1
EXHIBIT 10.6
SUBSCRIPTION AGREEMENT
dated as of November 18, 1996,
among
THE EDISON PROJECT INC.
and
THE OTHER PARTIES LISTED HEREIN
2
TABLE OF CONTENTS
Page
SECTION 1 Sale and Purchase of the Investor Shares .............................................................. 3
1.1 Transfer of the Investor Shares ....................................................................... 3
1.2 First Closing ......................................................................................... 4
1.3 Second Closing ........................................................................................ 5
1.4 WSI Subscription Right and Obligation ................................................................. 6
1.5 Issuance of Additional Shares following the Second Closing Date ....................................... 9
1.6 Company Option to Replace Investors ................................................................... 11
1.7 Waiver of Pre-emptive Rights .......................................................................... 12
SECTION 2 Representations, Warranties and Covenants of the Company and the Partnership .......................... 12
2.1 Organization .......................................................................................... 12
2.2 Qualification; Good Standing .......................................................................... 13
2.3 Authorization; Enforceability ......................................................................... 13
2.4 No Conflict ........................................................................................... 14
2.5 Company Stock; Partnership Interests .................................................................. 15
2.6 Securities Laws ....................................................................................... 17
2.7 Equity Investments .................................................................................... 17
2.8 Compliance with Laws; Governmental Authorizations ..................................................... 17
2.9 Small Business Concern ................................................................................ 17
2.10 Activities and Proceeds ............................................................................... 18
2.11 Additional Information ................................................................................ 19
2.12 Access ................................................................................................ 20
2.13 Financial Information ................................................................................. 20
2.14 Absence of Undisclosed Liabilities .................................................................... 21
2.15 Litigation ............................................................................................ 21
2.16 Brokers and Finders ................................................................................... 22
2.17 Tax Matters ........................................................................................... 22
2.18 ERISA ................................................................................................. 23
2.19 Changes in Condition .................................................................................. 24
2.20 Agreements ............................................................................................ 24
2.21 Related Party Transactions ............................................................................ 26
2.22 Absence of Sensitive Payments ......................................................................... 26
2.23 Insurance ............................................................................................. 27
SECTION 3 Representations and Warranties of WSI ................................................................. 27
3.1 Organization .......................................................................................... 27
3.2 Authorization; Enforceability ......................................................................... 27
3.3 No Conflict ........................................................................................... 28
(i)
3
3.4 WSI Stock and Partnership Interests .......................................... 28
SECTION 4 Representations and Warranties of Sprout and the Sprout Shareholders ......... 29
4.1 Organization ................................................................. 30
4.2 Authorization; Enforceability ................................................ 30
4.3 No Conflict .................................................................. 30
4.4 Sprout Stock and Partnership Interests ....................................... 31
4.5 Assets and Liabilities ....................................................... 32
SECTION 5 Representations and Warranties of Certain Investors .......................... 32
5.1 Organization ................................................................. 33
5.2 Authorization; Enforceability ................................................ 33
5.3 No Conflict .................................................................. 33
5.4 Investor Stock and Partnership Interest ...................................... 34
5.5 Investment Representations and Warranties .................................... 34
5.6 Brokers and Finders .......................................................... 35
5.7 Certain Representations and Warranties of the ▇▇▇▇▇▇▇ Group .................. 36
SECTION 6 Conditions to First Closing; Certain Covenants ............................... 36
6.1 Conditions Precedent to Obligations of Investors ............................. 36
6.2 Conditions Precedent to Obligations of the Company Parties ................... 38
6.3 Certain Covenants ............................................................ 40
SECTION 7 Conditions to Second Closing ................................................. 40
7.1 Conditions Precedent to Obligations of Investors ............................. 40
7.2 Conditions Precedent to Obligations of Company Parties ....................... 41
(ii)
4
SECTION 8. Survival of Representations and Warranties...................................... 42
SECTION 9. Indemnification................................................................. 42
SECTION 10. Fees and Expenses............................................................... 44
SECTION 11. Assignment; Parties in Interest................................................. 45
SECTION 12. Entire Agreement................................................................ 45
SECTION 13. Notices......................................................................... 45
SECTION 14. Amendments...................................................................... 46
SECTION 15. Counterparts.................................................................... 46
SECTION 16. Headings........................................................................ 46
SECTION 17. Governing Law................................................................... 46
SECTION 18. Arbitration..................................................................... 46
(iii)
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EXHIBITS
--------
Exhibit A-1 - Form of Secured Note of ▇▇▇▇
Exhibit A-2 - Form of Stock Power of ▇▇▇▇
Exhibit B-1 - Certificate of Designation for Series A Preferred
Exhibit B-2 - Certificate of Designation for Series B Preferred
Exhibit B-3 - Certificate of Designation for Series C Preferred
Exhibit B-4 - Certificate of Amendment to Certificate of Designation for Series B Preferred
Exhibit B-5 - Certificate of Amendment to Certificate of Designation for Series C Preferred
SCHEDULES
---------
Schedule 1.1 - Investors and Share Amounts and Price
Schedule 1.1(a) ▇▇▇▇▇▇▇ Group Investors
Schedule 1.5 - Certain Defined Terms
Schedule 2.1(a) - Amended and Restated Certificate of Incorporation and Amended and Restated
By-laws of the Company
Schedule 2.5 - Options
Schedule 2.13(a) - Financial Statements
Schedule 2.14 - Undisclosed Liabilities
Schedule 2.15 - Litigation
Schedule 2.17 - Tax Matters
Schedule 2.19 - Changes in Condition
Schedule 2.20 - Agreements
Schedule 2.21 - Related Party Transactions
Schedule 2.23 - Insurance
Schedule 4.1 - Certificate of Incorporation and By-laws of Sprout
Schedule 7.1 - Preliminary Financial Results
Schedule 13 - Addresses for Notices
(iv)
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SUBSCRIPTION AGREEMENT dated as of November 18, 1996 (the "Agreement"),
among THE EDISON PROJECT INC., a Delaware corporation (the "Company"), THE
EDISON PROJECT L.P., a Delaware limited partnership (the "Partnership"), WSI
INC., a Delaware corporation ("WSI"), WPA INVESTMENT L.P., a Delaware limited
partnership ("WPA"), WEG L.P., a Delaware limited partnership ("WEG I"), WEG II
L.P., a Delaware limited partnership ("WEG II"), and together with WSI, WPA and
WEG I, the "WSI Shareholders"), SPROUT EDISON PROJECT, INC., a Delaware
corporation ("Sprout"), SPROUT CAPITAL VI, L.P., a Delaware limited partnership,
SPROUT CAPITAL VII, L.P., a Delaware limited partnership, DLJ CAPITAL
CORPORATION (DELAWARE), a Delaware corporation, AND SPROUT CEO FUND, L.P., a
Delaware limited partnership (together, the "Sprout Shareholders"), BLUE ROCK
CAPITAL, L.P., a Delaware limited partnership ("Blue Rock"), ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇,
▇▇. ("BCS"), ▇▇▇▇ ▇. ▇▇▇▇▇▇▇ ("JRS"), ▇▇▇▇ ▇. ▇▇▇▇▇▇ ("▇▇▇▇▇▇"), ▇▇▇▇ ▇. CHILDS
("Childs"), ▇.▇. CHILDS INVESTMENTS, L.L.C., a Delaware limited liability
company ("JWC"), RICHMONT LEEDS EDUCATION COMPANY L.L.C., a Delaware limited
liability company ("RLEC"), ▇▇▇▇ ▇. ▇▇▇▇ ("▇▇▇▇"), and EACH OF THE CERTAIN
INVESTORS SET FORTH ON SCHEDULE 1.1(A) HEREOF (collectively, the "▇▇▇▇▇▇▇
Group", and together with the WSI Shareholders, the Sprout Shareholders, Blue
Rock, BCS, JRS, ▇▇▇▇▇▇, Childs, JWC, ▇▇▇▇ and RLEC, collectively, the
"Investors").
WHEREAS, in accordance with Section 15 of the Partnership's Amended and
Restated Agreement of Limited Partnership dated as of March 14, 1995 (as
heretofore
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amended, the "1995 Partnership Agreement"), WSI and Sprout as the sole general
partners of the Partnership desire to "convert" the Partnership into a
corporation as provided herein; and
WHEREAS, following such conversion the Company will, directly or
indirectly, own 100% of the Partnership; and
WHEREAS, the parties hereto are entering into this Agreement in order
to effect a tax free transfer under Section 351 of the Internal Revenue Code of
1986, as amended, pursuant to which each of the Investors will transfer its or
his respective partnership interest in the Partnership and/or other assets to
the Company in exchange for shares of common and preferred stock of the Company
(collectively, the "Shares") as shown next to its or his name on Schedule 1.1.
Notwithstanding the foregoing, the term "Shares" shall include, without
limitation, (i) any and all shares of any series of common stock of the Company
issued to any Investor pursuant to the Subscription Agreement at the First
Closing, (ii) any and all shares of any series of preferred stock of the Company
issued to any Investor pursuant to the Subscription Agreement at the First
Closing or the Second Closing, (iii) any and all shares of common stock of the
Company or other securities of the Company issuable or issued upon conversion or
exchange of any of the shares of preferred stock issued pursuant to the
Subscription Agreement at the First Closing or the Second Closing, (iv) any
shares of common stock of the Company issuable upon the exercise of the options
described in Section 2.5 hereof, and (v) any securities issuable or issued or
distributed in respect of any of the securities identified in clauses (i), (ii),
(iii) or (iv) by way of stock dividend or stock split or in connection with a
combination of shares, recapitalization, reorganization, merger, consolidation
or otherwise.
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NOW, THEREFORE, in consideration of the premises and the
representations, warranties and covenants contained herein, the parties hereto
hereby agree as follows:
SECTION 1. SALE AND PURCHASE OF THE INVESTOR SHARES.
1.1. TRANSFER OF THE INVESTOR SHARES. Subject to the terms and
conditions hereof, (a) the Company hereby agrees to issue, sell, assign and
transfer to each Investor the Shares, free and clear of all liens and
encumbrances, in the amounts and in the classes indicated next to such
Investor's name on Schedule 1.1 under the headings "First Closing Shares" and
"First Closing Date" or in the footnote with respect thereto (such Shares, the
"First Closing Shares") and under the headings "Second Closing Shares" and
"Second Closing Date" (such Shares, the "Second Closing Shares", and together
with the First Closing Shares) and (b) each Investor hereby agrees to subscribe
for and purchase on the First Closing Date (as defined below) the Shares
indicated next to such Investor's name on Schedule 1.1 under the headings "First
Closing Shares" and "First Closing Date" and to purchase on the Second Closing
Date (as defined below) the Shares indicated next to such Investor's name on
Schedule 1.1 under the headings "Second Closing Shares" and "Second Closing
Date," in each case for the consideration described in Sections 1.2, 1.3 and 1.4
below, the consideration for which shall consist of the common stock of Sprout,
cash, a Partnership Interest (as defined below), both cash and a Partnership
Interest, or, in the case of ▇▇▇▇, a secured note substantially in the form of
Exhibit A-1 hereto accompanied by a duly executed stock power substantially in
the form of Exhibit A-2 hereto, in each case as set forth on Schedule 1.1. The
Investor Shares shall consist of shares of one or more series of the Company's
common stock, par value $.01 per share ("Common Stock"), and convertible
exchangeable preferred stock, par value $.01 per share (the
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"Preferred Stock"), all as set forth on Schedule 1.1, having the preferences,
limitations, and rights set forth in the Constitutional Documents (defined
below) and certificates of designation set forth as Exhibits ▇-▇, ▇-▇, ▇-▇, ▇-▇
and B-5 (the "Certificates of Designation"). The Shares will be subject to the
Edison Project Inc. Shareholders' Agreement dated the date hereof (the
"Shareholders' Agreement"). "Operative Documents" means (i) this Agreement, (ii)
the Shareholders' Agreement and (iii) the Partnership Agreement (as defined
below).
