<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): March 10, 1995
--------------
NOBEL EDUCATION DYNAMICS, INC.
--------------------------------------------------
(Exact name of registrant as specified in charter)
Delaware 1-10031 22-2465204
------------------------------ ----------- ------------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
Rose Tree Corporate Center II, Suite 3055,
1400 North Providence Road, Media, PA 19063
--------------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code: 610-891-8200
------------
N/A
-------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE>
INFORMATION TO BE INCLUDED IN REPORT
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On March 10, 1995, the Registrant acquired from Carefree Learning
Centers, Inc. ("Carefree"), a Pennsylvania corporation and a
subsidiary of Medical Service Association of Pennsylvania, doing
business as Pennsylvania Blue Shield ("Pennsylvania Blue Shield"),
Carefree's child day-care business and operations, and substantially
all of its other assets, other than real estate, used in the operation
of Carefree's business. Additionally, the Registrant acquired from
another subsidiary of Pennsylvania Blue Shield (i) a leasehold estate
at which one of the child day-care centers acquired from Carefree is
currently in the permitted pre-development stage (the "Leasehold
Estate"), which Leasehold Estate the Registrant contemporaneously
assigned to one of its wholly-owned subsidiaries, and (ii) a leasehold
interest in the land and buildings at which one of the child day-care
centers acquired from Carefree is currently under construction.
The child day-care business purchased from Carefree, which generated
revenues of approximately $4,446,000 in 1994, consists of eight child
day-care centers currently in operation, and three child day-care
centers currently under construction or in the pre-development stage,
all of which are located in Pennsylvania. The Registrant intends to
continue to operate the acquired business under the Carefree Learning
Centers name.
The purchase price for the business and assets acquired from Carefree
consisted of (i) $500,000 in cash, (ii) a subordinated promissory note
of the Registrant in the principal amount of approximately $1,585,000,
and (iii) the assumption of certain other liabilities of Carefree in
the amount of approximately $360,000.
Concurrently with the acquisition of Carefree's business and the
Leasehold Estate, the Registrant and one of its wholly-owned
subsidiaries entered into an Agreement of Sale (the "Agreement of
Sale") with a subsidiary of Pennsylvania Blue Shield, pursuant to
which the Registrant's subsidiary will acquire (i) the land and
buildings on which four of the child day-care centers currently in
operation and acquired from Carefree are located, and (ii) the land
and buildings at which one of the child day-care centers acquired from
Carefree is currently under construction
-2-
<PAGE>
(collectively, the "Real Estate"). At the closing under the Agreement
of Sale, the purchase price to be paid for the Real Estate will
consist of (i) approximately $1,500,000 in cash, (ii) subordinated
promissory notes of the Registrant in the aggregate principal amount
of approximately $600,000, and (iii) the assumption by the Registrant
of certain other liabilities of the Pennsylvania Blue Shield
subsidiary in the amount of approximately $2,700,000. The Registrant
anticipates closing its acquisition of the Real Estate within 60 days
of the date of the Agreement of Sale. Following this closing, the
Registrant anticipates selling all of the Real Estate to an investor
group and then leasing the Real Estate from the investor group under
long term leases. While discussions are underway between the
Registrant and various investor groups for this purpose, there can be
no assurances that the Registrant will enter into any such sale and
leaseback arrangement.
The cash portion of the purchase price paid by the Registrant for the
acquisition of Carefree's business was financed by drawing on the
Registrant's existing line of credit with CoreStates Bank.
The Registrant proposes financing the purchase price for the
acquisition of the Real Estate through a term loan in an amount up to
$3,705,000 (the "Loan") with First Valley Bank ("First Valley") and
through borrowings of $1,500,000 under the Registrant's existing line
of credit with CoreStates Bank. The Loan will be secured by mortgage
liens on the Real Estate, by assignments of the Registrant's
subsidiary's rights to any future leases and licenses affecting any
parcel of such Real Estate and by security interests in fixtures at
any parcel of the Real Estate.
The Registrant is not aware of any material relationship between
Pennsylvania Blue Shield, Carefree, or any of the other subsidiaries
of Pennsylvania Blue Shield involved in the Registrant's acquisition
of the Assets or the Real Estate, on the one hand, and the Registrant,
any of the Registrant's affiliates, any of the Registrant's directors
or officers, or any associates of the Registrant's directors or
officers, on the other hand.
ITEM 5. OTHER EVENTS.
On March 14, 1995, Nobel Education Dynamics, Inc. issued a press
release, the text of which is
-3-
<PAGE>
incorporated herein by reference and is filed as an exhibit to this
report.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial Statements of Businesses Acquired.
1. Report of Coopers & Lybrand dated January 27, 1995.
2. Balance Sheets of Carefree Learning Centers, Inc. as of
December 31, 1994 and 1993 and the related statements of
operations, changes in stockholders' equity and cash flows
for the years ended December 31, 1994 and 1993.
It is impracticable at the time of the filing of this Report for
the Registrant to provide the required financial statements for
Keystone Real Estate Development Company, Inc. Accordingly, the
Registrant will file the required financial statements of Keystone
Real Estate Development Company, Inc. under cover of a Form 8
Amendment to this Current Report on Form 8-K as soon as is
practicable, but in any event not later than 60 days after the date on
which this Report must be filed with the Commission.
(b) Pro Forma Information.
It is impracticable at the time of the filing of this Report for
the Registrant to provide the required financial statements for
the acquired businesses. Accordingly, the Registrant will file
the required financial statements under cover of a Form 8
Amendment to this Current Report on Form 8-K as soon as is
practicable, but in any event not later than 60 days after the
date on which this Report must be filed with the Commission.
(c) Exhibits.
Exhibit Number
(Referenced to
Item 601 of
Regulation S-K) Description of Exhibit
--------------- ----------------------
2(a) Asset Purchase Agreement dated as of March 10,
1995, among the Registrant, Carefree Learning
Centers, Inc., Keystone Ventures, Inc. and Medical
Service Association of Pennsylvania, Doing
-4-
<PAGE>
Business as Pennsylvania Blue Shield.
2(b) Agreement of Sale dated as of March 10, 1995,
among the Registrant, Bluegrass Real Estate
Company, Inc. and Keystone Real Estate Development
Company, Inc.
4(a) Subordinated Promissory Note of the Registrant
dated March 10, 1995, to Medical Service
Association of Pennsylvania, Doing Business as
Pennsylvania Blue Shield, in the principal amount
of $1,584,962.45.
4(b) Form of Subordinated Promissory Note of the
Registrant to Medical Service Association of
Pennsylvania, Doing Business as Pennsylvania Blue
Shield ("Pennsylvania Blue Shield"), which will be
delivered at the Real Estate acquisition closing.
4(c) Form of Subordinated Promissory Note of the
Registrant to Medical Service Association of
Pennsylvania, Doing Business as Pennsylvania Blue
Shield ("Pennsylvania Blue Shield"), which will be
delivered at the Real Estate acquisition closing.
20 Text of Press Release issued on March 14, 1995.
-5-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NOBEL EDUCATION DYNAMICS, INC.
(Registrant)
Date: March 24, 1995 By: /s/ Yvonne DeAngelo
___________________________
Yvonne DeAngelo
Controller and Secretary
-6-
<PAGE>
[LETTERHEAD OF COOPERS & LYBRAND]
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors
Carefree Learning Centers, Inc.
Exton, Pennsylvania
We have audited the accompanying balance sheets of Carefree Learning Centers,
Inc. as of December 31, 1994 and 1993, and the related statements of operations,
changes in stockholder's equity (deficit) and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Carefree Learning Centers, Inc.
as of December 31, 1994 and 1993, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
/s/ Coopers & Lybrand L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
January 27, 1995
<PAGE>
CAREFREE LEARNING CENTERS, INC.
BALANCE SHEETS
December 31, 1994 and 1993
_______
<TABLE>
<CAPTION>
ASSETS 1994 1993
---- ----
<S> <C> <C>
Accounts receivable $ 129,497 $ 144,488
Prepaid expenses 57,761 60,386
Due from affiliates:
Pennsylvania Blue Shield - 280,520
Keystone Real Estate
Development Co. 11,645 11,151
Current portion of note receivable (net
of unamortized discount of $1,408 in 1993) - 10,592
----------- -----------
Total current assets 198,903 507,137
----------- -----------
Furniture and equipment:
Furniture and fixtures 52,718 51,116
Computer equipment 145,981 126,037
Children's toys and equipment 199,189 197,379
Leasehold improvements 130,280 111,904
----------- -----------
528,168 486,436
Less accumulated depreciation (317,787) (222,266)
----------- -----------
210,381 264,170
----------- -----------
Deposits 10,216 19,694
----------- -----------
Other assets, net of accumulated
amortization of $77,893 and
$59,308 27,100 28,249
----------- -----------
Total assets $ 446,600 $ 819,250
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY 1994 1993
---- ----
<S> <C> <C>
Liabilities:
Accounts payable and accrued expenses $ 221,577 $ 203,051
Cash overdraft 38,281 56,662
Due to affiliates:
Keystone Ventures, Inc. 10,748 6,847
Pennsylvania Blue Shield 52,607 67,048
Deferred tuition income 180,399 164,110
Current portion of deferred rent 31,485 10,996
----------- -----------
Total current liabilities 535,097 508,714
Deferred income taxes - 68,926
Deferred rent, net of current
portion 145,605 166,026
Loan payable to Pennsylvania Blue
Shield 1,507,111 1,717,403
----------- -----------
Total liabilities 2,187,813 2,461,069
----------- -----------
Stockholder's equity:
Common stock, $1 par value,
200,000 shares authorized;
100,000 issued and outstanding 100,000 100,000
Additional paid-in capital 650,000 650,000
Accumulated deficit (2,491,213) (2,391,819)
----------- -----------
Total stockholder's equity (deficit) (1,741,213) (1,641,819)
----------- -----------
Total liabilities and
stockholder's equity $ 446,600 $ 819,250
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
CAREFREE LEARNING CENTERS, INC.
