below:
Period Ending Ratio
------------- -----
September 30, 1995 1.7:1.0
December 31, 1995 1.7:1.0
March 31, 1996 1.7:1.0
June 30, 1996 1.7:1.0
September 30, 1995 and each 2.0:1.0
Quarter thereafter
34
(b) Fixed Charge Coverage. At the end of each period set forth below,
---------------------
the ratio of EBITDA to Fixed Charges shall be greater than the ratio set forth
opposite such period below:
Period Ending Ratio
------------- -----
September 30, 1995 1.25:1.0
and each Quarter thereafter
(c) Indebtedness to Adjusted Net Worth Ratio. On each of the dates
----------------------------------------
set forth below, and after such date at all times until the next such date set
forth below, the Company shall maintain a ratio of Indebtedness to Adjusted Net
Worth less than or equal to the ratio set forth opposite such date below:
Initial Test Date Ratio
----------------- -----
Tier I Closing Date and 2.0:1.0
thereafter
SECTION 11. Events of Default.
The occurrence of any of the following events shall, at the option of
either Purchaser, constitute an Event of Default ("Event of Default") hereunder
and under the Notes:
(a) Failure to Pay. The Company fails to pay, within two (2) Business
--------------
Days of the date when due, any installment of interest or any other sum due
under this Agreement or the Notes in accordance with the terms hereof or
thereof;
(b) Put Option Default. The Company fails to purchase all the
------------------
Warrants, Warrant Shares, or Purchase Shares required to be purchased by it upon
the exercise of the Put Option.
(c) Breach of Representation or Warranty. Any representation or
------------------------------------
warranty herein or in any agreement, instrument or certificate executed pursuant
hereto or in connection with any transaction contemplated hereby proves to have
been false or misleading in any material respect when made;
(d) Falsity of Information. Any financial or other information
----------------------
delivered by the Company to the Purchaser proves to be false or misleading in
any material respect when delivered;
(e) Security Interest. The Purchasers fail to have a valid and
-----------------
enforceable perfected security interest in or lien on the Collateral or such
security interest or lien fails to be
35
prior to the rights and interest of all others except for the Senior Lender and
security interests securing Indebtedness permitted by Section 9(a)(iii);
(f) Judgments. A final nonappealable judgment or judgments is or are
---------
entered against the Company in the aggregate amount of Two Hundred Fifty
Thousand Dollars ($250,000) or more on a claim or claims not covered by
insurance;
(g) Failure to Pay Debts: Voluntary Bankruptcy. The Company fails to
------------------------------------------
pay its debts generally as they come due (or within any applicable grace or cure
periods), or files any petition, proceeding, case or action for relief under any
bankruptcy, reorganization, insolvency, or moratorium law, or any other law or
laws for the relief of, or relating to, debtors;
(h) Involuntary Bankruptcy. An involuntary petition is filed under
----------------------
any bankruptcy or similar statute against the Company, or a receiver, trustee,
liquidator, assignee, custodian, sequestrator or other similar official is
appointed to take possession of the properties of the Company and such petition
or appointment is not dismissed within ninety (90) days;
(i) Governmental Action. Any governmental regulatory authority takes
-------------------
or institutes action which will materially adversely affect the condition,
operations or ability to pay the Company's obligations under this Agreement, the
Notes or any instrument or agreement required under this Agreement;
(j) Default of Other Financial Obligations. Any default occurs under
--------------------------------------
the Senior Credit Agreement, any agreement, note or document related to any such
agreement or any other agreement involving the borrowing of money or the advance
of credit to which the Company may be a party as obligor or guarantor, if such
default consists of the failure to pay any Indebtedness in an aggregate
principal amount greater than $25,000 when due or if such default gives to the
holder of the obligation concerned the right to accelerate such Indebtedness;
(k) Default Under Security Agreement. Warrant Certificate or Other
--------------------------------------------------------------
Agreement. The Company breaches or defaults in any material respect under any of
---------
its obligations contained in the Security Agreement, the Warrant Certificates or
any other agreement with the Purchasers;
(l) Financial Reporting Default. The Company fails for a period of
---------------------------
thirty (30) days after notice thereof to comply with the requirements of Section
7.
(m) Affirmative Covenants. The Company fails for a period of thirty
---------------------
(30) days after written notice thereof to comply in any material respect with
any Affirmative Covenant.
(n) Negative Covenants. The Company fails to comply in any material
------------------
respect with any Negative Covenant (i) for a period of thirty (30) days after
written notice thereof with respect to any such breach that is subject to cure,
and (ii) with respect to any other such breach, and a Purchaser gives written
notice thereof.