1.2. FIRST CLOSING. Subject to the conditions set forth in Section 6
below, the closing of the purchase and sale of the First Closing Shares (the
"First Closing") shall take place on the date of execution and delivery of this
Agreement (the "First Closing Date") at the offices of Cadwalader, ▇▇▇▇▇▇▇▇▇▇ &
▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇.
▇▇ the First Closing Date:
(a) each Investor other than the Sprout Shareholders will (i)
contribute to the capital of the Company all of such Investor's right, title and
interest in and to the Partnership (each a "Partnership Interest") and/or (ii)
pay the Company such amounts, in immediately available funds (other than ▇▇▇▇,
who will pay by secured note), as is set forth next to such Investor's name on
Schedule 1.1 under the heading "Assets Contributed" with respect to First
Closing Shares, and upon receipt of such Partnership Interests and/or funds or
secured note, the Company shall deliver to each such Investor share certificates
representing the First Closing Shares thereby purchased by such Investor, duly
registered in the name of the applicable Investor;
(b) each of the Sprout Shareholders, as the owners of all of the issued
and outstanding stock of Sprout (the "Sprout Shares"), will contribute to the
capital of the Company
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all of such Sprout Shareholder's right, title and interest in and to the Sprout
Shares owned by it, and upon receipt of such Sprout Shares, the Company shall
transfer to the applicable Sprout Shareholder share certificates representing
the First Closing Shares to be received in exchange for such Sprout Shares, duly
registered in the name of such shareholder;
(c) the Company and the Investors shall enter into the Shareholders'
Agreement;
(d) the Company and Sprout, as the sole partners of the Partnership,
shall amend and restate the 1995 Partnership Agreement pursuant to the Amended
and Restated Partnership Agreement of the Partnership dated as of the date
hereof (as so amended and restated, the "Partnership Agreement"); and
(e) the options to purchase interests in the Partnership or rights to
receive options to purchase interests in the Partnership issued or reserved for
issuance immediately prior to the First Closing shall convert to options to
purchase 6,561,800 shares of Series A Common Stock of the Company, par value
$.01 per share.
The execution and delivery of this Agreement and the First Closing
shall be simultaneous in that neither the execution and delivery of this
Agreement nor any event required by the terms of this Agreement to occur at the
First Closing shall be deemed to have occurred until such execution and delivery
and all such events shall have occurred and when such execution and delivery and
all such events have occurred, they shall be deemed to have occurred
simultaneously.
1.3. SECOND CLOSING. Subject to the conditions set forth in Section 1.6
and Section 7 below, the closing of the purchase and sale of the Second Closing
Shares (the
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"Second Closing") as set forth on Schedule 1.1 shall take place on May 1, 1997
(the "Second Closing Date") at the offices of Cadwalader, ▇▇▇▇▇▇▇▇▇▇ & ▇▇▇▇, ▇▇▇
▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇. ▇▇ the Second Closing Date, each of the
Investors other than the Sprout Shareholders, Blue Rock, JRS, Childs, ▇▇▇▇, WPA,
WEG I and WEG II shall pay the Company such amount, in immediately available
funds, as is set forth next to such Investor's name on Schedule 1.1 under the
heading "Assets Contributed" with respect to Second Closing Shares. Upon receipt
of such funds, the Company shall deliver to each Investor so paying share
certificates representing the Second Closing Shares purchased by such Investor,
duly registered in the name of the applicable Investor.
1.4. WSI SUBSCRIPTION RIGHT AND OBLIGATION.
(a) Subject to the Shareholders' Agreement, WSI may assign its right
and obligation to purchase all or a portion of the Shares it has agreed to
purchase on the Second Closing Date (the "WSI Second Closing Shares") to one or
more of (i) any third party provided that WSI shall provide to the other parties
to the Shareholders' Agreement the rights of first refusal provided in Section
4.4 thereof with respect thereto, (ii) Blue Rock or (iii) an Affiliate (as
defined in the Shareholders' Agreement) of WSI ("Assigns"). Any Assign of WSI
shall execute and deliver the Shareholders' Agreement and be an "Shareholder"
for all purposes of the Shareholders' Agreement, and, in the event any such
assign is an Affiliate of WSI controlled by WSI, such assign shall be a "WSI
Shareholder" for all purposes of such agreement. Any failure of WSI or any of
its Assigns to purchase all or any portion of the WSI Second Closing Shares
shall not affect the rights of WSI or any WSI Shareholder under the
Shareholders' Agreement.
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(b) The per share price for the shares of the Company's Series B
Convertible Exchangeable Preferred Stock which WSI has agreed to purchase on the
Second Closing Date (the "WSI Series B Preferred") shall be $1.65 provided that
not less than ten (10) business days prior to the Second Closing, the Company
reasonably estimates, subject to the review of the Board of Directors, that at
least 13,427 students will enroll in Edison schools for the 1997-1998 school
year (the "Enrollment Test"). If the Company does not reasonably so estimate,
the per share price for the WSI Series B Preferred shall be $1.95, subject to
adjustment pursuant to the next sentence. If the Adjusted Series C Purchase
Price is less than $1.95 but equal to or greater than $1.65, then the per share
price for the WSI Series B Preferred (as finally determined, the "Adjusted
Series B Purchase Price") shall equal the Adjusted Series C Purchase Price;
provided, however, that if the Adjusted Series C Purchase Price is below $1.65,
then the Adjusted Series B Purchase Price shall be $1.65. On or prior to the
10th business day following the determination of the Adjusted Series C Purchase
Price (as set forth below), if the Adjusted Series B Purchase Price is greater
than the greater of (i) $1.65 and (ii) the Adjusted Series C Purchase Price, the
Company will issue to WSI or its Assigns such number of WSI Series B Preferred
(the "Series B Preferred Adjustment Shares") as required such that the result of
(i) (A) the aggregate purchase price paid on the Second Closing Date by WSI or
its Assigns for the WSI Series B Preferred, divided by (B) the aggregate number
of WSI Series B Preferred shares purchased plus such additional number of Series
B Preferred Adjustment Shares issued to WSI or its Assigns, equals (iii) the
Adjusted Series B Purchase Price.
(c) Notwithstanding anything herein to the contrary, WSI may, at its
option, purchase some or all of the WSI Series B Preferred on any date prior to
the Second Closing Date
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subject to the terms and conditions otherwise set forth herein. If the
Enrollment Test, as determined on or prior to the applicable purchase date as
otherwise provided in subsection 1.4(b) has been met, then the purchase price in
such WSI Series B Preferred will be $1.65 per share. If the Enrollment Test has
not been so met and if the date of purchase thereof is (i) on or prior to March
1, 1997, then the purchase price for the WSI Series B Preferred will be $1.65
per share, (ii) following March 1, 1997 but on or prior to April 1, 1997, then
the purchase price for the WSI Series B Preferred will be $1.80 per share, and
(iii) following April 1, 1997, then the purchase price for the WSI Series B
Preferred will be $1.95 per share; provided with respect to purchases described
in clauses (ii) and (iii) the purchase price therefor will be adjusted with
respect to the Adjusted Series C Purchase Price in the manner provided in
subsection 1.4(b).
(d) If WSI or its Assigns do not purchase all of the WSI Series B
Preferred on or prior to the Second Closing Date, then the Company shall, upon
written notice (a "WSI Redemption Notice"), redeem from WSI for no consideration
(i) if WSI or its Assigns have not so purchased any shares of WSI Series B
Preferred, 222,222 shares of the Common Stock held by WSI (the "Penalty
Shares"); such number of shares being equal to the result of (A) (I) 20%
multiplied by (II) $1,666,667, divided by (B) $1.50 per share); or (ii) if WSI
or its Assigns have purchased some, but not all, of the shares of WSI Series B
Preferred, a portion of the Penalty Shares equal to 222,222 times the product of
(A) the number of shares of WSI Series B Preferred not purchased by WSI or its
Assigns divided by (B) the aggregate number of shares of WSI Series B Preferred
that WSI has agreed to purchase on the Second Closing Date. Promptly following
receipt of a WSI Redemption Notice, (x) WSI shall deliver share certificates
representing the Penalty Shares so redeemed to the Company together with stock
powers therefor
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duly executed in blank, (y) WSI shall no longer have any rights in or to such
Penalty Shares and (z) the Company's books and records shall be amended
accordingly.
1.5. ISSUANCE OF ADDITIONAL SHARES FOLLOWING THE SECOND CLOSING DATE.
(a) On or prior to the date (the "Calculation Date") which is thirty
(30) days after the issuance of the Company's audited financial statements for
the 1996-1997 fiscal year, the Company will prepare and distribute to each
Investor which will have purchased at the Second Closing shares of the Company's
Series C Convertible Exchangeable Preferred Stock (the "Series C Preferred" and
such Investors, the "Series C Investors"), a certificate setting forth the
Company's good faith determination of the Gross Site Contribution, Total
Contracted Revenues and Central Expenses (as each such term is defined on
Schedule 1.5) for the Company and the Partnership, taken as a whole, for the
relevant period referred to in such Schedule 1.5. If, on or prior to the date
(the "Determination Date") which is ten (10) business days after the Calculation
Date, no Series C Investor has delivered to the Company a notice of disagreement
(a "Notice of Disagreement") with the determination of Gross Site Contribution,
Total Contracted Revenues and Central Expenses for the applicable period, then
the determination of such by the Company will be definitive, final and binding.
Any Notice of Disagreement shall specify in reasonable detail the nature of any
disagreement asserted. If the Company has received a Notice of Disagreement from
a Series C Investor on or prior to the Determination Date, then (i) the Company
and the Series C Investors will seek in good faith to resolve in writing such
matters of disagreement specified in such notice for a period of 15 days after
delivery of such notice; and (ii) if no such resolution has been reached at the
end of such 15-day period, the parties hereto will submit any matters remaining
in disagreement to an independent certified public accountant mutually selected
by the Company and any Series C Investors that shall have delivered a Notice
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of Disagreement for review and final resolution. Determinations made with
respect to Gross Site Contribution, Total Contracted Revenues and Central
Expenses pursuant to either clause (i) or (ii) above will be definitive, final
and binding. The definitive, final and binding determinations of Gross Site
Contribution, Total Contracted Revenues and Central Expenses as provided for
herein, will be referred to as the "Adjustment Figures." For the purposes of
this Agreement, "business day" shall mean each Monday, Tuesday, Wednesday,
Thursday and Friday which is not a day on which banking institutions in the City
of New York are required or authorized by law or executive order to be closed.