STATEMENTS OF OPERATIONS
for the years ended December 31, 1994 and 1993
_______
<TABLE>
<CAPTION>
1994 1993
----------- ------------
<S> <C> <C>
Revenues $4,446,210 $3,859,166
Operating expenses 3,832,743 3,524,588
---------- ----------
Center operating income 613,467 334,578
---------- ----------
General and administrative expenses:
Salaries and wages 239,495 233,015
Payroll taxes and benefits 89,477 56,311
Depreciation and amortization 45,677 38,018
Interest 128,931 133,546
Occupancy 31,760 30,382
Advertising 6,780 3,713
Other expenses 104,676 94,956
Pennsylvania Blue Shield service
charge 13,525 10,820
Keystone Ventures Inc. service charge 86,056 95,936
---------- ----------
Total general and
administrative expenses 746,377 696,697
---------- ----------
Net operating loss (132,910) (362,119)
---------- ----------
Other income:
Interest income 3,566 -
Miscellaneous income 8,500 8,449
---------- ----------
Total other income 12,066 8,449
---------- ----------
Loss before income tax benefit (120,844) (353,670)
Income tax benefit 21,450 64,607
---------- ----------
Net loss $ (99,394) $ (289,063)
========== ==========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
9
<PAGE>
CAREFREE LEARNING CENTERS, INC.
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY (DEFICIT)
for the years ended December 31, 1994 and 1993
_______
<TABLE>
<CAPTION>
Common Stock
----------------- Paid-In Accumulated
Shares Amount Capital Deficit Total
------- -------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance at December 31,
1992 100,000 $100,000 $650,000 $(2,102,756) $(1,352,756)
Net loss (289,063) (289,063)
------- -------- -------- ----------- -----------
Balance at December 31,
1993 100,000 100,000 650,000 (2,391,819) (1,641,819)
Net loss (99,394) (99,394)
------- -------- -------- ----------- -----------
Balance at December 31,
1994 100,000 $100,000 $650,000 $(2,491,213) $(1,741,213)
======= ======== ======== =========== ===========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
10
<PAGE>
CAREFREE LEARNING CENTERS, INC.
STATEMENTS OF CASH FLOWS
for the years ended December 31, 1994 and 1993
_______
<TABLE>
<CAPTION>
1994 1993
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (99,394) $(289,063)
Adjustments to reconcile net loss
to net cash used for operating
activities:
Depreciation and amortization 112,699 96,411
Changes in:
Accounts receivable 14,991 (142,278)
Prepaid expenses 2,625 (37,914)
Deposits 9,478 3,723
Other assets (17,437) -
Accounts payable and accrued
expenses 18,526 67,164
Deferred income taxes (68,926) 42,249
Due from affiliates, net 269,486 36,182
Deferred tuition income 16,289 131,716
Deferred rent 68 18,448
--------- ---------
Net cash provided by (used for)
operating activities 258,405 (73,362)
--------- ---------
Cash flows from investing activities:
Expenditures for furniture and
equipment (41,732) (60,177)
Proceeds from note receivable 12,000 70,501
--------- ---------
Net cash (used for) provided by
investing activities (29,732) 10,324
--------- ---------
Cash flows from financing activities:
Increase (decrease) on line of credit
- PBS (210,292) 33,248
(Decrease) increase in cash overdraft (18,381) 29,790
--------- ---------
Net cash (used for) provided
by financing activities (228,673) 63,038
--------- ---------
Net decrease in cash and cash
equivalents - -
Cash and cash equivalents at
beginning of year - -
--------- ---------
Cash and cash equivalents at
end of year - -
========= =========
Supplemental disclosure:
Cash paid during the year for
interest $ 128,931 $ 133,546
========= =========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
11
<PAGE>
CAREFREE LEARNING CENTERS, INC.
NOTES TO FINANCIAL STATEMENTS
_______
1. Summary of Significant Accounting Policies:
------------------------------------------
Description of the Business:
---------------------------
Carefree Learning Centers, Inc. (the Company) is a wholly-owned subsidiary
of Keystone Ventures, Inc. (KVI, a wholly-owned subsidiary of Pennsylvania
Blue Shield). The Company was incorporated in 1989 for the purpose of
operating child day care centers. All of the Company's business is
conducted in Pennsylvania.
Furniture and Equipment:
------------------------
Furniture, equipment and leasehold improvements are carried at cost.
Maintenance and repairs are expensed as incurred. Depreciation is computed
under the straight-line method over the estimated useful lives. When assets
are retired or otherwise disposed of, the cost and related accumulated
depreciation are removed from the accounts and any resulting gain or loss is
included in operations.
Other Assets:
-------------
Other assets consist principally of prototype and design costs for the
center model used by the Company. These costs are amortized by the
straight-line method over a five-year period.
Income Taxes:
-------------
The Company files a consolidated federal income tax return with
Pennsylvania Blue Shield (PBS) and its other subsidiaries. Under the tax-
sharing agreement with PBS, federal income taxes are calculated and
allocated to the Company as if it were a stand alone entity. The Company is
also subject to state income taxes.
Continued
12
<PAGE>
NOTES TO FINANCIAL STATEMENTS, Continued
----------
1. Summary of Significant Accounting Policies, continued:
------------------------------------------
Income Taxes, continued:
------------
The Company accounts for income taxes based on the provisions of Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes,"
which requires recognition of deferred tax liabilities and assets for the
expected future tax consequences of events that have been recognized in the
financial statements or tax returns. Under this method, deferred tax
liabilities and assets are determined based on the difference between the
financial statement and tax basis of assets and liabilities using enacted
tax rates in effect for the year in which the differences are expected to be
settled or realized.
2. Cash Management:
---------------
The Company has a cash management agreement with PBS. Under the terms of
the agreement, PBS funds the Company checking account daily as required and
any excess cash in the Company checking account is invested by PBS.
Invested balances earn interest at a rate equal to the prime rate minus 2%
computed monthly based on the average daily balance, as defined. There were
no invested balances during 1994 and 1993.
3. Related Party Transactions:
--------------------------
The Company shares corporate office space with Keystone Real Estate
Development Company, Inc. (KREDCO), a wholly-owned subsidiary of KVI. The
Company directly bills KREDCO a pro rata share of the building operating
expenses on a monthly basis. KREDCO was charged $9,953 and $9,823 for
operating expenses during the years ended December 31, 1994 and 1993,
respectively.
Certain Company employees spend a portion of their time on the operations of
KREDCO. The Company bills a portion of expenses for salaries and benefits
to KREDCO based on employee time allocation. The Company charged $144,594
and
$132,979 to KREDCO for salaries and benefits during the years ended December
31, 1994 and 1993, respectively.
The Company is charged for management fees by KVI. For the years ended
December 31, 1994 and 1993, management fee expense was $86,056 and $95,936,
respectively.
Continued
13
<PAGE>
NOTES TO FINANCIAL STATEMENTS, Continued
----------
3. Related Party Transactions, continued:
--------------------------
The Company incurs a monthly charge from PBS for services performed. The
services include investment administration and insurance monitoring. For
the years ended December 31, 1994 and 1993, the total service charges were
$13,525 and $10,820, respectively.
The Company has an available line of credit with PBS of $2.6 million, of
which $1,507,111 and $1,717,403 were outstanding at December 31, 1994 and
1993, respectively. The credit line expires in September 1997 and renews
annually thereafter at the discretion of PBS. The Company is required to
use excess cash from its checking accounts to repay the credit line. The
outstanding balance is classified as a noncurrent liability and bears
interest at the prime rate plus 1%. Interest charged on the line of credit
was $128,931 and $133,546 in 1994 and 1993, respectively. The prime rate of
interest was 8.5% and 6% at December 31, 1994 and 1993, respectively.
The Company leases certain child care facilities from KREDCO. Rent expense
under the leases were $614,809 and $613,955 for the years ended December 31,
1994 and 1993, respectively. See Note 5 for additional information.
4. Income Taxes:
------------
The components of the federal benefit for income taxes are summarized below.
No benefit was recognized for state income taxes.
<TABLE>
<CAPTION>
1994 1993
--------- ---------
<S> <C> <C>
Current $(47,476) $106,856
Deferred 68,926 (42,249)
-------- --------
Total income tax benefit $ 21,450 $ 64,607
======== ========
</TABLE>
The gross deferred tax assets of $127,112 ($76,557 in 1993) consist
primarily of future deductible amounts for deferred rent, deferred, tuition
and depreciation. Management has concluded, as a result of the Company's
history of operations, that a full valuation allowance be applied to the
deferred tax assets.
Continued
14
<PAGE>
NOTES TO FINANCIAL STATEMENTS, Continued
----------
4. Income Taxes, continued:
------------
The Company's effective tax rates of 17.8% in 1994 and 18.3% in 1993 differ
from the statutory rate of 34% primarily due to the valuation allowance
being provided for future deductible amounts.