36
(o) Financial Tests. The Company fails to comply with any Financial
---------------
Test and a Purchaser gives written notice thereof.
(p) Use of Proceeds. Any use of the proceeds from the sale of the
---------------
Notes other than for the Acquisition Transaction described in Background B,
without the prior written consent of each Purchaser.
(q) Material Adverse Change. Any material adverse change occurs in
-----------------------
the consolidated financial condition or results of operations of the Company or
in the Company's ability to perform their obligations under this Agreement, the
Notes or under any instrument or agreement required by this Agreement;
(r) Change in Ownership. The Management Group ceases to own 30% of
-------------------
the Company's Outstanding Common Stock; and
(s) Other Breach Under Agreement. The Company breaches, or defaults
----------------------------
in any material respect under, any term, condition, provision, representation or
warranty contained in this Agreement not specifically referred to in this
Section, provided that with respect to any of the foregoing (other than (a), (g)
and (j)) that is capable of being cured, the Company have failed to cure the
same within thirty (30) days from the receipt of notice thereof from a
Purchaser.
SECTION 12. CONSEQUENCES OF EVENT OF DEFAULT.
(a) If any Event of Default specified under Section 11, other than
subsections (g) and (h) hereof, shall occur and be continuing, the Purchasers
may, by written notice to the Company, declare the principal and interest
accrued on the Notes and all other obligations of the Company hereunder to be
forthwith due and payable, and the same shall thereupon become immediately due
and payable, without any other or further presentment, demand, protest, notice
of default, notice of intent to accelerate, notice of acceleration or other
notice of any kind, all of which are hereby expressly waived.
(b) If an Event of Default specified under subsections (g) and (h)
of Section 11 hereof shall occur, the unpaid balance of the principal and
interest accrued on the Notes and all other obligations of the Company hereunder
shall be immediately due and payable automatically without presentment, demand,
protest, notice of default, notice of intent to accelerate, notice of
acceleration or other notice of any kind, all of which are hereby expressly
waived.
SECTION 13. MISCELLANEOUS.
(a) No Implied Rights or Waivers. No notice to or demand on the
----------------------------
Company in any case shall entitle the Company to any other or further notice or
demand in the same, similar and other circumstances. Neither any failure nor any
delay on the part of a Purchaser in exercising any right, power or privilege
hereunder or under the Notes or Warrant Certificates
37
shall operate as a waiver thereof, nor shall a single or partial exercise
thereof preclude any other or further exercise of the same or the exercise of
any other right, power or privilege.
(b) Modifications. Amendments or Waivers. The Company and the
------------------------------------
Purchasers may from time to time enter into written agreements amending or
changing any provision of this Agreement or the rights hereunder or give waivers
or consents to a departure from the due performance of their obligations
hereunder provided that no departure from the Company's due performance of its
obligations hereunder shall be effective unless agreed to in writing by each
Purchaser.
(c) Expenses. The Company shall pay or cause to be paid and save the
--------
Purchasers harmless against liability for the payment of all reasonable out-of-
pocket expenses, including counsel fees (including fees of BOCP II's outside
counsel and Legal Department not to exceed $25,000) and disbursements, incurred
or paid by the Purchasers in connection with (i) the due diligence inquiries,
negotiation, development, preparation, execution and performance of this
Agreement, the Notes, the Security Agreement, the Warrant Certificates and the
related transactions; (ii) any requested amendments, waivers or consents
pursuant to the provisions hereof and thereof; and (iii) the enforcement of this
Agreement, the Notes, the Security Agreement and the Warrant Certificates,
including such reasonable expenses as may be incurred by the Purchasers in
collection of the Notes.
(d) Accounting Terms. All accounting terms not specifically defined
----------------
herein shall be construed in accordance with GAAP.
(e) Entire Agreement. This Agreement including the Exhibits or
----------------
Schedules hereto, constitutes the entire agreement relating to the subject
matter hereof among the Parties hereto. Each Party acknowledges that no
representation, inducement, promise or agreement has been made, orally or
otherwise, by any other Party, or anyone acting on behalf of any other Party,
unless such representation, inducement, promise or agreement is embodied in this
Agreement expressly or by incorporation.
(f) Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of Ohio.
(g) Severability. If any provision of this Agreement is held to be
------------
invalid, void or unenforceable, the remaining provisions of this Agreement shall
nevertheless continue in full force and effect.
(h) Third Party Beneficiaries. The obligations of each Party under
-------------------------
this Agreement shall inure solely to the benefit of the other Parties, and no
other person or entity shall be a third party beneficiary of this Agreement.
(i) Rules of Construction. Unless otherwise specified, the
----------------------
following rules shall be applied in construing the provisions of this Agreement.