(b) On or prior to the 10th business day following the determination of
the Adjustment Figures, the Company will issue to each Series C Investor such
additional number of shares of Series C Preferred (the "Series C Preferred
Adjustment Shares") as required such that the result of (i) (A) the aggregate
purchase price paid on the Second Closing Date by such Series C Investor for the
Series C Preferred, divided by (B) the aggregate number of Series C Preferred
shares purchased by such Series C Investor plus such additional number of Series
C Preferred Adjustment Shares issued to such Series C Investor equals (iii) the
Adjusted Series C Purchase Price per share. The "Adjusted Series C Purchase
Price" per share shall equal (i) $1.50 per share of Series C Preferred plus (ii)
an additional $.035 per share of Series C Preferred for every $100,000 by which
the Gross Site Contribution for the period from July 1, 1996 through June 30,
1997 exceeds $2,064,000 up to a maximum increase of $.70 per share, plus (ii) an
additional $.035 per share of Series C Preferred for every $1,000,000 by which
Total Contracted Revenue for the period from July 1, 1997 through June 30, 1998
exceeds $53,900,000, up to a maximum increase of $.70 per share, minus (iii)
$.10 per share of Series C Preferred for every $100,000 by which the Central
Expenses for the applicable period exceeds $11,844,903.40; provided
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however, in no event shall the Adjusted Series C Purchase Price be less than
$1.50 or exceed $2.90 per share of Series C Preferred. Notwithstanding the
foregoing, the Adjusted Series C Purchase Price will be adjusted proportionately
for every portion of $100,000, or $1,000,000, as the case may be, that the
thresholds set forth in the preceding sentence have been exceeded.
(c) Promptly upon determination of the Adjustment Figures and prior to
the issuances of any Series B Preferred Adjustment Shares or Series C Preferred
Adjustment Shares, the Company will file with the Secretary of State of the
State of Delaware the Certificate of Amendment to the Certificate of Designation
of Series B Preferred and the Certificate of Amendment to the Certificate of
Designation of Series C Preferred (the "Certificates of Amendment"),
substantially in the form attached hereto as Exhibits B-4 and B-5, provided that
the Adjusted Series B Purchase Price or Adjusted Series C Purchase Price, as
applicable, be inserted in the blank in Section 4 thereof. The Investors, as
holders of all issued and outstanding voting securities of the Company, hereby
give to the Board of Directors of the Company the irrevocable proxy of each
respective Investor to consent to and approve such Certificates of Amendment
together with such insertions, pursuant to Sections 228 and 242 of the General
Corporation Law of the State of Delaware, and waive any requirement for notice
of stockholder meeting in connection therewith.
1.6. COMPANY OPTION TO REPLACE INVESTORS.
Notwithstanding anything to the contrary, the Company may elect, upon
notice delivered to the Investors on or prior to fifteen (15) business days
prior to the date of the Second Closing, if directed to do so by both WSI and
the Sprout Shareholders, acting together in their sole discretion, to terminate
the issuance or sale of Shares described herein which is to occur on the Second
Closing Date (other than the WSI Series B Preferred), in whole, but not in part,
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without penalty or any preemptive rights on behalf of the Investors, if WSI and
the Sprout Shareholders acting together have identified other investors willing
to invest $15,000,000 in the Company at a per-share price of at least $4.00.
Such a termination is referred to as a "Second Closing Termination." If a Second
Closing Termination occurs, all obligations of the Second Closing Investors
(other than WSI with respect to the WSI Series B Preferred) or the Company
relating to the Second Closing shall be null and void.
1.7. WAIVER OF PRE-EMPTIVE RIGHTS. Notwithstanding anything to the
contrary, each Investor hereby waives any and all pre-emptive or similar rights
it, he or she may have pursuant to the Constitutional Documents, the Operative
Documents or otherwise with respect to the issuance of shares in connection with
the First and Second Closing (including, without limitation, any issuance of WSI
Series B Preferred, Series B Preferred Adjustment Shares or Series C Preferred
Adjustment Shares or any shares issued upon conversion or exchange thereof or
any shares to any replacement investors as provided in Section 1.6) or in each
case any shares issued upon any conversion or exchange of any of the foregoing
or upon the exercise of any of the options described in Section 2.5 or listed on
Schedule 2.5.
SECTION 2. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY AND
THE PARTNERSHIP. The Company and the Partnership, jointly and severally, hereby
represent and warrant to each of Blue Rock, ▇▇▇▇▇▇, JWC, RLEC, ▇▇▇▇, the ▇▇▇▇▇▇▇
Group (each a "Specified Investor"), the WSI Shareholders, Sprout, the Sprout
Shareholders, JRS and Childs, as follows:
2.1. ORGANIZATION. (a) The Company is a corporation duly organized,
validly existing and in good standing under the laws of Delaware and has all
requisite corporate power
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and authority to own, lease and operate the assets used in its business, to
carry on its business as now being conducted, to enter into the Operative
Documents, to perform its obligations thereunder, and to consummate the
transactions contemplated thereby. Attached hereto as Schedule 2.1(a) is a true
and complete copy of the Amended and Restated Certificate of Incorporation of
the Company in effect on the date hereof, which Certificate has not been amended
since November 18, 1996, and a true and complete copy of the By-laws of the
Company as in effect on the date hereof. (The Amended and Restated Certificate
of Incorporation, By-laws, and Certificates of Designation (as may be amended)
of the Company are collectively referred to as the "Constitutional Documents".)
(b) The Partnership is a limited partnership duly organized, validly
existing and in good standing under the laws of Delaware and has all requisite
partnership power and authority to own, lease and operate the assets used in its
business, to carry on its business as now being conducted, to enter into the
Operative Documents, to perform its obligations thereunder, and to consummate
the transactions contemplated thereby.
2.2. QUALIFICATION; GOOD STANDING. Each of the Company and the
Partnership is authorized or qualified to do business and in good standing as a
foreign corporation or limited partnership, as the case may be, in any
jurisdiction where failure to be so authorized or qualified would have a
material adverse effect on the Company or the Partnership.
2.3. AUTHORIZATION; ENFORCEABILITY. Each of the Company and the
Partnership has all requisite power and authority to execute, deliver and
perform its obligations under the Operative Documents. Each of the Company and
the Partnership has taken all
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necessary action to authorize its execution and delivery of the Operative
Documents to which it is a party, the performance of its obligations thereunder
and the consummation of the transactions contemplated thereby. Each Operative
Document to which the Company or the Partnership is a party has been duly
executed and delivered by an authorized officer of the Company or the
Partnership, as the case may be, and assuming due execution and delivery by each
other party thereto, constitutes the legal, valid and binding obligation of the
Company or the Partnership, enforceable against such party in accordance with
its terms.
2.4. NO CONFLICT. The execution and delivery by the Company and the
Partnership of each Operative Documents to which it is a party, consummation of
the transactions contemplated thereby, and compliance with the provisions
thereof, will not (i) violate or conflict with any of the Operative Documents or
the Constitutional Documents, (ii) violate, conflict with, or give rise to any
right of termination, cancellation, or acceleration under any agreement, lease,
security, license, permit, or instrument to which the Company or the Partnership
is a party, or to which it or any of its assets is subject, (iii) result in the
imposition of any lien or other encumbrance on any asset of the Company or the
Partnership, other than the restrictions set forth in the Operative Documents or
the Constitutional Documents, (iv) violate or conflict with any Laws, or (v)
require any consent, approval or other action of, notice to, or filing with any
entity or person (governmental or private), except for those that have been made
or obtained. "Laws" means all laws, statutes, codes, common law, rules,
regulations, ordinances, orders, judgments, injunctions, decrees and other
legislative, administrative or judicial restrictions and requirements.
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2.5. COMPANY STOCK; PARTNERSHIP INTERESTS. (a) The authorized capital
stock of the Company consists of 60,000,000 shares of Common Stock and
50,000,000 shares of preferred stock, $.01 par value per share. Upon the
consummation of the transactions contemplated to be consummated on the First
Closing Date, the Company will have 6,214,704 shares of Common Stock issued and
outstanding and 30,294,435 shares of its Series A Convertible Exchangeable
Preferred Stock issued and outstanding. In addition, the Company will have
granted the options set forth on Schedule 2.5 and have reserved for issuance
6,561,800 shares of its Series A Common Stock, par value $.01 per share, for
issuance with respect thereto. Except as set forth above and for the Second
Closing Shares, the Series B Preferred Adjustment Shares, the Series C Preferred
Adjustment Shares and other shares issuable with respect to the adjustment
provisions provided for herein and in the Shareholders Agreement, as of the date
hereof, the Company is not a party to any other option or other commitment to
issue securities. Subject to the provisions of Section 1.7 hereof, no share of
Common Stock or Preferred Stock has been or, pursuant to the terms hereof, will
be issued in violation of preemptive rights of the stockholders of the Company,
the Securities Act of 1933, as amended (the "Securities Act") or any state
securities or blue sky laws.
(b) Immediately following the First Closing and giving effect to the
First Closing and upon receipt by the Company of the consideration therefor as
provided herein, the First Closing Shares shall be issued as set forth on
Schedule 1.1 and shall be validly issued, fully paid and non-assessable.
Immediately following the Second Closing and giving effect to the Second Closing
and upon receipt by the Company of the consideration therefor as provided
herein, the Second Closing Shares shall be issued as set forth on Schedule 1.1
and the shares issuable upon conversion or exchange of First Closing Shares or
Second Closing Shares, when
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issued, shall be validly issued, fully paid and non-assessable. The rights and
obligations of the Shareholders with respect to the Shares are as set forth in
the Constitutional Documents, the Certificates of Designation and Shareholders'
Agreement.
(c) Immediately following the First Closing, (i) the Company will own
approximately 70% of the Partnership as its General Partner, (ii) Sprout will
own approximately 30% of the Partnership as its Limited Partner and (iii) the
Company will own 100% of the Sprout Shares. No other person will own any
interest in the Partnership. The rights of the Company and Sprout as Partners of
the Partnership will be governed by the Partnership Agreement.
(d) Except for the Shareholders' Agreement, the Partnership Agreement,
the WPA Partnership Agreement (the "WPA Agreement"), the WEG Partnership
Agreement (the "WEG I Agreement") and the WEG II Partnership Agreement (the "WEG
II Agreement"), there are no voting trusts, voting agreements, proxies or other
agreements, instruments or understandings with respect to the voting of the
Shares or Partnership Interests to or by which the Company or the Partnership,
or to the best knowledge of the Company and the Partnership, any other person is
a party or is bound other than (A) agreements among H. ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
("▇▇▇▇▇▇▇"), WSI and ▇▇▇▇▇▇ Guaranty Trust Company of New York ("▇▇▇▇▇▇")
pursuant to which (i) WSI has agreed not to amend the Shareholders' Agreement,
the Constitutional Documents, the WPA Agreement, the WEG I Agreement or the WEG
II Agreement, without ▇▇▇▇▇▇'▇ consent and (ii) WSI's Shares and Partnership
Interests in WPA, WEG I and WEG II are pledged to ▇▇▇▇▇▇, (B) the limited
liability company agreement of RLEC, and (C) the limited liability company
agreement of JWC. Other than as provided in the Shareholders'
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Agreement, no person or entity has any right to cause the Company or the
Partnership to effect a registration under the Securities Act of any Shares or
Partnership Interests.