5. Commitments:
-----------
The Company leases certain property and equipment under operating leases
which expire on various dates through 2000. Rental expense for the years
ended December 31, 1994 and 1993 was $924,228 and $919,011, respectively.
Certain leases contain escalation clauses which provide for periodic rent
increases of 8%.
Future minimum payments for operating leases having noncancelable terms in
excess of one year are as follows:
<TABLE>
<CAPTION>
<S> <C>
1995 $1,023,799
1996 982,785
1997 719,284
1998 392,469
1999 177,024
Thereafter 98,040
----------
Total lease commitments $3,393,401
==========
</TABLE>
Total commitments include $2,000,846 under lease agreements with KREDCO.
The Company and KVI have guaranteed bank loans payable by KREDCO aggregating
approximately $2,700,000 at December 31, 1994 and 1993.
The Company is in a lease assignment agreement. Under the agreement, the
Company is contingently liable if the assignee is in default under the
lease. Contingent future rental payments under the assigned lease amounted
to $78,780 in 1995.
On December 20, 1993, the Company entered into an agreement with an
unrelated party to lease a new center currently under construction. The
lease term commences when the underlying premises become available for
occupancy (expected occupancy in Summer of 1995). The lease term is for a
period of 15 years with minimum annual lease payments as follows:
Continued
15
<PAGE>
NOTES TO FINANCIAL STATEMENTS, Continued
----------
<TABLE>
<S> <C>
5. Commitments, continued:
-----------------------
Years 1-5 $104,078
Years 6-9 110,201
Years 10-12 118,527
Years 13-15 127,996
</TABLE>
Aggregate minimum lease payments under this agreement are approximately
$1,700,000.
6. Possible Sale of Assets:
-----------------------
The Company has entered into a letter of intent to sell all the assets of
the Company. Consummation of the transaction is, among other things,
subject to due diligence by the buyer and execution of a definitive
agreement.
16
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION PAGE
-------- ----------- ----
2(a) Asset Purchase Agreement dated as of March 10,
1995, among the Registrant, Carefree Learning
Centers, Inc., Keystone Ventures, Inc. and
Medical Service Association of Pennsylvania,
Doing Business as Pennsylvania Blue Shield.
2(b) Agreement of Sale dated as of March 10,
1995, among the Registrant, Bluegrass Real
Estate Company, Inc. and Keystone Real Estate
Development Company, Inc.
4(a) Subordinated Promissory Note of the
Registrant dated March 10, 1995, to Medical
Service Association of Pennsylvania, Doing
Business as Pennsylvania Blue Shield, in the
principal amount of $1,584,962.45.
4(b) Form of Subordinated Promissory Note of the
Registrant to Medical Service Association of
Pennsylvania, Doing Business as Pennsylvania
Blue Shield ("Pennsylvania Blue Shield"),
which will be delivered at the Real Estate
acquisition closing.
<PAGE>
EXHIBIT
NUMBER DESCRIPTION PAGE
-------- ----------- ----
4(c) Form of Subordinated Promissory Note of the
Registrant to Medical Service Association of
Pennsylvania, Doing Business as Pennsylvania
Blue Shield ("Pennsylvania Blue Shield"),
which will be delivered at the Real Estate
acquisition closing.
20 Text of Press Release issued on
March 14, 1995.
<PAGE>
ASSET PURCHASE AGREEMENT
BY AND AMONG
CAREFREE LEARNING CENTERS, INC.,
KEYSTONE VENTURES, INC.,
MEDICAL SERVICE ASSOCIATION OF PENNSYLVANIA,
D/B/A PENNSYLVANIA BLUE SHIELD
AND
NOBEL EDUCATION DYNAMICS, INC.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<C> <S> <C>
SECTION 1. ACQUISITION OF ASSETS................................. 2
1.1. Purchased Assets...................................... 2
1.2. Excluded Assets....................................... 4
SECTION 2. PURCHASE PRICE AND PAYMENT............................ 5
2.1. Purchase Price........................................ 5
2.2. Payment............................................... 5
SECTION 3. RESPONSIBILITY FOR LIABILITIES........................ 5
3.1. Excluded Liabilities.................................. 5
3.2. Liabilities to be Assumed by Buyer.................... 6
SECTION 4. CLOSING............................................... 7
4.1. Time and Place of Closing............................. 7
4.2. Closing Balance Sheet................................. 7
4.3. Deliveries at the Closing............................. 7
SECTION 5. REPRESENTATIONS AND WARRANTIES OF COMPANIES........... 10
5.1. Organization; Authority............................... 10
5.2. Due Authorization; Binding Agreement.................. 10
5.3. Absence of Conflicting Agreements..................... 11
5.4. Consents and Approvals................................ 11
5.5. Brokers............................................... 11
5.6. Investments and Subsidiaries.......................... 12
5.7. Compliance with Laws.................................. 12
5.8. Permits............................................... 12
5.9. Encumbrances Created by this Agreement................ 12
5.10. Judgments and Litigation.............................. 12
5.11. Financial Information................................. 13
5.12. Tax Matters........................................... 14
5.13. Absence of Certain Changes............................ 14
5.14. Title to Property..................................... 15
5.15. List of Properties, Contracts, etc.................... 16
5.16. Contract Validity, Defaults, Notice/Consent........... 17
5.17. Managers.............................................. 17
5.18. Labor Matters......................................... 18
5.19. Relationships......................................... 18
5.20. Employee Benefit Plans................................ 18
5.21. Non-Foreign Persons................................... 18
5.22. Environmental Protection.............................. 18
5.23. No Child Abuse or Sexual Abuse........................ 20
5.24. No Other Agreements................................... 20
5.25. Disclosure............................................ 21
SECTION 6. REPRESENTATIONS AND WARRANTIES OF BUYER............... 21
6.1. Organization and Standing............................. 21
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
6.2. Power and Authority................................... 21
6.3. Binding Agreement..................................... 21
6.4. Absence of Conflicting Agreements..................... 22
6.5. Consents.............................................. 22
6.6. Litigation............................................ 22
6.7. Brokers............................................... 22
6.8. Financial Condition................................... 22
6.9. Disclosure............................................ 23
SECTION 7. OBLIGATIONS OF THE PARTIES UNTIL THE CLOSING
DATE......................................................... 23
7.1. Conduct of Business Pending Closing................... 23
7.2. Negative Covenants of Seller.......................... 23
7.3. Affirmative Covenants................................. 24
7.4. Investigation......................................... 24
7.5. Pursuit of Consents................................... 27
7.6. Releases............................................. 27
7.7. Exclusive Dealing..................................... 27
7.8. Public Announcements.................................. 27
SECTION 8. CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS........... 28
8.1. Deliveries at Closing................................. 28
8.2. Representations and Warranties........................ 28
8.3. Performance of Covenants.............................. 28
8.4. Legal Matters; No Child Abuse or Sexual Abuse......... 28
8.5. No Casualty........................................... 28
8.6. No Material Adverse Change............................ 29
8.7. Governmental Approvals................................ 29
8.8. Other Consents and Approvals.......................... 29
8.9. Real Property Agreement of Sale....................... 29
SECTION 9. CONDITIONS PRECEDENT TO SELLER'S OBLIGATIONS.......... 30
9.1. Deliveries at Closing................................. 30
9.2. Representations and Warranties........................ 30
9.3. Performance of Covenants.............................. 30
9.4. No Material Adverse Change............................ 30
9.5. Legal Matters......................................... 30
9.6. Real Property Agreement of Sale....................... 30
9.7. Governmental Approvals................................ 30
9.8. Other Consents and Approvals.......................... 31
SECTION 10. EMPLOYEES OF THE BUSINESS; EMPLOYEE BENEFITS........ 31
10.1. Seller's Liability for Compensation.................. 31
10.2. COBRA................................................ 31
10.3. Seller's Liability for Benefits...................... 31
</TABLE>
-ii-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
SECTION 11. OBLIGATIONS OF PARTIES AFTER CLOSING............... 31
11.1. Name................................................. 31
11.2. Discharge of Liabilities/Undisturbed Tenancy......... 32
11.3. Releases............................................. 32
11.4. Covenant Not To Compete.............................. 32
11.5. Survival of Representations and Warranties........... 33
11.6. Indemnification...................................... 34
11.7. Right of Offset...................................... 36
11.8. Closing Adjustments.................................. 37
11.9. Discharge of Lease Obligations....................... 37
11.10. Accrued Vacation Pay................................. 37
SECTION 12. TERMINATION........................................ 37
12.1. Termination.......................................... 37
12.2. Effect of Termination................................ 38
SECTION 13. MISCELLANEOUS....................................... 38
13.1. Commercially Reasonable Efforts...................... 38
13.2. Costs and Expenses................................... 38
13.3. Risk of Loss......................................... 39
13.4. Bulk Sales Law....................................... 39
13.5. Performance.......................................... 39
13.6. Assignment and Benefit............................... 40
13.7. Schedules and Exhibits............................... 40
13.8. Effect and Construction of this Agreement............ 40
13.9. Cooperation.......................................... 40
13.10. Notices.............................................. 41
13.11. Amendment, Waiver, Discharge, etc.................... 42
13.12. Number of Days....................................... 42
13.13. Rights of Persons Not Parties........................ 42
13.14. Governing Law........................................ 42
</TABLE>
-iii-
<PAGE>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "Agreement"), dated as of March
10, 1995, by and among Carefree Learning Centers, Inc., a Pennsylvania
corporation ("Seller"), Keystone Ventures, Inc., a Pennsylvania corporation
("Keystone"), Medical Service Association of Pennsylvania, a Pennsylvania
corporation doing business as Pennsylvania Blue Shield ("Blue Shield") (Seller,
Keystone and Blue Shield are hereinafter referred to individually as a
"Company," and collectively as "Companies"), and Nobel Education Dynamics, Inc.,
a Delaware corporation ("Buyer").