(i) Terms that imply gender shall be construed to apply to all
genders.
38
(ii) References to Sections, Schedules and Exhibits refer to
the numbered Sections of, the Schedules of and the
Exhibits attached to this Agreement.
(iii) Headings to the various Sections of this Agreement are
included solely for purposes of reference and shall be
ignored in construing the provisions of this Agreement.
(iv) The Exhibits and Schedules attached to this Agreement are
incorporated herein by reference.
(v) "Herein," "hereto," "hereof" and words of similar import
refer to this Agreement.
(vi) The word "and" connotes "each and every", and the word
"or" connotes "any one or more".
(vii) The word "including" connotes "including without
limitation".
(viii) Any reference to any law or regulation refers to that law
or regulation as amended from time-to-time after the date
of this Agreement and to the corresponding provision of
any successor law or regulation.
(ix) Any reference to any agreement or other document in this
Agreement refers to that agreement or other document as
amended from time-to-time after the date of this
Agreement.
(x) The recitals included in this Agreement are the mutual
representations of the Parties and are a part of this
Agreement.
(j) Notices. Any notice or other communication required or permitted
-------
to be made or given under this Agreement, shall be in writing and shall be
deemed to have been received by the Party to whom it is addressed: (i) on the
date indicated on the certified mail return receipt if sent by certified mail
return receipt requested; (ii) on the date actually received if hand delivered
or if transmitted by telefax (receipt of which is confirmed to sender); (iii)
three business days after such notice was deposited in the United States Mail
postage prepaid; or (iv) one business day after such notice was delivered to an
overnight delivery service, addressed, delivered or transmitted in each case as
follows:
39
PURCHASERS:
Banc One Capital Partners II, Limited Partnership
▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
ATTENTION:▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telefax: (▇▇▇) ▇▇▇-▇▇▇▇
WITH A COPY TO:
Banc One Capital Corporation
▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
ATTENTION:General Counsel
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telefax: (▇▇▇) ▇▇▇-▇▇▇▇
Primus Capital Fund III Limited Partnership
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇:▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telefax: (▇▇▇) ▇▇▇-▇▇▇▇
WITH A COPY TO:
▇▇▇▇▇▇▇▇ & ▇▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
ATTENTION:▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telefax: (▇▇▇) ▇▇▇-▇▇▇▇
COMPANY:
Corinthian Schools Incorporated
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
ATTENTION:▇▇▇▇▇ ▇. ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telefax: (▇▇▇) ▇▇▇-▇▇▇▇
40
WITH A COPY TO:
O'Melveny & ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
ATTENTION:▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telefax: (▇▇▇) ▇▇▇-▇▇▇▇
A Party's address for notice may be changed from time-to-time only by
written notice given to each of the other Parties in accordance with this
Section.
(k) Assignment. Neither this Agreement nor any of the rights or
----------
duties hereunder may be assigned by any Party without the prior written consent
of each of the other Parties, and any assignment attempted without such prior
consent shall be null and void.
(1) Further Acts and Documents. Each of the Parties hereby agrees to
--------------------------
execute and deliver such further instruments and to do such further acts and
things as may be necessary or desirable to carry out the purposes of this
Agreement.
(m) Counterparts. This Agreement may be executed in multiple
------------
counterparts, each of which shall be deemed to be an original and all of which
shall constitute one in the same agreement.
41
The Parties have caused this Agreement to be executed and delivered
effective as of the date first written above.
COMPANY: PURCHASERS:
CORINTHIAN SCHOOLS, INC. BANC ONE CAPITAL PARTNERS II,
LIMITED PARTNERSHIP
By /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇ By: Banc One Capital Partners II
--------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇, President Corporation
By /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
--------------------------
Its Senior Vice President
--------------------------
PRIMUS CAPITAL FUND III
LIMITED PARTNERSHIP
By: Primus Venture Partners, Inc.
By____________________________
Its___________________________
The Parties have caused this Agreement to be executed and delivered
effective as of the date first written above.
COMPANY: PURCHASERS:
CORINTHIAN SCHOOLS, INC. BANC ONE CAPITAL PARTNERS II,
LIMITED PARTNERSHIP
By By: Banc One Capital Partners II
____________________________ Corporation
▇▇▇▇▇ ▇. ▇▇▇▇▇, President
BY /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
---------------------------
Its Senior Vice President
---------------------------
PRIMUS CAPITAL FUND III
LIMITED PARTNERSHIP
By: Primus Venture Partners, Inc.
BY /s/ Loyal ▇. ▇▇▇▇▇▇
----------------------------
Its President
----------------------------