2.6. SECURITIES LAWS. The offering, sale and purchase of the Investor
Shares contemplated hereby are exempt from registration under the Securities Act
and all applicable state securities and blue sky laws.
2.7. EQUITY INVESTMENTS. Other than the Company's interest in Sprout
and the Partnership, neither the Company nor the Partnership, directly or
indirectly, owns any partnership interest, capital stock or other proprietary
interest in any corporation, partnership, association, joint venture, or other
entity.
2.8. COMPLIANCE WITH LAWS; GOVERNMENTAL AUTHORIZATIONS. Each of the
Company and the Partnership is in compliance with all applicable Laws. Each of
the Company and the Partnership holds all material licenses and permits
necessary in the conduct of the business of the Partnership as presently
conducted and as proposed to be conducted in the Company's Business Plan.
2.9. SMALL BUSINESS CONCERN. Each of the Company and the Partnership,
taken together with its respective "affiliates" (as that term is defined in
Section 121.401 of Title 13 of the Code of Federal Regulations), is a "Small
Business Concern" within the meaning of Section 103(5) of the Small Business
Investment Act of 1958, as amended, and the regulations thereunder including
Title 13, Code of Federal Regulations, Section 121.3 (collectively, the "SBIC
Act"), and meets the applicable size eligibility criteria set forth in Title 13,
Code of Federal Regulations, Section 121.3.01(c)(1). None of the Company, the
Partnership, nor any of their
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respective subsidiaries presently engages in any activities for which a small
business investment corporation or partnership, as the case may be, is
prohibited from providing funds by the SBIC Act.
2.10. ACTIVITIES AND PROCEEDS. (a) Neither the Company nor the
Partnership (nor any subsidiaries thereof) will engage in any activities or use
directly or indirectly the proceeds from the purchase of the Shares for any
purpose for which a small business investment company is prohibited from
providing funds by the SBIC Act.
(b) The Company will deliver within ninety (90) days of the date of
this Agreement to Blue Rock a written report, certified as correct by the
Company's chief financial officer, verifying the purposes and the amounts for
which proceeds from the purchase of the Shares have been disbursed, and, if the
proceeds have not been fully disbursed within that 90-day period, an additional
report also so certified, delivered not later than the end of each succeeding
90-day period, verifying the purposes and the amounts for which such proceeds
have been disbursed. The Company will supply to the Investors such additional
information and documents as any Investor reasonably requests with respect to
use of proceeds and will permit such Investor to have access to any and all
Company or Partnership records and information and personnel as such Investor
reasonably deems necessary to verify how proceeds have been or are being used
and to assure that the proceeds have been used for the purposes specified. The
Company agrees that any diversion by the Company of the proceeds of the purchase
of the Shares for any purpose other than those permitted by the SBIC Act,
without the prior written consent of the Investors, will constitute a breach of
the covenants of the Company under this Agreement (a "Proceeds Event of
Default").
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(c) The Company will not, without obtaining the prior written approval
of the Investors, within one year of the purchase of the Shares by the Investors
change the Company's business activity from the current business activity
conducted by the Company to a business activity to which a small business
investment company is prohibited from providing funds by the SBIC Act. The
Company agrees that any such change in its business activity without such prior
written consent of the Investors will constitute a breach of the covenants of
the Company under this Agreement (an "Activity Event of Default").
(d) If either a Proceeds Event of Default or an Activity Event of
Default occurs, Blue Rock will have the right to demand immediate repayment of
the purchase price theretofore paid by Blue Rock for the Shares theretofore
purchased by Blue Rock, together with interest thereon at The Chase Manhattan
Bank's publicly announced prime rate per annum from time to time in effect from
the date of investment until the date of repayment, and the Company will make
such payment within three days of receipt of a demand.
2.11. ADDITIONAL INFORMATION. The Company and the Partnership will
promptly deliver to the Investors such information as an Investor may reasonably
request in order to complete accurately and fully any and all reports which a
government or governmental regulatory agency may require, including but not
limited to information assessing the economic impact of the financing of the
Company by the Investors (specifying the full-time equivalent jobs created or
retained, the impact of the financing on the business in terms of expanded
revenue and taxes, and other appropriate economic benefits, such as technology
development or commercialization, minority business development, urban or rural
business development, exchange of exports, and assistance to manufacturing
firms).
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2.12. ACCESS. The Company shall grant to Blue Rock and to examiners of
the U.S. Small Business Administration certain rights of access to the Company
or the Partnership as shall be reasonably necessary to obtain and verify
information concerning the financial condition, continued eligibility of the
Company or the Partnership as a small business concern, and other matters, in
each case as required under the SBIC Act.
2.13. FINANCIAL INFORMATION. (a) Schedule 2.13(a) sets forth the
Partnership's audited balance sheet as of June 30, 1995 and the related audited
statements of operations and partners' capital and cash flows for the year ended
June 30, 1995, including related schedules (if any) and notes (collectively, the
"1995 Financial Statements") and a copy of the audit report thereon prepared by
Coopers & ▇▇▇▇▇▇▇ L.L.P. The 1995 Financial Statements (i) present fairly, in
all material respects, the financial position of the Partnership at June 30,
1995 and the results of the operations of the Partnership for the year then
ended, (ii) are in accordance with the books and records of the Partnership, and
(iii) have been prepared in conformity with generally accepted accounting
principles.
(b) Schedule 2.13(b) sets forth the Partnership's preliminary unaudited
balance sheet as of June 30, 1996 and the related preliminary and unaudited
statement of operations for the year ended June 30, 1996 (collectively, the
"1996 Financial Statements"). Subject to audit adjustments which in the
aggregate do not materially and adversely affect the financial position or
results of the operations of the Partnership as presented therein, the 1996
Financial Statements (i) present fairly, in all material respects, the financial
position of the Partnership at June 30, 1996 and the results of the operations
of the Partnership for the year then ended, (ii) are in accordance with the
books and records of the Partnership, and (iii) have
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been prepared in conformity with generally accepted accounting principles. The
1996 Financial Statements are currently being audited, and the Company shall
cause the Partnership to furnish such audited financial statements to each
Investor promptly upon their issuance.
2.14. ABSENCE OF UNDISCLOSED LIABILITIES. Other than as set forth in
Schedule 2.14 and the 1996 Financial Statements and for obligations incurred in
the ordinary course of business of the Partnership (which singly or in the
aggregate would not result in a material adverse effect to the Partnership), at
the Closing Date the Partnership had no obligation of any nature, whether or not
accrued and whether or not contingent, disputed, absolute, determined or
determinable, nor any material loss contingency (as such term is used in the
Statement of Accounting Standards No. 5 issued by the Financial Accounting
Standards Board in March 1975) which, singly or in the aggregate, has or would
have a material adverse effect on the Partnership.
2.15. LITIGATION. (a) Except as set forth on Schedule 2.15, there are
no (i) actions, suits, claims, investigations or other proceedings by or before
any governmental authority or arbitrator pending or, to the knowledge of the
Company or the Partnership (which, singly or in the aggregate, if adversely
determined would cause a material adverse effect to the Company and the
Partnership taken as a whole), threatened against the Company or the
Partnership, or (ii) judgments, decrees, injunctions or orders of any
governmental authority or arbitrator against the Company or the Partnership
(which, singly or in the aggregate, if adversely determined would cause a
material adverse effect to the Company and the Partnership taken as a whole).
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(b) There are no civil, criminal, administrative, arbitration or other
actions, suits or proceedings or investigations pending or, to the best
knowledge of the Company or the Partnership, threatened against or by the
Company or the Partnership (i) which challenge, seek to restrain or seek damages
with respect to the execution or performance of any of the Operative Documents
or any of the transactions or events contemplated thereby or (ii) which could
result in any of the Operative Documents being declared unlawful, cause the
recission of any of the transactions thereunder or materially limit the ability
of the Company or the Partnership to fulfill its obligations under the Operative
Documents to which it is a party.
2.16. BROKERS AND FINDERS. No person or entity acting on behalf or
under the authority of the Company or the Partnership is or will be entitled to
any broker's, finder's, or similar fee or commission in connection with the
transactions contemplated hereby.
2.17. TAX MATTERS. (a) Except as set forth on Schedule 2.17 (i) the
Partnership has filed or been included in all required returns, declarations of
estimated tax, reports, and statements (collectively, the "Returns") relating to
income Taxes and any other material Taxes; (ii) all such Returns were correct
and complete in all material respects as of the time of filing; (iii) the
Partnership has timely paid all material Taxes required to be paid by it through
the date hereof; (iv) the Partnership has made adequate provision on its books
for all material Taxes payable by it for all periods for which no Returns have
yet been filed; (v) the Partnership is not delinquent in the payment of any
material Taxes nor has it requested any extension of time within which to file
any Return, which Return has not since been filed; (vi) there are no pending tax
audits of any Returns; (vii) no deficiency of or addition to any Taxes or
interest or penalty for any Taxes has been proposed, asserted or assessed in
writing against the Partnership; and
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(viii) the Partnership is, and always has been, taxable as a partnership for
federal and state income tax purposes.
(b) "Taxes" means, with respect to any person or entity all Federal,
state, local, and foreign taxes, including, without limitation, all taxes on or
based upon net income, gross income, income as specially defined, earnings,
profits or selected items of income, earnings, or profits, and all gross
receipts, sales, use, ad valorem, transfer, franchise, license, withholding,
payroll, employment, excise, severance, stamp, occupation, premium, property, or
windfall profits taxes, alternative or add-on minimum taxes, customs duties, or
other taxes, fees, assessments or charges of any kind, together with any
interest, penalties, additions to tax or additional amounts imposed by any
taxing authority on such person or entity.
2.18. ERISA. With respect to each employee benefit plan, arrangement or
agreement that is maintained, contributed to or that was maintained or
contributed to, any time during the five (5) calendar years preceding the date
of this Agreement (the "Plans"), by the Partnership or by any trade or business,
whether or not incorporated (an "ERISA Affiliate"), which together with the
partnership would be deemed a "single employer" within the meaning of section
4001 of the Employees Retirement Income Security Act of 1974, as amended
("ERISA"):
(a) Each of the Plans that are subject to ERISA is in compliance in all
material respects with ERISA; each of the Plans intended to be "qualified"
within the meaning of section 401(a) of the Code is so qualified (and each trust
created under such Plan is exempt from tax under Section 501(a) of the Internal
Revenue Code of 1986, as amended, and has been so exempt since its creation);
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(b) No Plan is subject to Title IV of ERISA; neither the Partnership
nor an ERISA Affiliate has incurred, directly or indirectly, any liability
(including any material contingent liability) pursuant to Title IV of ERISA; and
no condition exists that presents a material risk to the Company of incurring a
liability pursuant to Title IV or ERISA; and
(c) No Plan is a multiemployer plan (within the meaning of Sections
3(37) and 4001(a)(3) of ERISA) and no Plan is a multiple employer plan as
defined in Section 413 of the Code; there are no pending, threatened or
anticipated claims (other than routine claims for benefits) by, on behalf of or
against any of the Plans or any trust related thereto.