BACKGROUND
A. Seller is engaged in the business of operating eight (8) existing
child day-care centers in Pennsylvania, known as "Carefree Learning Centers,"
Seller currently holds a leasehold interest under construction and Seller's
affiliate has one (1) child day-care center currently under construction in
Pennsylvania and has one site currently in the permitted pre-development stage,
all as more particularly described in Schedule A attached hereto and made a
-----------
part hereof (individually, a "Purchased Center," and collectively, the
"Purchased Centers"). Seller's child day-care business is hereinafter referred
to as the "Business."
B. Seller is a wholly-owned subsidiary of Keystone, and Keystone is a
wholly-owned subsidiary of Blue Shield.
C. Keystone Real Estate Development Company, Inc., a Pennsylvania
corporation ("Real Property Owner") holds title to the land, buildings,
improvements and appurtenances located at four (4) of Seller's existing child
day-care centers, and at one (1) child day-care center currently under
construction, all as more particularly described in Schedule B attached hereto
----------
and made a part hereof (collectively, the "Owned Real Property"). Real Property
Owner presently leases these four existing centers to Seller pursuant to the
leases described on Schedule C-1 (the "Keystone Leases"), which the parties
------------
hereto desire to modify and have assigned to Buyer at Closing.
D. Concurrently with the execution of this Agreement, Real Property
Owner is entering into the Real Property Agreement of Sale (as hereinafter
defined in Section 8.9), pursuant to which Real Property Owner will sell all of
-----------
the Owned Real Property to Bluegrass Real Estate Company, Inc., a wholly-owned
subsidiary of Buyer ("Real Property Purchaser").
<PAGE>
E. Liberty Property Limited Partnership, WAMCO XI LTD., Center Court
Associates and Lancaster General Hospital Foundation, respectively, hold title
to the land, buildings, improvements and appurtenances located at four (4) of
Seller's existing child day-care centers, Royersford Center LP holds title to
the land, buildings, improvements and appurtenances located at one (1) of
Seller's child day-care centers currently under construction, Audubon Village
Associates holds title to the land located at one (1) of Seller's child day-care
centers currently under construction, and PNC Holding Group holds title to the
land, buildings, improvements and appurtenances located at Seller's corporate
office, each as more particularly described in Schedule C-2 attached hereto and
------------
made a part hereof (collectively, the "Leased Real Property"). The Leased Real
Property is leased to Seller pursuant to the leases and subleases described in
Schedule C-2 hereto ("Third Party Leases"), which the parties hereto desire to
------------
have assigned to Buyer at Closing.
F. The parties hereto desire to provide for the acquisition by Buyer of
the Business and substantially all of Seller's assets used in the Business, all
on the terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
representations, warranties, covenants and agreements herein contained, the
parties hereto, intending to be legally bound, agree as follows:
SECTION 1. ACQUISITION OF ASSETS
1.1. Purchased Assets. Subject to the terms and conditions of
----------------
this Agreement and on the basis of and in reliance upon the covenants,
agreements and representations and warranties set forth herein, at the Closing,
Seller shall sell, transfer and deliver to Buyer title to the Business as a
going concern and to all of the tangible and intangible properties and assets
owned or held by Seller on the Closing Date relating to or used or held for use
in connection with the operation of its Business other than Excluded Assets (as
hereinafter defined in Section 1.2), including the following assets owned or
-----------
held by Seller (the "Purchased Assets"):
1.1.1. all of Seller's furniture, fixtures, equipment,
machinery, business forms, teaching and educational supplies, inventories,
supplies, and other tangible personal property, including those described on
Schedule 1.1.1 attached hereto and made a part hereof;
--------------
1.1.2. all of Seller's right, title and interest in and to all
accounts receivable, net of the amount of
-2-
<PAGE>
any deferred taxes included within such receivables by which such receivables
are reduced as reflected on the Closing Balance Sheet (as hereinafter defined in
Section 4.2);
-----------
1.1.3. all of Seller's right, title and interest in and to
all prepaid expenses, other than any prepaid insurance;
1.1.4. all of Seller's right, title and interest in and to
amounts due Seller from any affiliate of Seller;
1.1.5. all of Seller's right, title and interest in and to
the lease deposit relating to Lehigh Valley Corporate Center;
1.1.6. to the extent assignable, all maintenance contracts, service
contracts, equipment leases (including, if leased, telephone systems), vehicle
leases and other contracts of Seller (the "Contracts") listed on Schedule 1.1.6
attached hereto and made a part hereof, other than those --------------
specifically listed on Schedule 1.2.10 as not being assigned to Buyer;
---------------
1.1.7. all of Seller's leasehold estate (i) in the Leased
Real Property arising under and pursuant to the Third Party Leases described on
Schedule C-2 and (ii) in the Owned Real Property arising under and pursuant to
------------
the Keystone Leases as modified by the Keystone Lease Amendment provided for in
Section 4.3.1.(h) (collectively, the "Assigned Leases");
-----------------
1.1.8. all permits, franchises, licenses, patents,
copyrights, trademarks, rights and other authorizations of Seller described on
Schedule 1.1.8 attached hereto and made a part hereof other than those
--------------
identified as not being transferred to Buyer on Schedule 5.8 attached hereto;
------------
1.1.9. all goodwill of the Business as a going concern,
including all client and customer lists and rights to deal with clients and
customers, and all right, title and interest of Seller (if any) in and to the
name "Carefree Learning Center";
1.1.10. except for cash retained by Seller in an amount
equal to Seller's current liability for outstanding uncashed checks issued by
Seller and unpaid incentive awards, salaries, wages, bonuses, benefits or other
compensation for services and payroll taxes (but excluding vacation pay) as
shown on the Closing Balance Sheet, all cash on hand and undeposited checks; and
-3-
<PAGE>
1.1.11. the records and documents of Seller, described on
Schedule 1.1.11 (but Buyer agrees to give Seller reasonable access thereto for a
---------------
period of seven (7) years following the Closing Date for proper business
purposes during normal business hours and to permit Seller to make copies
thereof at Seller's expense).
1.2. Excluded Assets. Notwithstanding anything to the contrary in
---------------
Section 1.1, the following rights, properties and assets of Seller shall not be
-----------
included in the Purchased Assets (the "Excluded Assets"):
1.2.1. the corporate seal, articles of incorporation, minute
books, stock books, and all records and documents of Seller not described on
Schedule 1.1.11 (but Companies agree to give Buyer reasonable access thereto for
---------------
a period of seven (7) years following the Closing Date for proper business
purposes during normal business hours and to permit Buyer to make copies thereof
at Buyer's expense);
1.2.2. the cash to be retained by Seller pursuant to Section
-------
1.1.10 and except as described in Section 1.1.5, all deposits of Seller (the
------ -------------
amount of which will be reimbursed as provided in Section 11.8.2);
--------------
1.2.3. the Purchase Price and all rights which accrue or will
accrue to Seller under this Agreement and Companies' Transaction Documents;
1.2.4. all insurance policies of Seller and all rights/claims
of Seller thereunder;
1.2.5. all tax refunds and related interest, and all deferred
tax amounts described in Section 1.1.2;
-------------
1.2.6. all prepaid insurance and surety bonds (with cash in an
amount equal to all prepaid premiums for insurance for periods following the
Closing Date to be paid by Seller to Buyer in accordance with the provisions of
Section 11.8.1 hereof, and the cash to be retained by Seller as described in
--------------
Section 1.1.10;
--------------
1.2.7. Seller's certificate of compliance issued by the
Pennsylvania Department of Public Welfare, Seller's certificate issued by the
Pennsylvania Department of Education, and any other day-care facility license or
other governmental license of Seller which is not transferrable pursuant to any
applicable law, statute, rule or regulation;
-4-
<PAGE>
1.2.8. all supplies and inventories which have been sold,
consumed or disposed of in the ordinary course of the Business subsequent to the
date of this Agreement and prior to the Closing Date;
1.2.9. Seller's cash management system; and
1.2.10. all maintenance contracts, service contracts equipment
leases, vehicle leases and other contracts of Seller that are listed on Schedule
--------
1.2.10 attached hereto and made a part hereof.
------
SECTION 2. PURCHASE PRICE AND PAYMENT
2.1. Purchase Price. The aggregate purchase price for the
--------------
Business and the Purchased Assets (the "Purchase Price") shall be equal to the
sum of the amounts set forth in Section 2.2.1 and Section 2.2.2 not to exceed
------------- -------------
Two Million One Hundred Thousand Dollars ($2,100,000), payable as set forth in
Section 2.2.
-----------
2.2. Payment. At the Closing, Buyer shall deliver:
-------
2.2.1. to Seller, by wire transfer in immediately available
funds or by certified or cashiers' check, the amount of Five Hundred Thousand
Dollars ($500,000) (the "Cash Payment"), on account of the Purchase Price; and
2.2.2. to Blue Shield, Buyer's subordinated note (the "Note")
payable to Blue Shield or its assigns in a principal amount equal to the
principal balance of Seller's obligations to Blue Shield under its line of
credit with Blue Shield outstanding on the Closing Date, up to a maximum
principal amount not to exceed One Million Six Hundred Thousand Dollars
($1,600,000) (the "Blue Shield Obligation"), which Note shall be dated the
Closing Date, and shall bear interest, mature and otherwise be in the form of
Schedule 2.2.2 attached hereto and made a part hereof. The Note shall be issued
--------------
in complete satisfaction and payment of the Blue Shield Obligation which shall
be deemed paid in full upon issuance of the Note.