2.19. CHANGES IN CONDITION. Except as set forth on Schedule 2.19
hereto, since June 30, 1996, there has been no material adverse effect on the
business, operations, financial condition or prospects of the Company and the
Partnership, taken as a whole. There is no event known to the Company which
materially adversely affects, or (so far as the Company or the Partnership can
now reasonably foresee) is reasonably likely to materially adversely affect the
business, operations, financial condition or prospects of the Company and the
Partnership, except to the extent specifically described on Schedule 2.19
hereto.
2.20. AGREEMENTS. (a) Schedule 2.20 sets forth all written and oral
agreements or understandings of the Company or the Partnership as of the date
hereof that:
(i) provide for purchases by the Company or the Partnership of
products or services in excess of $50,000 per year;
(ii) provide for the employment by the Company or the Partnership of
any director, officer, key employee or key consultant;
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(iii) provide for the borrowing of money or a line of credit by the
Company or the Partnership or a leasing transaction of a type required
to be capitalized by the Company or the Partnership in accordance with
generally accepted accounting principles;
(iv) provide for the sale, assignment, license, or other disposition
of any asset with a value in excess of $50,000 or any material right of
the Company or the Partnership;
(v) provide for the lease by the Company or the Partnership of any
real property involving lease payments in excess of $25,000 per year;
(vi) provide for the lease by the Company or the Partnership of any
personal property involving lease payments in excess of $25,000 per
year;
(vii) provide for the management or opening of any school; or
(viii) are otherwise material to the Company or the Partnership or
either of their assets, business or property and not disclosed elsewhere
in this Agreement, including the exhibits and schedules thereto.
(b) Each agreement set forth on Schedule 2.20 is in full force and
effect and constitutes the valid and binding obligation of the Company and the
Partnership, as the case may be, and, to the best of the Company's or the
Partnership's knowledge (as the case may be), constitutes the valid and binding
obligation of all other parties thereto. The Company and/or the Partnership has
in all material respects performed the obligations required to be performed
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by it and is not in default or alleged to be in default in any material respect
under any such agreement, and there exists no event or condition which, after
notice or lapse of time, or both, would constitute such a default under any such
agreement. There are no material defaults by any other party to any such
agreement.
2.21. RELATED PARTY TRANSACTIONS. Except as set forth on Schedule 2.21,
neither the Company nor the Partnership is a party or subject to any contractual
obligation relating to the ownership and operation of its assets or the conduct
of its business between the Company or the Partnership and any of their
respective officers, directors, stockholders, partners, employees or, to the
knowledge, information and belief of the Company and the Partnership, any
affiliate of any thereof, including without limitation any contractual
obligation providing for the furnishing of services to or by, providing for
rental of property, real, personal or mixed, to or from, or providing for the
lending or borrowing of money to or from or otherwise requiring payments to or
from, any such person, other than employee agreements that individually are not
material to the Partnership or Company or which are disclosed on Schedule 2.20.
2.22. ABSENCE OF SENSITIVE PAYMENTS. Neither the Company nor the
Partnership nor, to the knowledge, information and belief of the Company and the
Partnership, any of their respective officers, directors, general partners,
employees, agents or other representatives, has (a) made any contributions,
payments or gifts to or for the private use of any governmental official,
employee or agent where either the payment or the purpose of such contribution,
payment or gift is illegal under the laws of the United States or the
jurisdiction in
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which made or (b) established or maintained any unrecorded fund or asset for any
purpose or made any false or artificial entries on its books.
2.23. INSURANCE. Schedule 2.23 hereto contains a complete and correct
list in all material respects of all policies of insurance of any kind or nature
covering the Company and the Partnership, including, without limitation,
policies of life, fire, theft, workers' compensation, employee fidelity and
other casualty and liability insurance, and such policies are in full force and
effect. All premiums due on such insurance policies have been paid and there is
no default by the Company or the Partnership under any such insurance policy.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF WSI. WSI and the other WSI
Shareholders, jointly and severally, hereby represent and warrant to the
Company, the Partnership, each Specified Investor as follows:
3.1. ORGANIZATION. (a) Each of WSI and the WSI Shareholders is duly
organized, validly existing and in good standing under the laws of Delaware and
has all requisite corporate power and authority to own, lease and operate the
assets used in its business, to carry on its business as now being conducted and
as proposed to be conducted, to enter into the Operative Documents, to perform
its obligations thereunder, and to consummate the transactions contemplated
thereby.
3.2. AUTHORIZATION; ENFORCEABILITY. Each of WSI, on its own behalf and
as General Partner of the WSI Shareholders, and the WSI Shareholders has all the
requisite power and authority to execute, deliver and perform its obligations
under the Operative Documents. WSI has taken all necessary action to authorize
the execution and delivery of the Operative
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Documents to which WSI or any of the WSI Shareholders is a party, the
performance of their obligations thereunder and the consummation of the
transactions contemplated thereby. Each Operative Document to which WSI or any
WSI Shareholder is a party has been duly executed and delivered by an authorized
officer of WSI and, assuming due execution and delivery by each other party
thereto, constitutes the valid and binding obligation of WSI or such WSI
Shareholder, enforceable against such party in accordance with its terms.
3.3. NO CONFLICT. The execution and delivery by each of WSI and the WSI
Shareholders of the Operative Documents to which it is a party, the consummation
of the transactions contemplated thereby, and the compliance with the provisions
thereof, will not (i) violate or conflict with the organizational documents of
WSI (including its certificate of incorporation and by-laws) or any WSI
Shareholder (including its agreement of limited partnership and certificate of
limited partnership), (ii) violate, conflict with, or give rise to any
termination, cancellation, or acceleration under any agreement, lease, security,
license, permit, or instrument to which WSI or any of the WSI Shareholders is a
party, or to which it or any of its assets is subject, (iii) result in the
imposition of any lien or encumbrance on any asset of WSI or any of the WSI
Shareholders, other than the restrictions acknowledged in the Operative
Documents, (iv) violate or conflict with any Laws, or (v) require any consent,
approval or other action of, notice to, or filing with any entity or person
(government or private), except for those that have been obtained or made.
3.4. WSI STOCK AND PARTNERSHIP INTERESTS. WSI is the record and
beneficial owner of all right, title and interest in and to the Partnership
Interests set forth opposite its name in Schedule 1.1 hereto under the heading
"Edison Interests," free and clear of
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all liens and encumbrances except as set forth below. Immediately following each
of the First Closing and the Second Closing, there will be no outstanding (i)
options, warrants or other rights to purchase or otherwise acquire (together,
"Options") from WSI or any WSI Shareholder any interest in the Company or the
Partnership or (ii) contracts, agreements or commitments (together,
"Commitments") binding on WSI or any WSI Shareholder relating to the issuance by
WSI or such WSI Shareholder of any shares, options, warrants or similar rights
in the Company or the Partnership, other than Options and Commitments to
purchase less than 15% in the aggregate of the WSI and WSI Shareholders' Shares
(determined as if all shares of Preferred Stock had been converted into shares
of Common Stock) and otherwise subject to the terms and conditions of the
Shareholders' Agreement. Except for the Shareholders' Agreement and the
Partnership Agreement, the WPA Agreement, the WEG I Agreement and the WEG II
Agreement, there are no voting trusts, voting agreements, proxies or other
agreements, instruments or understandings with respect to the voting of the
Shares to which WSI or the WSI Shareholders or, to the best knowledge of WSI,
any other person is a party other than agreements among ▇▇▇▇▇▇▇, WSI and ▇▇▇▇▇▇
pursuant to which (i) WSI has agreed not to amend the Shareholders' Agreement,
the Constitutional Documents, the WPA Agreement, the WEG I Agreement or the WEG
II Agreement without ▇▇▇▇▇▇'▇ consent, and (ii) WSI's Shares and Partnership
Interests in WPA, WEG I and WEG II are pledged to ▇▇▇▇▇▇. WSI is the sole
general partner of each of the WSI Shareholders.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF SPROUT AND THE SPROUT
SHAREHOLDERS. Sprout and the Sprout Shareholders, jointly and severally, hereby
represent and warrant to the Company, the Partnership and each Specified
Investor as follows:
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4.1. ORGANIZATION. (a) Each of Sprout and the Sprout Shareholders is
duly organized, validly existing and in good standing under the laws of Delaware
and has all requisite power and authority to own, lease and operate the assets
used in its business, to carry on its business as now being conducted and as
proposed to be conducted, to enter into the Operative Documents, to perform its
obligations thereunder, and to consummate the transactions contemplated thereby.
Attached hereto as Schedule 4.1 is a true and complete copy of the Certificate
of Incorporation of Sprout in effect on the date hereof, which Certificate has
not been amended since the date hereof, and a true and complete copy of the
By-laws of Sprout as in effect on the date hereof.
4.2. AUTHORIZATION; ENFORCEABILITY. Each of Sprout and the Sprout
Shareholders has all the requisite power and authority to execute, deliver and
perform its obligations under the Operative Documents. Each of Sprout and the
Sprout Shareholders has taken all necessary action to authorize its execution
and delivery of the Operative Documents to which it is a party, the performance
of its obligations thereunder and the consummation of the transactions
contemplated thereby. Each Operative Document to which Sprout or any Sprout
Shareholder is a party has been duly executed and delivered by an authorized
officer and, assuming due execution and delivery by each other party thereto,
constitutes the valid and binding obligation of Sprout or such Sprout
Shareholder, enforceable against such party in accordance with its terms.
4.3. NO CONFLICT. The execution and delivery by each of Sprout and the
Sprout Shareholders of the Operative Documents to which it is a party, the
consummation of the transactions contemplated thereby, and the compliance with
the provisions thereof, will not
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(i) violate or conflict with its organizational documents (including its
certificate of incorporation and by-laws or agreement of limited partnership and
certificate of limited partnership, as the case may be), (ii) violate, conflict
with, or give rise to any termination, cancellation, or acceleration under any
agreement, lease, security, license, permit, or instrument to which it is a
party, or to which it or any of its assets is subject, (iii) result in the
imposition of any lien or encumbrance on any of its assets, other than the
restrictions set forth in the Operative Documents, (iv) violate or conflict with
any Laws, or (v) require any consent, approval or other action of, notice to, or
filing with any entity or person (government or private), except for those that
have been obtained or made.