SECTION 3. RESPONSIBILITY FOR LIABILITIES
3.1. Excluded Liabilities. Except as otherwise provided
--------------------
specifically in this Section 3, Buyer shall not assume, nor in any way be
---------
liable or responsible for, any other liabilities, obligations or debts of any
Company of any type or nature including, without limitation, tort claims
asserted against any Company or the Business (including, but not limited to,
claims of child abuse or sexual abuse asserted against the
-5-
<PAGE>
Business, any Company or its respective employees) arising out of actions or
omissions occurring in periods prior to the Closing Date; claims against any
Company or the Business for breach of contract arising out of actions or
omissions occurring in periods prior to the Closing Date; tax liabilities;
liabilities relating to claims for damages based upon the breach by any Company
of, or strict liability arising under, any environmental or occupational health
and safety laws or regulations; liabilities or obligations relating to the
violation by any Company of any Federal or state laws; liabilities incurred for
the costs and expenses of negotiating and consummating the transactions
contemplated by this Agreement or the Real Property Agreement of Sale; or
liabilities incurred prior to the Closing Date in connection with any employee
benefit plan of any Company.
3.2. Liabilities to be Assumed by Buyer. Subject to the terms
----------------------------------
and conditions of this Agreement, at the Closing Buyer shall assume pursuant to
the Omnibus Assignment (as hereinafter defined in Section 4.3.1.(b)) and
-----------------
thereafter in due course pay and fully satisfy the following liabilities,
responsibilities and obligations of Seller in existence on the Closing Date (the
"Assumed Liabilities"):
3.2.1. all accounts payable of Seller in the amount shown
on the Closing Balance Sheet, as defined in and prepared pursuant to Section
-------
4.2, but not any accrued expenses shown thereon except as provided in Section
-------
3.2.2;
-----
3.2.2. subject to the provisions of Section 11.10, all
-------------
liability of Seller for accrued vacation shown on the Closing Balance Sheet as a
current liability;
3.2.3. all deferred tuition liability of Seller shown on
the Closing Balance Sheet as a current liability;
3.2.4. all amounts due to Blue Shield (other than the Blue
Shield Obligation and any amounts due to Keystone Ventures) shown on the Closing
Balance Sheet as current liabilities of Seller; and
3.2.5. all liability and obligations of Seller accruing
from and after the Closing Date under each of the Assigned Leases and under each
Contract listed on Schedule 1.1.6 with respect to (and only with respect to)
--------------
performance which becomes due thereunder subsequent to the Closing Date.
Liabilities and obligations under such Assigned Leases or Contracts
which have accrued, or the performance of which is due, on or prior to the
Closing Date shall be the sole responsibility of Seller. Seller shall retain
(and shall
-6-
<PAGE>
indemnify Buyer pursuant to Section 11.6 for any liability, loss, cost or
------------
expense in respect of) all obligations and liabilities under Assigned Leases or
Contracts in respect of services or value received, or in respect of claims
arising, prior to Closing. Buyer shall be responsible for all obligations of
the Business incurred by it after the Closing.
SECTION 4. CLOSING
4.1. Time and Place of Closing. The closing of the purchase
-------------------------
and sale of the Business and the Purchased Assets (the "Closing") pursuant to
this Agreement shall take place on or before March 14, 1995, at the offices of
Drinker Biddle & Reath, Suite 300, 1000 Westlakes Drive, Berwyn, Pennsylvania,
commencing at 10:00 a.m., local time, or at such other date, time and/or place
as may be agreed to by Buyer and Companies (the "Closing Date"); provided,
--------
however, that the Closing Date may be extended for up to 30 days by the party or
-------
parties entitled to the benefit of any condition if such condition has not been
satisfied by another party or parties before the Closing Date.
4.2. Closing Balance Sheet. Within thirty (30) days after the
---------------------
Closing, Buyer and Seller shall jointly prepare a balance sheet of Seller as of
the Closing Date (the "Closing Balance Sheet") showing in accordance with
generally accepted accounting principles, consistently applied ("GAAP") Seller's
assets and liabilities as of the Closing Date, and containing the same line
items as appear on Seller's Balance Sheet at December 31, 1994 referred to in
Section 5.11.1. The Closing Balance Sheet shall be prepared using the same GAAP
--------------
as Seller used in preparing its balance sheet at December 31, 1994. If the
parties are unable to agree on the Closing Balance Sheet within such thirty (30)
day period, any disputed items shall be submitted by Buyer or Seller for
resolution by Coopers & Lybrand, or if unavailable or if such firm shall deny
such appointment, to another "big six" accounting firm reasonably acceptable to
Buyer and Seller (the "Arbitrator"). Buyer and Seller covenant and agree to
cooperate with the Arbitrator and to provide to the Arbitrator such information
as the Arbitrator may reasonably request in analyzing the disputed items. The
Arbitrator shall review and determine the disputed items in accordance with GAAP
and the applicable provisions of this Agreement, which determination shall be
final and binding upon the parties. The fees and expenses of the Arbitrator
shall be shared equally by Buyer and Seller.
4.3. Deliveries at the Closing. At the Closing:
-------------------------
4.3.1. Companies shall deliver, or shall cause to be
delivered, to Buyer:
-7-
<PAGE>
(a) a bill of sale (the "Bill of Sale") transferring to Buyer
title to all of the Purchased Assets, in the form of Schedule 4.3.1.(a) attached
------------------
hereto and made a part hereof;
(b) an assignment and assumption agreement (the "Omnibus
Assignment"), in the form of Schedule 4.3.1 attached hereto and made a part
--------------
hereof, pursuant to which shall assign all of Seller's rights to and under, and
Buyer shall assume, all of the Assumed Liabilities;
(c) incumbency certificates relating to the officers of each
Company, together with certified copies of unanimous executed consents duly and
properly adopting resolutions of Seller's Board of Directors and of its sole
shareholder, authorizing the execution, delivery and performance of this
Agreement, the Companies' Transaction Documents (as hereinafter defined in
Section 5.2) and the transactions contemplated hereby and thereby including,
-----------
without limitation, the sale of the Business and all other actions incumbent
upon each Company, as applicable, as provided in this Agreement;
(d) the closing certificates of Companies called for by Section
-------
8.2, Section 8.3 and Section 8.6, as to Companies' representations and
--- ----------- -----------
warranties, the performance of covenants and the condition of the Business;
(e) the opinion of George A. Welsh, Esq., Vice President of Legal
Services and Counsel to Blue Shield, dated the Closing Date, in the form of
Schedule 4.3.1.(e) attached hereto and made a part hereof;
------------------
(f) closing statements containing Seller's acknowledgement of its
receipt of the Cash Payment and Blue Shield's acknowledgement of its receipt of
the Note;
(g) such other instruments of transfer as shall be reasonably
necessary or appropriate to vest in Buyer good and marketable title to the
Business and the Purchased Assets including, without limitation, title documents
transferring title to any vehicles to Buyer;
(h) an assignment, consent and lease amendment (the "Keystone
Lease Amendment"), in the form of Schedule 4.3.1.(h) attached hereto and made a
------------------
part hereof, pursuant to which Seller shall assign to Buyer Seller's leasehold
interest in the Owned Real Property arising under and pursuant to the Keystone
Leases, and Real Property Owner and Buyer shall amend the Keystone Leases so
that their terms shall expire at the
-8-
<PAGE>
time of the Closing of the purchase of the Owned Real Property under the Real
Estate Acquisition Agreement;
(i) estoppels and consents of each lessor (and sublessor, if any)
to the assignment to Buyer of Seller's leasehold interest in the Leased Real
Property arising under the Third Party Leases (collectively, the "Consents to
Assignment") substantially in the form of Schedule 4.3.1.(i) attached hereto and
------------------
made a part hereof;
(j) certificates of subsistence issued by the Secretary of the
Commonwealth of Pennsylvania relating to each Company, respectively, and dated
as of a recent date; and
(k) a trademark assignment (the "Trademark Assignment"), in the
form of Schedule 4.3.1(k) attached hereto and made a part hereof, transferring
-----------------
to Buyer all of Seller's right, title and interest in and to a certain trademark
registration.
4.3.2. Buyer shall deliver, or shall cause to be delivered,
to Companies:
(a) the Cash Payment;
(b) the Omnibus Assignment;
(c) an incumbency certificate relating to the officers of Buyer,
together with certified copies of unanimous executed consents duly and properly
adopting resolutions of Buyer's Board of Directors authorizing the execution,
delivery and performance of this Agreement, the Buyer's Transaction Documents
(as hereinafter defined in Section 6.2) and the transactions contemplated hereby
-----------
and thereby including, without limitation, the execution of the Note;
(d) the closing certificate of Buyer called for by Section 9.2,
-----------
Section 9.3 and Section 9.4 as to Buyer's representations and warranties, the
----------- -----------
performance of covenants and Buyer's financial condition;
(e) the opinion of Drinker Biddle & Reath, counsel to Buyer,
dated the Closing Date, in the form of Schedule 4.3.2.(e) attached hereto and
------------------
made a part hereof; and
(f) the Real Property Agreement of Sale and the Keystone Lease
Amendment; and
(g) the Escrow Agreement among Buyer, Real Property Owner, Real
Property Purchaser and Congress Abstract
-9-
<PAGE>
Corporation, as agent for First American Title Insurance Company (the "Escrow
Agreement"), in the form of Schedule 4.3.2.(g) attached hereto and made a part
------------------
hereof, relating to the simultaneous escrow closing on the Real Property
Agreement of Sale.
4.3.3. Buyer shall deliver, or shall cause to be delivered,
to Blue Shield, the Note.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF COMPANIES
Companies, jointly and severally, represent and warrant to Buyer as
follows:
5.1. Organization; Authority. Each Company has been duly
-----------------------
incorporated and is a corporation validly subsisting and in good standing under
the laws of the Commonwealth of Pennsylvania and has full corporate power and
authority to carry on its business as now conducted. Seller is not qualified to
do business as a foreign corporation in any jurisdiction, and neither the nature
of its properties nor the conduct of its business requires that it be so
qualified. All of the shares of capital stock of Seller are owned, both
beneficially and of record, by Keystone, and all of the shares of capital stock
of Keystone are owned, both beneficially and of record, by Blue Shield. All of
the issued and outstanding shares of capital stock of Seller have been duly
authorized and are validly issued and outstanding. Seller has the corporate
power and authority to own the properties now owned by it and to conduct its
business as it is presently being conducted.
5.2. Due Authorization; Binding Agreement. Each Company has
------------------------------------
the full legal right, power and authority to execute, deliver and perform its
respective obligations under this Agreement, and to the extent a party thereto,
the Bill of Sale, the Omnibus Assignment, the Keystone Lease Amendment, the
Escrow Agreement and the other agreements and documents required to be delivered
by Companies to Buyer at the Closing pursuant hereto and thereto (collectively,
"Companies' Transaction Documents") to which it is a party. The execution and
delivery by each Company of this Agreement on the date hereof, the execution and
delivery by each Company on the Closing Date of the Companies' Transaction
Documents to which it is a party, and the performance by each Company of its
respective obligations hereunder and thereunder have been duly and validly
authorized by all necessary action of each Company. This Agreement has been
duly executed and delivered by each Company. This Agreement is, and when
executed and delivered at Closing each of Companies' Transaction Documents to
which it is a party will be, the legal, valid and binding obligations of each
Company, enforceable against each Company in
-10-
<PAGE>
accordance with their respective terms, except as such may be limited by
bankruptcy, insolvency, moratorium, reorganization or other similar laws
relating to or affecting the enforcement of creditors' rights generally, and
except that the availability of specific performance, injunctive relief or other
equitable remedies is subject to the discretion of the court before which any
such proceeding therefor may be brought.
5.3. Absence of Conflicting Agreements. Except as set forth
---------------------------------
on Schedule 5.3 attached hereto and made a part hereof, neither the execution or
------------
delivery of this Agreement or any of Companies' Transaction Documents by any
Company, nor the performance by any Company of the transactions contemplated
hereby and thereby, with or without the giving of notice, lapse of time or both,
conflicts with, or constitutes a breach of or a default under, or violates:
5.3.1. any applicable law, statute, rule, regulation,
judgment, order, writ, injunction, decree or ruling of any court or governmental
authority (collectively, "Laws") applicable to any Company or by which any
Company or its respective assets or properties are bound;
5.3.2. the articles of incorporation or by-laws of any
Company; or
5.3.3. any lease or contract being assigned to Buyer
pursuant hereto, or any other material agreement, indenture, instrument or
contract to which any Company is now a party or by which any Company is bound.
5.4. Consents and Approvals. Except for the consents and
----------------------
approvals listed on Schedule 5.4 attached hereto and made a part hereof (each of
------------
which, except as described on Schedule 5.4, shall be obtained on or prior to the
------------
Closing Date and delivered at the Closing), no consent, waiver, approval,
license or authorization of, or filing, registration or qualification with, or
notice to, any governmental authority or any other person or entity is required
to be made, obtained or given by any Company in connection with the execution,
delivery and performance by the Companies of this Agreement or any of Companies'
Transaction Documents, or for the consummation by Companies of the transactions
contemplated hereby or thereby.
5.5. Brokers. No person or entity acting on behalf of any
-------
Company or any of their respective affiliates or under the authority of any of
the foregoing is, or will be entitled to, any brokers', advisors' or finders'
fee or any other commission or similar fee, directly or indirectly, from any of
such parties in
-11-
<PAGE>
connection with any of the transactions contemplated by this Agreement or the
Real Property Agreement of Sale.
5.6. Investments and Subsidiaries. Except for the activities
----------------------------
of Real Property Owner, the Business is and has been conducted solely by and
through Seller and no other person or entity, and Seller has not agreed,
contingently or otherwise, to share any profits, losses, costs or liabilities,
or to indemnify any person or entity or to guaranty the obligations of any
person or entity, in each case, with respect to the Business. The Purchased
Assets, together with the Excluded Assets and the Owned Real Property, are all
of the assets necessary for the conduct of the Business as it is presently
conducted, other than corporate administration services provided by Blue Shield.
Seller has no subsidiaries.
5.7. Compliance with Laws. Seller has operated the Business
--------------------
in compliance in all material respects with all Laws, and no Company has
received any claim or notice that Seller is not in compliance with any of the
Laws.
5.8. Permits. Except as set forth on Schedule 5.8
------- ------------
attached hereto and made a part hereof, Schedule 1.1.8 is a true, correct and
--------------
complete list of all permits, franchises, licenses, patents, copyrights,
trademarks and other governmental authorizations which are necessary for Seller
to conduct the Business as now conducted (the "Permits"). Seller owns,
possesses or has the legal right to use the Permits, free of all liens, pledges,
claims, or other encumbrances of any nature whatsoever. All Permits are
transferable without the consent of any other person or entity unless otherwise
indicated in Schedule 5.8. No Company knows of any default under, nor has any
------------
Company received any notice of any claim or default or any other claim or
proceeding relating to, any such Permit.
5.9. Encumbrances Created by this Agreement. The execution
--------------------------------------
and delivery of this Agreement or any of the Companies' Transaction Documents by
Companies does not, and the consummation of the transactions contemplated hereby
or thereby by Companies will not, create any liens or other encumbrances on any
assets of Seller in favor of third parties other than Buyer.
5.10. Judgments and Litigation. Except for those matters
------------------------
disclosed on Schedule 5.10 attached hereto and made a part hereof, which such
-------------
matters, individually or in the aggregate, would not have a material adverse
effect on either the transactions contemplated by this Agreement or the
Business, there is no outstanding order, writ, injunction, fine, citation,
penalty, decree or unsatisfied judgment against the Business, Seller or its
assets of any court, governmental authority or
-12-
<PAGE>
arbitrator, and there is no such dispute, claim, action, suit, proceeding,
arbitration, inquiry or investigation pending or, to the best knowledge of any
Company, threatened before any court, governmental unit or arbitrator: (i) that
questions any of the transactions contemplated by this Agreement or the validity
of this Agreement or any of the Companies' Transaction Documents or any of the
transactions contemplated hereby or thereby or which, if adversely determined,
could reasonably be expected to have an adverse effect upon the ability of any
Company to enter into or perform its respective obligations under this Agreement
or any such Companies' Transaction Documents; (ii) with respect to any of the
Purchased Assets or the Business; or (iii) that allege any incident or
occurrence of child abuse or sexual abuse against any Company, the Business or
any employee or contractor of same. No Company is aware of any state of facts
or occurrence of any event that might reasonably form the basis of any claim
against the Business, Seller or its assets which might have a materially adverse
effect on the earnings, business operations or condition (financial or
otherwise) of the Business, Seller or its assets.
5.11. Financial Information.
---------------------
5.11.1. Schedule 5.11.1 attached hereto and made a part
---------------
hereof contains true, correct and complete copies of Seller's audited balance
sheets as at December 31, 1992, 1993 and 1994, and the related audited
statements of operations, cash-flow and stockholders' equity at and for the
years then ended (Seller's audited balance sheet as at December 31, 1994 is
referred to hereinafter as "Seller's Balance Sheet," and all such financial
statements are hereinafter referred to collectively as the "Annual Statements").
The Annual Statements present fairly in all material respects the financial
position of Seller, the Business and its operations at such dates and the
results of its operations and its cash flow for the periods then ended, in
conformity with GAAP, consistently applied. For the month ended January 31,
1995, Seller had revenues of not less than $350,000, and a net loss of not more
than $100,000, as determined in conformity with GAAP.
5.11.2. Neither Seller nor the Business has any liabilities
or obligations which are required by GAAP to be reflected on Seller's Balance
Sheet as at December 31, 1994 ("Seller's Balance Sheet Date") that are not so
reflected thereon, except for such current liabilities (within the meaning of
GAAP) as have been incurred by Seller in the ordinary course of business,
consistent in nature and amount with past practice since Seller's Balance Sheet
Date. Without limiting the foregoing, Seller's Balance Sheet at Seller's
Balance Sheet Date contains adequate reserves or other appropriate provisions
for accrued income and other taxes, depreciation and the costs of all
-13-
<PAGE>
pension, retirement, incentive, bonus, profit-sharing, vacation, holiday or
other plans or policies (if any) for the benefit of Seller's and/or the
Business's employees.