4.4. SPROUT STOCK AND PARTNERSHIP INTERESTS. The authorized capital
stock of Sprout consists of 10,000 shares of common stock, $0.01 par value per
share, of which 1,216.7001 shares are issued and outstanding. The Sprout
Shareholders are the record and beneficial owners of 100% of the Sprout Shares,
free and clear of all liens and encumbrances. Each of the Sprout Shares is
validly issued, fully paid and non-assessable. Sprout is the record and
beneficial owner of the Partnership Interest set forth opposite its name on
Schedule 1.1 hereto under the heading "Edison Interests," free and clear of all
liens and encumbrances. Immediately following each of the First Closing and the
Second Closing, there will be no outstanding (i) Options to acquire from Sprout
or the Sprout Shareholders any interest in Sprout, the Company or the
Partnership or (ii) Commitments binding on Sprout or any of the Sprout
Shareholders relating to the issuance by the Sprout Shareholders, Sprout, the
Company or the Partnership of any shares, partnership interests, options,
warrants or similar rights or interests in Sprout, the Company or the
Partnership, other than Options and Commitments to
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purchase less than 15% in the aggregate of the Sprout Shareholders' Shares
(determined as if all shares of Preferred Stock had been converted into shares
of Common Stock) and otherwise subject to the terms and conditions of the
Shareholders' Agreement. Except for the Shareholders' Agreement, the Partnership
Agreement, the WPA Agreement, the WEG I Agreement, the WEG II Agreement, there
are no voting trusts, voting agreements, proxies or other agreements,
instruments or understandings with respect to the voting of the Shares or
Partnership Interests to which the Sprout Shareholders, Sprout or, to the best
knowledge of the Sprout Shareholders and Sprout, any other person is a party
other than agreements among ▇▇▇▇▇▇▇, WSI and ▇▇▇▇▇▇ pursuant to which (i)
▇▇▇▇▇▇▇ has agreed not to amend the Shareholders' Agreement, the Constitutional
Documents, the WPA Agreement, the WEG I Agreement or the WEG II Agreement
without ▇▇▇▇▇▇'▇ consent, and (ii) WSI's Shares and Partnership Interests in
WPA, WEG I and WEG II are pledged to ▇▇▇▇▇▇. Since its organization, Sprout has
not engaged in any business or activity other than holding a general partnership
interest in the Partnership or as a general partner of the Partnership.
Following the First Closing, Sprout will have no obligations or commitments
other than as a limited partner of the Partnership or as described in the
Operative Documents.
4.5. ASSETS AND LIABILITIES Sprout has no assets other than the
Partnership Interests and no liabilities other than those arising under such
Partnership Interests.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF CERTAIN INVESTORS.
(A) Each of the Specified Investors, severally and only with respect to itself
or himself, represents and warrants to the Company, the Partnership, WSI, the
WSI Shareholders, Sprout, the Sprout Shareholders (together, the "Company
Parties"), BCS, JRS, Childs and to each other
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Specified Investor; and BCS, JRS and Childs, severally and only with respect to
himself, represents and warrants to the Company, the Partnership and to each
Specified Investor and to each other, as follows:
5.1. ORGANIZATION. Such Investor (if not a natural person) is duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization and has all requisite power and authority to
own, lease and operate the assets used in its business as now being conducted,
to enter into the Operative Documents, to perform its obligations thereunder,
and to consummate the transactions contemplated thereby.
5.2. AUTHORIZATION; ENFORCEABILITY. Each such Investor which is not a
natural person has all requisite power and authority, and each such Investor
which is a natural person has the requisite capacity, to execute, deliver and
perform such Investor's obligations under the Operative Documents. Such Investor
has taken all necessary action to authorize its execution and delivery of the
Operative Documents to which such Investor is a party, the performance of such
Investor's obligations thereunder and the consummation of the transactions
contemplated thereby. Each Operative Document to which such Investor is a party
has been duly executed and delivered by such Investor or by an authorized
officer, partner or agent of such Investor and, assuming due execution and
delivery by each other party thereto, constitutes the legal, valid and binding
obligation of such Investor, enforceable against such Investor in accordance
with its terms.
5.3. NO CONFLICT. The execution and delivery by such Investor of the
Operative Documents to which it is a party, the consummation of the transactions
contemplated thereby, and compliance with the provisions thereof, will not (i)
violate or conflict with such
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Investor's organizational documents, if any, (ii) violate, conflict with, or
give rise to any right of termination, cancellation, or acceleration under any
agreement, lease, security, license, permit, or instrument to which such
Investor is a party, or to which such Investor or any of such Investor's assets
is subject, (iii) result in the imposition of any lien or other encumbrance on
any asset of such Investor, other than the restrictions set forth in the
Operative Documents, (iv) violate or conflict with any Laws, or (v) require any
consent, approval or other action of, notice to, or filing with any entity or
person (governmental or private), except for those that have been made or
obtained.
5.4. INVESTOR STOCK AND PARTNERSHIP INTEREST. Each such Investor is the
record and beneficial owner of all right, title and interest in and to any
Partnership Interest set forth next to such Investor's name on Schedule 1.1
hereto under the heading "Edison Interests," free and clear of all liens and
encumbrances. Immediately after each of the First Closing Date and the Second
Closing Date, there will be no outstanding (i) Options from such Investor to
acquire any interest in the Company or the Partnership or (ii) Commitments
binding on such Investor relating to the issuance by the Company or the
Partnership of any shares, partnership interests, options, warrants or similar
rights or interests, other than Options or Commitments with respect to less than
15% of the Shares (determined as if all shares of Preferred Stock had been
converted into shares of Common Stock) of such Investor and otherwise subject to
the terms and conditions of the Shareholders' Agreement.
5.5. INVESTMENT REPRESENTATIONS AND WARRANTIES. (a) Such Investor is
acquiring the Shares to be purchased by such Investor on the date hereof and,
should such Investor acquire any additional Shares or other interest in the
Company after the date hereof
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pursuant to the terms hereof or the Shareholders' Agreement, such Investor will
acquire such additional Shares or other interest, for such Investor's own
account, for investment and not with a view to the distribution thereof, nor
with any present intention of distributing the same.
(b) Such Investor understands that the Shares have not been and any
additional Shares will not be registered under the Securities Act, by reason of
their issuance in a transaction exempt from the registration requirements of the
Securities Act, and that they must be held indefinitely unless a subsequent
disposition thereof is registered under the Securities Act or is exempt from
registration.
(c) Such Investor understands that the exemption from registration
afforded by Rule 144 (the provisions of which are known to such Investor)
promulgated under the Securities Act depends on the satisfaction of various
conditions and that, if applicable, Rule 144 may afford the basis for sales only
under certain circumstances and in limited amounts.
(d) Such Investor is an "accredited investor" as such term is defined
in Rule 501 (the provisions of which are known to such Investor) promulgated
under the Securities Act.
Notwithstanding anything herein to the contrary, the representations
and warranties contained in this Section 5.5 are made only to the Company.
5.6. BROKERS AND FINDERS. No person or entity acting on behalf or under
the authority of such Investor is or will be entitled to any broker's, finder's,
or similar fee or commission in connection with the transactions contemplated
hereby.
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(B) Each Investor set forth on Schedule 1.1(a) hereof, jointly and severally,
and no other Specified Investor, hereby represents and warrants to the Company
Parties, BCS, JRS, Childs and to each other Specified Investor, as follows:
5.7 CERTAIN REPRESENTATIONS AND WARRANTIES OF THE ▇▇▇▇▇▇▇ GROUP. The
▇▇▇▇▇▇▇ Capital Group LLC has the requisite power and authority pursuant to a
duly executed, valid and binding power of attorney to execute and deliver for
and on behalf of each of the Investors set forth on Schedule 1.1(a) this
Agreement and each of the other documents executed and delivered by the ▇▇▇▇▇▇▇
Capital Group LLC in connection with the transactions contemplated hereby.
SECTION 6. CONDITIONS TO FIRST CLOSING; CERTAIN COVENANTS.
6.1. CONDITIONS PRECEDENT TO OBLIGATIONS OF INVESTORS. The obligation
of each Investor to effect the First Closing is conditioned upon satisfaction,
fulfillment or waiver of all of the following conditions:
(a) Partnership Agreement. The Partnership Agreement shall have been
executed and delivered by all parties thereto.
(b) Amended and Restated Certificate of Limited Partnership. The
Amended and Restated Certificate of Limited Partnership of the Partnership shall
have been executed and delivered by Sprout, WSI and the Company. Promptly
following the First Closing, the Company shall cause such certificate to be
filed with the Secretary of State of the State of Delaware.
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(c) Shareholders' Agreement. The Shareholders' Agreement shall have
been executed and delivered by all parties thereto other than such Investor.
(d) Required Consents. All consents, approvals and other actions of,
and notices and filings with, all entities and persons as may be necessary or
required with respect to the execution and delivery by each party to the
Operative Documents other than such Investor, and the consummation by such
parties of the transactions contemplated thereby, shall have been made or
obtained.
(e) Representations and Warranties Accurate; Covenants Performed. Each
of the representations and warranties contained in the Operative Documents,
other than the representations and warranties of such Investor, shall be true,
correct and not misleading and each of the covenants set forth therein to be
performed by each other party to the Operative Documents, other than such
Investor, by the First Closing Date shall have been performed.
(f) Litigation. (i) No Law shall have been enacted, entered or deemed
applicable by any domestic or foreign government or governmental or
administrative agency or court which would make any transaction contemplated by
the Operative Documents illegal.
(ii) No complaint shall have been filed by any person or entity and be
pending which seeks to enjoin the transactions contemplated by the Operative
Documents, or to impose conditions or restrictions upon the ability of the
Company or the Partnership to operate on substantially the same basis as
presently operated, unless such complaint is dismissed, withdrawn, set-aside or
otherwise eliminated.
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(iii) No injunction, restraining order, or other order of a court of
competent jurisdiction shall be in effect which restrains, prohibits, or
invalidates any of the transactions contemplated by the Operative Documents.
(g) Small Business Administration Documentation. Prior to the First
Closing, Blue Rock shall have received SBA Form 480 (Size Status Declaration)
and SBA Form 652 (Assurance of Compliance) which have been completed and
executed by the Company and SBA Form 1031 (Portfolio Finance Report), Part A of
which shall have been completed by the Company.
(h) Opinion. The Shareholders shall have received an opinion from
Cadwalader, ▇▇▇▇▇▇▇▇▇▇ & ▇▇▇▇, counsel to the Company, the Partnership and the
WSI Shareholders, in form and substance reasonably satisfactory to the
Investors.
6.2. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY PARTIES. The
obligations of each of the Company Parties to effect the First Closing is
conditioned upon satisfaction, fulfillment or waiver of all of the following
conditions:
(a) Partnership Agreement. The New Partnership Agreement shall have
been executed and delivered by each other party thereto.
(b) Amended and Restated Certificate of Limited Partnership. The
Amended and Restated Certificate of Limited Partnership of the Partnership shall
have been executed and delivered by each other party thereto. Promptly following
the First Closing, the Company shall cause such Certificate to be filed with the
Secretary of State of the State of Delaware.
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(c) Shareholders' Agreement. The Shareholders' Agreement shall have
been executed and delivered by each other party thereto.
(d) Required Consents. All consents, approvals and other actions of,
and notices and filings with, all entities and persons as may be necessary or
required with respect to the execution and delivery by each other party to the
Operative Documents, and the consummation by such parties of the transactions
contemplated thereby, shall have been made or obtained.
(e) Representations and Warranties Accurate; Covenants Performed. Each
of the representations and warranties of each other party contained in the
Operative Documents shall be true, correct and not misleading and each of the
covenants set forth therein to be performed by each other party by the First
Closing Date shall have been performed.
(f) Litigation. (i) No Law shall have been enacted, entered or deemed
applicable by any domestic or foreign government or governmental or
administrative agency or court which would make any transaction contemplated by
the Operative Documents illegal.
(ii) No complaint shall have been filed by any person or entity and be
pending which seeks to enjoin the transactions contemplated by the Operative
Documents, or to impose conditions or restrictions upon the ability of the
Company or the Partnership to operate on substantially the same basis as
presently operated, unless such complaint is dismissed, withdrawn, set-aside or
otherwise eliminated.
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(iii) No injunction, restraining order, or other order of a court of
competent jurisdiction shall be in effect which restrains, prohibits, or
invalidates any of the transactions contemplated by the Operative Documents.
6.3. CERTAIN COVENANTS. Each of the Company, WSI and the other WSI
Shareholders, Sprout and the Sprout Shareholders and each other Investor (which
is not a natural person) shall deliver to each other Investor and the Company
(not later than ten (10) business days after the First Closing) certified copies
of all requisite resolutions or other actions of the Company, WSI and the other
WSI Shareholders, Sprout and the Sprout Shareholders and each other Investor
(which is not a natural person), as the case may be, authorizing such party's
execution and delivery of the Operative Documents and consummation of the
transactions contemplated thereby, a certificate of the Secretary of such party
certifying the incumbency of officers and genuineness of signatures of all
officers executing any document delivered by such party at the First Closing.
SECTION 7. CONDITIONS TO SECOND CLOSING.
7.1. CONDITIONS PRECEDENT TO OBLIGATIONS OF INVESTORS. The obligation
of each applicable Investor to effect the Second Closing is conditioned upon
satisfaction, fulfillment or waiver of the following conditions:
(a) The First Closing shall have occurred and each of the conditions
set forth therefor in Section 6.1 shall have been satisfied or waived.
(b) The conditions set forth in subsections 6.1 (d), (e), (f), (g) and
(h) shall have been met as if they were to be performed on or prior to the
Second Closing except to the
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extent that such provisions apply to each of WPA, WEG I, WEG II, the Sprout
Shareholders, Blue Rock, ▇▇▇▇, JRS and Childs.
(c) The Certificates of Designation attached hereto as Exhibit B-2 and
Exhibit B-3 shall have been filed with the Secretary of State of the State of
Delaware.
(d) Except with respect to the WSI Series B Preferred as provided in
subsection 1.4(d), each other Investor required hereunder to participate in the
Second Closing shall make as of the Second Closing Date the applicable
investments required by Section 1.3.
(e) The financial results of the Partnership as of June 30, 1996 as
presented in the Partnership's audited financial statements for the fiscal year
ended June 30, 1996 shall not be materially different from the preliminary
financial results set forth on Schedule 2.13(b) and no circumstance shall have
arisen or event shall have occurred since June 30, 1996 which is reasonably
likely to have a materially adverse effect on the business, operations,
financial condition or prospects of the Partnership and which is not set forth
on Schedules 2.14 or 2.19.
7.2. CONDITIONS PRECEDENT TO OBLIGATIONS OF COMPANY PARTIES. The
obligation of the Company Parties to effect the Second Closing is conditioned
upon satisfaction, fulfillment or waiver of the following conditions:
(a) The First Closing shall have occurred and each of the conditions
set forth therefor in Section 6.2 shall have been satisfied or waived.
(b) The conditions set forth in subsections 6.2 (d), (e) and (f) shall
have been met as if they were to be performed on or prior to the Second Closing
except to the extent that
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such provisions apply to each of WPA, WEG I, WEG II, the Sprout Shareholders,
Blue Rock, ▇▇▇▇, JRS and Childs.
(c) No Second Closing Termination shall have occurred.
(d) The Certificates of Designation attached hereto as Exhibits B-2 and
B-3 shall have been filed with the Secretary of State of the State of Delaware.
SECTION 8. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties contained herein shall survive the closing
hereunder except for those contained in Sections 2.13, 2.14, 2.15, 2.18, 2.19,
2.20, 2.21, 2.22 and 2.23 which will survive until the date which is 18 months
following the Second Closing.
SECTION 9. INDEMNIFICATION.
9.1. The Company and the Partnership shall, jointly and severally,
indemnify, defend and hold harmless each of the WSI Shareholders, Sprout, the
Sprout Shareholders, each of the Specified Investors, JRS, BCS and Childs (the
"Indemnified Investors") against all liability, loss or damage, together with
all reasonable costs and expenses related thereto (including reasonable legal
fees and expenses), relating to or arising from the untruth, inaccuracy or
breach of any of the representations or warranties of the Company or the
Partnership made to such Indemnified Investor contained in any of the Operative
Documents or the failure of the Company or the Partnership to perform in
accordance with any covenant made to such Investor contained therein, unless
such untruth, inaccuracy or breach was caused by any action or omission of such
Indemnified Investor or any one or more of the other Investors. The
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Indemnified Investors may pursue their rights hereunder against the Company and
the Partnership as each Investor shall determine.
9.2. WSI and the other WSI Shareholders, jointly and severally, shall
indemnify and hold harmless each of the Company, the Partnership and each
Specified Investor against all liability, loss or damage, together with all
reasonable costs and expenses related thereto (including reasonable legal fees
and expenses), relating to or arising from the untruth, inaccuracy or breach of
any of the representations or warranties made by WSI or any other WSI
Shareholder to such party contained in the Operative Documents or the failure of
WSI or any other WSI Shareholder to perform in accordance with any covenant made
to such party contained therein, unless such untruth, inaccuracy or breach was
caused by any action or omission of such indemnified party or any one or more of
the other Investors.
9.3. The Sprout Shareholders shall, jointly and severally, indemnify
and hold harmless each of the Company, the Partnership and each Specified
Investor against all liability, loss or damage, together with all reasonable
costs and expenses related thereto (including reasonable legal fees and
expenses), relating to or arising from the untruth, inaccuracy or breach of any
of the representations or warranties made by Sprout or the Sprout Shareholders
to such party contained in the Operative Documents or the failure of the Sprout
Shareholders to perform in accordance with any covenant made to such party
contained therein, unless such untruth, inaccuracy or breach was caused by any
action or omission of such indemnified party or any one or more of the other
Investors.
9.4. Each Specified Investor shall, severally and not jointly,
indemnify and hold the harmless each Company Party, BCS, JRS, Childs and each
other Specified Investor
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against all liability, loss or damage, together with all reasonable costs and
expenses related thereto (including reasonable legal fees and expenses),
relating to or arising from the untruth, inaccuracy or breach of any of the
representations, warranties or agreements of such Specified Investor made to
such party contained in the Operative Documents or the failure of such Specified
Investor to perform in accordance with any covenant made to such party contained
therein, unless such untruth, inaccuracy or breach was caused by any action or
omission of such indemnified party or any one or more of the other Investors.
9.5 Each of BCS, JRS and Childs shall, severally and not jointly,
indemnify and hold harmless the Company, the Partnership, each Specified
Investor, and each other against all liability, loss or damage, together with
all reasonable costs and expenses related thereto (including reasonable legal
fees and expenses), relating to or arising from the untruth, inaccuracy or
breach of any of his representations, warranties or agreements made to such
party contained in the Operative Documents or his failure to perform in
accordance with any covenant made to such party contained therein, unless such
untruth, inaccuracy or breach was caused by any action or omission of such
indemnified party or any one or more of the other Investors.
SECTION 10. FEES AND EXPENSES. The Company shall pay or reimburse the
Investors for up to $180,000 in the aggregate for reasonable fees, expenses of
counsel and accountants, and other reasonable out-of-pocket expenses in
connection with the preparation, execution, and delivery of the Operative
Documents and the consummation of the transactions contemplated thereby. Such
reimbursement shall be on a pro rata basis according to the cash purchase price
paid or to be paid by such Investor under the terms hereof and shall be paid
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promptly after receipt by the Company of an appropriately detailed invoice
therefor from each Investor or an indication that no payment will be required.
SECTION 11. ASSIGNMENT; PARTIES IN INTEREST. Except as provided herein,
this Agreement and the rights and obligations of the parties hereunder shall not
be assignable. This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and permitted assigns.
SECTION 12. ENTIRE AGREEMENT. This Agreement contains the entire
understanding of the parties hereto with respect to the subject matter hereof
and supersedes all prior agreements and understandings, written or oral, among
the parties with respect to such subject matter.
SECTION 13. NOTICES. All notices, claims, certificates, requests,
demands and other communications hereunder shall be in writing and shall be
deemed to have been duly given if personally delivered or if sent by
nationally-recognized overnight courier, by telecopy, or by registered or
certified mail, return receipt requested and postage prepaid, addressed to the
address or fax number set forth for each party on Schedule 13 hereto or to such
other address as the party to whom notice is to be given may have furnished to
the other parties in writing in accordance herewith, provided, that any such
notice or communication for any of the Investors set forth on Schedule 1.1(a)
shall be deemed to have been given to such Investor in accordance herewith if
addressed to ▇▇▇▇▇▇▇ Capital Group LLC as provided on Schedule 13. Any notice or
communication hereunder shall be deemed to have been received (a) in the case of
personal delivery, on the date of such delivery, (b) in the case of
nationally-recognized overnight courier, on the next business day after the date
when sent, (c) in the case of telecopy transmission, when
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received, and (d) in the case of mailing, on the third business day following
that on which the piece of mail containing such communication is posted.
SECTION 14. AMENDMENTS. The terms and provisions of this Agreement may
not be modified or amended, except pursuant to an instrument signed by all
parties hereto.
SECTION 15. COUNTERPARTS. This Agreement may be executed in any number
of counterparts, and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
SECTION 16. HEADINGS. The section and paragraph headings contained in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement.
SECTION 17. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, without regard
to the conflicts of laws provisions thereof.
SECTION 18. ARBITRATION. Except as may be otherwise provided herein,
disputes arising under this Agreement shall be arbitrated in New York City in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association by three arbitrators, one selected by the party raising such
dispute, one selected by a majority (based upon aggregate number of shares
subscribed for hereunder) of the other parties hereto (other than the party
raising such dispute, the Company and the Partnership), and the third selected
by the others so selected. Any judgment on the award rendered by the arbitrators
may be entered in any court of competent jurisdiction. The arbitrators shall
have no authority to amend this Agreement. The costs of such arbitration,
including expenses of the other parties thereto, shall be borne by the
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party against whom the arbitrators' resolution is rendered. The parties hereto
agree that any proceedings pursuant to this Section 18 shall be kept strictly
confidential and shall not be disclosed to any third party except pursuant to
court order.
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IN WITNESS WHEREOF, the parties have executed and delivered this
Subscription Agreement on the date first above written.
THE EDISON PROJECT INC.
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
-------------------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Title: President
THE EDISON PROJECT L.P.