5.12. Tax Matters. Seller has timely and properly filed all
-----------
Federal, state, county and local returns and reports relating to Taxes (as
hereinafter defined) and all such returns and reports were true, correct and
complete in all material respects when filed. All Federal, state, county and
local income, profits, franchise, sales, use, payroll, premium, occupancy,
property, severance, excise, withholding, customs, unemployment, transfer and
other taxes, including interest, additions to tax and penalties (collectively,
"Taxes") due or properly shown to be due on any return referred to in the
preceding sentence by Seller with respect to taxable periods ending on or prior
to, and the portion of any interim period up to, the date hereof have been fully
and timely paid or, in the case of Taxes not yet due, fully provided for on
Seller's Balance Sheet or, in the case of Taxes accruing after the Balance Sheet
Date, on the books of account of Seller. There are no levies, liens, or other
encumbrances relating to Taxes existing, pending or, to the knowledge of
Companies, threatened with respect to any asset of Seller. The tax returns of
Seller have never been audited by the Internal Revenue Service or any other
taxing authority. No issues have been raised with any representative or
employee of Seller and are currently pending by the Internal Revenue Service or
any other taxing authority in connection with such tax return and no waivers of
statutes of limitations have been given or requested with respect to any such
returns and reports or with respect to any Taxes. The books and records of
Seller are sufficient to prove in all material respects the correctness of all
tax returns for open tax years and to determine and to prove the adjusted tax
basis for Federal income tax purposes of each asset of Seller.
5.13. Absence of Certain Changes. Since Seller's Balance
--------------------------
Sheet Date, there has not been any material adverse change in the condition
(financial or otherwise), assets, liabilities, properties or operations of the
Business, and, except as disclosed in Schedule 5.13 attached hereto and made a
-------------
part hereof, Seller has not:
5.13.1. sold, assigned, leased, transferred, mortgaged,
pledged or imposed any lien or other encumbrance on any of its assets or
properties, except in the ordinary course of business and consistent in nature
and amount with past practice;
5.13.2. suffered any material damage, destruction or loss,
whether or not covered by insurance, or suffered any repeated, recurring or
prolonged shortage, cessation
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<PAGE>
or interruption of delivery of supplies or utility services required to conduct
the Business, or suffered any change in its financial condition or in the nature
of its business or operations which has had or might have a material adverse
effect on the operations, assets or properties of the Business;
5.13.3. increased the salaries or other compensation of, or
made any advance (excluding advances for ordinary and necessary business
expenses) or loan to, any of its shareholders, directors, officers or employees,
or made any increase in, or any additions to, other benefits to which any of its
shareholders, directors, officers or employees may be entitled other than salary
increases to non-management level employees made in the ordinary course of
business;
5.13.4. changed any of the accounting principles followed
by it or the methods of applying such principles;
5.13.5. entered into any material transaction, or any
material agreement (whether or not in writing) with respect to any future
transaction, other than this Agreement and the transactions contemplated hereby
and in the ordinary course of business and consistent in nature and amount with
past practice;
5.13.6. accelerated the collection of tuition or
registration fees or otherwise collected such fees other than in the ordinary
course of business and consistent in nature and amount with past practice; or
5.13.7. declared, paid or made, or agreed to declare, pay
or make, any dividends, distributions or other payments in respect of its stock;
repurchased or redeemed any shares of its stock; delayed or deferred making
payment of its accounts payable, expenses or other obligations or otherwise
dealt with its accounts payables in a manner not consistent with past practice;
or accelerated the collection of its accounts receivable, made any extraordinary
efforts to collect any of its accounts receivable or otherwise collected its
accounts receivable other than in the ordinary course of business and consistent
in nature with past practice.
5.14. Title to Property. Except as described on Schedule 5.14
----------------- -------------
attached hereto and made a part hereof: (i) Seller has good and marketable
title to all of the Purchased Assets, free and clear of any restriction,
mortgage, deed of trust, pledge, lien, security interest or other charge, claim
or encumbrance, other than liens for taxes, assessments and other governmental
charges not yet due and payable (the "Permitted Encumbrances"); (ii) all of the
Purchased Assets are in the
-15-
<PAGE>
possession or under the control of Seller and are in good condition and repair,
ordinary wear and tear excepted, are reasonably suitable for the purposes for
which they are being used and are of a condition, nature and quantity sufficient
for the conduct of the Business as currently conducted; and (iii) to the best of
each Company's knowledge, there is no material latent or patent structural,
mechanical or other significant defect or deficiency in the Purchased Assets.
Upon Closing, Buyer will have good and marketable title to all of the Purchased
Assets, free and clear of any restriction, mortgage, deed of trust, pledge,
lien, security interest or other charge, claim or encumbrance other than the
Permitted Encumbrances.
5.15. List of Properties, Contracts, etc. Schedule 1.1.1
---------------------------------- --------------
contains a true, correct and complete list, as of the date of this Agreement, of
each vehicle, item of machinery, equipment and other tangible asset included in
the Purchased Assets with an original cost in excess of $500, and all items on
the list are located at the property specified. Schedule 1.1.3 and Schedule
-------------- --------
1.1.4 contain true, correct and complete lists, as of the date of this
-----
Agreement, of each contract, agreement, purchase order or other commitment
requiring payments in excess of $2,000 involving the performance of services or
delivery of goods or materials by or to Seller relating to the Business, or by
which Seller or any Purchased Asset is otherwise bound. Schedule 5.15 attached
-------------
hereto and made a part hereof contains a true, correct and complete list, as of
the date of this Agreement, of:
5.15.1. all patents, trademarks, patent or trademark
applications, copyrights, franchises, licenses and permits, if any, which are
owned, possessed or used by Seller in the operation of the Business other than
"Carefree Learning Center, Inc.";
5.15.2. each form of contract, agreement or commitment used
by Seller as a standard form in the ordinary course of the operation of the
Business;
5.15.3. a summary of each policy and binder of insurance
currently owned by, or maintained for the benefit of, or respecting which any
premiums are paid directly or indirectly by, Seller, relating to the operation
of the Business; and
5.15.4. each insurance claim made or loss incurred by
Seller in the preceding five years pursuant to any workers' compensation,
liability or other insurance policy.
Seller has furnished and will furnish or make available on or
before the Closing Date to Buyer true, correct
-16-
<PAGE>
and complete copies of each agreement, plan and other document required to be
disclosed on Schedule 5.15.
-------------
5.16. Contract Validity, Defaults, Notice/Consent. Except as
-------------------------------------------
described on Schedule 5.16 attached hereto and made a part hereof:
-------------
5.16.1. each contract, agreement and commitment included in the
Purchased Assets to which Seller is a party or by which Seller or its assets are
bound (including, without limitation, any such identified on Schedule 1.1.3) was
--------------
made in the ordinary course of business, to the best of Companies' knowledge is
in full force and effect and is valid, binding and enforceable against Seller
and, to the best of Companies' knowledge, upon the other parties thereto in
accordance with its terms, except as such may be limited by bankruptcy,
insolvency, moratorium, reorganization or other similar laws relating to or
affecting the enforcement of creditors' rights generally, and except that the
availability of specific performance, injunctive relief or other equitable
remedies is subject to the discretion of the court before which any such
proceeding therefor may be brought;
5.16.2. Seller has complied in all material respects with
the provisions of the contracts, commitments and agreements listed in Schedule
--------
1.1.3, and, to the best of Companies' knowledge, no other party is in default
-----
thereunder, and to the best of Companies' knowledge, no event has occurred
which, but for the passage of time or the giving of notice or both, would
constitute a default thereunder; and
5.16.3. no contract, lease, commitment or agreement listed
on Schedule 1.1.6 requires notice to or the consent of any party thereto in
--------------
order for Seller effectively to assign to Buyer such contract, lease, commitment
or agreement.
5.17. Managers. Schedule 5.17 attached hereto and made
-------- -------------
a part hereof sets forth a true, correct and complete list of:
5.17.1. the names of all managers of Seller and all other
persons with managerial level responsibilities in the Business; and
5.17.2. the name and current aggregate annual rate of
compensation (including bonuses) paid or payable by Seller to each of its
managers and employees whose aggregate annual rate of compensation (including
bonuses and any salary increase proposed prior to the Closing Date) exceeds
$12,000.
-17-
<PAGE>
Except as disclosed on Schedule 5.17, there are no contracts, written or oral,
-------------
for the employment of any officer, director, manager, or employee of Seller
currently in effect. Seller does not have any employee whose employment is not
terminable at will.
5.18. Labor Matters. None of Seller's employees is
-------------
represented by any union or other collective bargaining representative nor, to
the best of any Companies' knowledge, are there currently any attempts by any
union or other collective bargaining representative to organize employees and
there have been no such attempts known to Companies within the last year. Since
Seller commenced operations, there has not been, nor was there or, to the best
knowledge of any Company, is there threatened or contemplated, any strike,
slowdown, picketing or work stoppage by any employees against Seller, its assets
or properties wherever located, any lockout by Seller of any of its employees or
any other occurrence, event or condition of a similar character affecting in any
material respect, or which may affect in any material respect, the operations,
assets, or properties of Seller.
5.19. Relationships. Except as disclosed in Schedule 5.19
------------- -------------
attached hereto and made a part hereof, to the best of Companies' knowledge,
there is no dispute or controversy existing between Seller and any of its
clients or customers with respect to any product or service sold or furnished by
Seller; and there is no dispute or controversy existing between Seller and, to
the best of Companies' knowledge, any supplier or other contractor with respect
to any product or service purchased by Seller from such person or entity.