By WSI Inc., General Partner
By: /s/ H. ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
-------------------------------
Name: H. ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Title: President
By SPROUT EDISON
PROJECT INC., General Partner
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: President
WSI INC.
By: /s/ H. ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
-------------------------------
Name: H. ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Title: President
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WPA INVESTMENT L.P.
By WSI Inc., General Partner
By: /s/ H. ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
-------------------------------
Name: H. ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Title: President
WEG L.P.
By WSI Inc., General Partner
By: /s/ H. ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
-------------------------------
Name: H. ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Title: President
WEG II L.P.
By WSI Inc., General Partner
By: /s/ H. ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
-------------------------------
Name: H. ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Title: President
SPROUT EDISON PROJECT INC.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: President
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SPROUT CAPITAL VI, L.P.
By: DLJ Capital Corporation
Its: Managing General Partner
By /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Its: Attorney-in-Fact
SPROUT CAPITAL VII, L.P.
By: DLJ Capital Corporation
Its: Managing General Partner
By /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Its: Attorney-in-Fact
SPROUT CEO FUND, L.P.
By: DLJ Capital Corporation
Its: General Partner
By /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Its: Attorney-in-Fact
DLJ CAPITAL CORPORATION (Delaware)
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Its: Attorney-in-Fact
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/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇, attorney-in-fact
------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇.
/s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
------------------------------------
▇▇▇▇ ▇. ▇▇▇▇▇▇▇
/s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇
------------------------------------
▇▇▇▇ ▇. ▇▇▇▇▇▇
/s/ ▇▇▇▇ ▇. Childs
------------------------------------
▇▇▇▇ ▇. CHILDS
▇.▇. CHILDS INVESTMENTS, L.L.C.
By ▇.▇. Childs Associates, Inc.
its Manager
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇
-------------------------------
Name: ▇▇▇▇ ▇▇▇▇▇▇
Title: Vice President
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57
BLUE ROCK CAPITAL, L.P.
By: BLUE ROCK PARTNERS, L.P., its
general partner
By: BLUE ROCK, INC., its general
partner
By: /s/ ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
----------------------
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
President
RICHMONT LEEDS EDUCATION
COMPANY L.L.C.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
--------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: Member
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
----------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Title: Member
/s/ ▇▇▇▇ ▇. ▇▇▇▇
---------------------------
▇▇▇▇ ▇. ▇▇▇▇
EACH OF THE INVESTORS SET
FORTH ON SCHEDULE 1.1(a) HEREOF
By: ▇▇▇▇▇▇▇ CAPITAL GROUP LLC
as Agent and Attorney-in-Fact
for each of the Investors set forth
on Schedule 1.1(a) hereof
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-----------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Managing Director
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58
SCHEDULE 13
ADDRESSES FOR NOTICES
---------------------
Name Address
---- -------
The Edison Project Inc. ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
The Edison Project L.P. 16th Floor
Sprout Edison Project Inc. ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention:
with a copy to: WSI Inc.
▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Cadwalader, ▇▇▇▇▇▇▇▇▇▇ & ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇
WSI Inc. 366 NationsBank Center
WPA Investment L.P. ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇.▇. ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
WEG II L.P. Attention: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
with a copy to: Cadwalader, ▇▇▇▇▇▇▇▇▇▇ & ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇
The Sprout Shareholders The Sprout Group
▇/▇ ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇. c/o ▇▇▇▇▇▇ ▇. ▇▇▇▇
▇.▇. ▇▇▇▇▇▇▇ & Company
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇
▇▇▇▇ ▇. ▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
59
with a copy to: c/o ▇▇▇▇▇▇ ▇. ▇▇▇▇
▇.▇. ▇▇▇▇▇▇▇ & Company
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇
▇▇▇▇ ▇. Childs c/o ▇.▇. Childs Associates, L.P.
▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. Childs
▇▇▇▇ ▇. ▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Blue Rock Capital, L.P. c/o ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
▇.▇. Childs Investments, L.L.C. c/o ▇.▇. Childs Associates, L.P.
▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇▇
Richmont Leeds Education Leeds Group Inc.
Company L.L.C. ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
▇▇▇▇ ▇. ▇▇▇▇ c/o The Edison Project Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
The Investors Set Forth ▇▇▇▇▇▇▇ Capital Group LLC
on Schedule 1.1(a) Hereof ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
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60
EXHIBIT A-1
SECURED NOTE
November 18, 1996
FOR VALUE RECEIVED, ▇▇▇▇ ▇. ▇▇▇▇ ("▇▇▇▇") promises to pay to
the order of The Edison Project Inc. (the "Corporation") the principal amount of
Three Hundred Thousand U.S. Dollars ($300,000), and to pay interest on such
principal amount in accordance with the provisions below.
Interest shall accrue, from the date hereof to but not
including the date of payment, on the outstanding principal amount at six
percent per annum, provided, however, that the rate of interest provided herein
shall not exceed the highest rate of interest permitted by law.
The principal amount together with interest accrued thereon
shall be repaid in full on February 28, 1997. ▇▇▇▇ may prepay the outstanding
principal amount and any interest accrued thereon at any time without premium or
penalty.
As collateral security for this Secured Note, ▇▇▇▇ hereby
grants to Corporation a first priority security interest in and to 200,000
Shares of Series A Preferred Stock of the Corporation (the "Collateral"), the
certificate representing which is registered in the name of ▇▇▇▇ and is
simultaneously herewith being delivered by ▇▇▇▇ to the Corporation with a duly
executed stock power in respect thereof.
▇▇▇▇'▇ obligations hereunder are with full recourse to ▇▇▇▇,
and the remedies of the Corporation hereunder shall not be limited to satisfying
such obligations out of the Collateral. Upon (i) ▇▇▇▇'▇ failure to pay any
amount of principal or interest when due hereunder (ii) the termination of
▇▇▇▇'▇ employment with the Corporation or any of its affiliates, or (iii) ▇▇▇▇'▇
commencement of a voluntary proceeding under applicable bankruptcy, insolvency
or other similar law now or hereafter in effect or ▇▇▇▇'▇ consent to the entry
of an order for relief in an involuntary case under any such law, any unpaid
principal and interest owing hereunder shall automatically become due and
payable immediately without further notice or demand, and the Corporation shall
have all the rights and remedies of secured creditors under the Uniform
Commercial Code as in effect in the State of New York and any and all other
rights and remedies available at law or in equity, all of which rights and
remedies are cumulative and without prejudice to the rights of the Corporation
to exercise other or further rights or remedies.
This Secured Note contains the entire understanding of the
parties with respect to the subject matter hereof and shall be binding upon and
inure to the benefit of the parties hereto and their respective heirs, successor
and assigns. All payments made hereunder or notices required or authorized
hereby shall be made or given as each party may from time to time direct by
written notice to the other party hereto. All amounts payable hereunder are
payable by wire transfer in immediately available funds to the account number
specified by the Corporation, in lawful money of the United States. This Secured
Note shall be governed by and construed under the laws of the State of New York,
without regard to the conflicts of laws provisions thereof.
61
IN WITNESS WHEREOF, the undersigned has executed this Secured
Note on the date first above written.
▇▇▇▇ ▇. ▇▇▇▇
-------------------------------
AGREED AND ACKNOWLEDGED:
THE EDISON PROJECT INC.
By:
-----------------------------
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62
SCHEDULE 1.5
CERTAIN DEFINED TERMS
For purposes of the Agreement, Gross Site Contribution, Total Contracted
Revenue, and Central Expenses shall be defined as follows.
GROSS SITE CONTRIBUTION
Gross Site Contribution is (i) revenue of the Partnership for
the 1996-1997 fiscal year from school contracts minus (ii) operating expenses
associated with the individual schools managed by the Partnership for the
1996-1997 fiscal year minus (iii) technology lease payments for the 1996-1997
fiscal year, each of revenue, operating expenses, and technology lease payments
being calculated in the same way such items were calculated in the Partnership's
Five-Year Business Plan for 1997-2001 (the "Business Plan").
In the Business Plan, technology lease payments for the
1996-1997 fiscal year were projected by adding (i) one-fifth of the sum of (a)
the actual cost of technology equipment acquired for school and home use for
schools which opened in the 1995-1996 fiscal year under lease or loan
agreements, (b) total interest expense under the terms of the respective
leases/loans, and (c) required end-of-term payments, and (ii) one-fifth of the
sum of (a) total anticipated cost of technology equipment to be acquired for
school and home use for schools which opened in the 1996-1997 fiscal year under
lease or loan agreements, (b) total interest expense under the terms of the
anticipated leases/loans, and (c) anticipated required end-of-term payments. For
calculations under this Agreement, technology lease payments for schools which
opened in the 1996-1997 fiscal year will reflect actual technology equipment
costs, interest rates, and end-of-term payments. Should any part of the school
or home technology equipment not be financed under lease/loan arrangements,
technology lease payments with respect to the equipment not so financed will be
deemed to be (i) for technology equipment used in schools, one-fifth of the sum
of (a) the actual cost of such equipment, (b) deemed financing costs over 42
months at 9.5% interest, and (c) a deemed final payment equal to 12% of the
total equipment costs, and (ii) for technology equipment used in homes,
one-fifth of the sum of (a) the actual cost of such equipment, (b) deemed
financing costs over 42 months at 10.5% interest, and (c) a deemed final payment
equal to 15% of the total equipment costs.
Gross Site Contribution shall be determined by the
Partnership's financial staff after the close of the 1996-1997 fiscal year and
in conjunction with the preparation of the Partnership's audited financial
statements.
TOTAL CONTRACTED REVENUE
Total Contracted Revenue is the sum of anticipated revenue for
each school to be operated during the 1997-1998 fiscal year, with revenue for
each school calculated by adding (1) base per-pupil revenue for such school for
the 1997-1998 school year as provided under the
63
relevant school contract times the number of pupils for whom the Partnership
expects in good faith to be paid; (2) anticipated categorical revenue for such
school for the 1997-1998 school year (Title One, special education, etc.) as
provided under the relevant school contract; and (3) any other revenue for such
school as provided under the relevant school contract. Total Contracted Revenue
shall be calculated by the Partnership's financial staff as soon as determinable
following the start of the 1997-1998 school year.
CENTRAL EXPENSES
Central Expenses are the actual operating expenses of the
Partnership's headquarters staff for the 1996-1997 fiscal year, calculated in
the same manner as projected in the Business Plan (and detailed in the
Partnership's Central Support Budget for the 1996-1997 fiscal year dated August
18, 1996) and shall specifically exclude (1) any costs associated with this
transaction or any previous capital transaction (e.g., the outstanding payment
due to ▇▇▇▇▇▇ Read and professional fees and expenses) and (2) the services fee
being paid to WSI at the First Closing. Central Expenses shall be determined by
the Partnership's financial staff after the close of the 1996-1997 fiscal year
and in conjunction with preparation of the audited financial statements of the
Partnership.
The calculation of each of the above defined terms shall be in accordance with
Generally Accepted Accounting Principles (GAAP) as used in the Partnership's
audited financial statements for the 1996-1997 fiscal year except that
technology lease payments shall be calculated as in the Business Plan.
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