5.20. Employee Benefit Plans. Except as disclosed on Schedule
---------------------- --------
5.20 attached hereto and made a part hereof, Seller has not established any
----
profit-sharing, pension, retirement, incentive or other similar plan or
arrangement for any of its employees subject to the Employee Retirement Income
Security Act of 1974, as amended.
5.21. Non-Foreign Persons. No Company is a foreign person,
-------------------
foreign partnership, foreign trust or foreign estate as defined in Section
1445(f)(3) of the Internal Revenue Code, as amended (the "Code") and the payment
of the Purchase Price will not be subject to the withholding requirements of
Section 1445 of the Code.
5.22. Environmental Protection. Except as otherwise disclosed
------------------------
in the Phase I Reports delivered to Buyer, to the best knowledge of each
Company:
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<PAGE>
5.22.1. The Business is now and always has been in compliance in
all material respects with all Federal, state, and local statutes, ordinances,
regulations, rules, standards, and requirements of common law concerning or
relating to industrial hygiene and the protection of health and the environment
(collectively, the "Environmental Laws");
5.22.2. There are no conditions on, about, beneath or arising
from the Owned Real Property or the Leased Real Property (collectively, the
"Premises") which might give rise to liability, the imposition of a statutory
lien or require "Response," "Removal" or "Remedial Action," as defined herein,
under any of the Environmental Laws. As used in this Agreement, the terms
"Response," "Removal" and "Remedial Action" shall be defined with reference to
Sections 101(23) - 101(25) of the Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA"), as amended by the Superfund
Amendments and Reauthorization Act ("SARA"), 42 U.S.C. (S)(S) 9601(23) -
9601(25);
5.22.3. Except in material compliance with Environmental Laws:
(i) "Hazardous Substances," as defined below, have never been used, handled,
generated, processed, treated, stored, transported to or from, released,
discharged, or disposed of on, about or beneath the Premises; (ii) there are no
transformers containing or contaminated with PCB's or above or underground
storage tanks on the Premises; and (iii) there is no asbestos or asbestos
containing material on the Premises. As used in this Agreement, the term
"Hazardous Substance" shall mean a hazardous substance, material or waste
including, without limitation, any substance which is: (a) petroleum, asbestos
or polychlorinated biphe nyls; (b) defined, designated or listed as a "Hazardous
Substance" pursuant to Sections 307 and 311 of the Clean Water Act, 33 U.S.C.
(S)(S) 1317, 1321, Section 101(14) of CERCLA, 42 U.S.C. (S) 9601 or similar
provision of applicable state law; (c) listed in the United States Department of
Transportation Hazardous Material Table, 49 C.F.R. (S) 172.101; or (d) defined,
designated or listed as a "Hazardous Waste" under Section 1004(3) of the
Resource and Conservation and Recovery Act, 42 U.S.C. 9603(5) or similar
provision of applicable state law; and
5.22.4. No Company has received notice of, nor is there
threatened or pending: (i) any claim, demand, investigation, enforcement,
Response, Removal, Remedial or other governmental or regulatory action
instituted or threatened against Seller or the Premises pursuant to any of the
Environmental Laws; (ii) any claim, demand, suit or action made or threatened by
any person or entity against Seller or the Premises relating to any form of
damage, loss or injury resulting from, or claimed to result from, any Hazardous
Substance on, about, beneath or arising from the Premises or any alleged
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<PAGE>
violation of the Environmental Laws; or (iii) any communication to or from any
governmental or regulatory agency arising out of or in connection with Hazardous
Substances on, about, beneath, arising from or generated at the Premises
including, without limitation, any notice of violation, citation, complaint,
order, directive, request for information or response thereto, notice letter,
demand letter or compliance schedule. If discovered prior to Closing, Seller
shall immediately advise Buyer of any of the claims or communications listed in
clauses (i)-(iii) above and also shall immediately advise Buyer of the discovery
of any Hazardous Substances on, about, beneath, or arising from the Premises or
the discovery of any condition on, about, beneath, or arising from the Premises
which might give rise to liability, the imposition of a statutory lien or
require Response, Removal or Remedial Action under any of the Environmental
Laws.
5.22.5. For purposes of this Agreement, the term "Phase I
Reports" shall mean:
(a) Environmental Site Assessment regarding New Britain
Village Square, New Britain, PA, prepared by SITE Engineers, Inc. for Vesterra
Corporation, dated November 29, 1989, together with all appendices and
attachments thereto;
(b) Preliminary Wetlands Assessment of a Portion of Tax
Parcel 29 3 32, Newtown Township, Bucks County, PA, prepared by SITE Engineers,
Inc. for Real Property Owner, issued March 11, 1991, together with all
appendices and attachments thereto;
(c) Phase I Environmental Site Assessment for Lot 7 - Chadds
Ford Business Campus, Birmingham Township, prepared by NTH Consultants, Ltd. and
dated August 22, 1994, for Main Line Federal Savings Bank, together with all
attachments and appendices thereto; and
(d) Phase I Environmental Site Assessment regarding Audubon
Village Shopping Center, prepared by Altchem Environmental Services, dated June
27, 1994, for Ann Rudolph, together with all appendices and attachments thereto.
5.23. No Child Abuse or Sexual Abuse. To the best of
------------------------------
Companies' knowledge, no acts or events have occurred or been committed by any
present or former officer, director, employee or agent of Seller that have
resulted in, prior to the date hereof, or which constitute, child (including
physical or sexual) abuse or assault of any type or nature, against any child.
5.24. No Other Agreements. Other than this Agreement and the
-------------------
agreement or agreements described in Section
-------
-20-
<PAGE>
8.9, no Company has, directly or indirectly, through a finder, broker,
---
consultant, shareholder or other intermediary, any contract, arrangement or
understanding relating to (i) a merger or consolidation of Seller; (ii) the sale
or other disposition of the Purchased Assets or the Business (or any portion
thereof); or (iii) the sale or other disposition of any shares of capital stock
of Seller.
5.25. Disclosure. No representation or warranty by any Company in
----------
this Agreement or in any other document to be furnished to Buyer on the Closing
Date pursuant hereto, and no information in any schedule attached to this
Agreement, contains or will contain any untrue statement of a material fact, or
omits or will omit to state a material fact necessary to make the statements
contained herein or therein not misleading.
SECTION 6. REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to Seller as follows:
6.1. Organization and Standing. Buyer is a corporation duly
-------------------------
incorporated, validly existing and in good standing under the laws of the State
of Delaware. Buyer is duly qualified to do business as a foreign corporation in
Pennsylvania, has the corporate power and authority to own and lease the
properties now owned or leased by it and to conduct the business presently being
conducted by it.
6.2. Power and Authority. Buyer has the corporate power and
-------------------
authority to execute, deliver and perform this Agreement, and to execute,
deliver and perform the Note, the Omnibus Assignment, the Keystone Lease
Amendment, the Escrow Agreement and the other documents and instruments required
to be delivered by Buyer to Seller prior to or at Closing pursuant hereto or
thereto (collectively, "Buyer's Transaction Documents").
6.3. Binding Agreement. This Agreement has been duly authorized,
-----------------
executed and delivered by Buyer. This Agreement is, and when executed and
delivered by Buyer at the Closing each of Buyer's Transaction Documents will be,
the legal, valid and binding obligations of Buyer, enforceable against Buyer in
accordance with their respective terms, except as such may be limited by
bankruptcy, insolvency, moratorium, reorganization or other similar laws
relating to or affecting the enforcement of creditors' rights generally, and
except that the availability of specific performance, injunctive relief or other
equitable remedies is subject to the discretion of the court before which any
such proceeding therefor may be brought.
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<PAGE>
6.4. Absence of Conflicting Agreements. Neither the execution or
---------------------------------
delivery of this Agreement or any of Buyer's Transaction Documents by Buyer, nor
the performance by Buyer of the transactions contemplated hereby and thereby,
with or without the giving of notice, lapse of time or both, conflicts with, or
constitutes a breach of or a default under (i) the Certificate of Incorporation
or By-Laws of Buyer, (ii) any Law, or (iii) any material agreement, indenture,
contract or instrument to which Buyer is a party or by which it is bound.
6.5. Consents. Except for the approvals of Buyer's lenders and Board
--------
of Directors (which approvals are described on Schedule 6.5 hereto and shall be
obtained on or prior to the Closing Date), no license, consent, waiver,
authorization or approval of or filing, registration, or qualification with, or
notice to, any governmental authority or any other person or entity (other than
licenses, approvals or consents of governmental agencies required in order for
Buyer to operate the Business after the Closing Date), is required to be made,
obtained or given by Buyer in connection with the execution, delivery and
performance by Buyer of this Agreement or any of Buyer's Transaction Documents
or for the consummation by Buyer of the transactions contemplated hereby or
thereby.
6.6. Litigation. There is no pending or, to the knowledge of Buyer,
----------
threatened suit, action or litigation, or administrative, arbitration or other
proceeding or governmental inquiry or investigation which: (i) if adversely
determined, could reasonably be expected to have a material adverse effect upon
the ability of Buyer to perform its obligations hereunder or under any of
Buyer's Transaction Documents, or (ii) questions the validity of this Agreement
or the transactions contemplated hereby.
6.7. Brokers. No person or entity acting on behalf of Buyer or any
-------
of its affiliates or under the authority of any of the foregoing is, or will be,
entitled to any broker's, advisor's or finder's fee or any other commission or
similar fee, directly or indirectly, from any of such parties in connection with
any of the transactions contemplated by this Agreement or the Real Property
Agreement of Sale.
6.8. Financial Condition. Buyer's most recent Annual Report on Form
-------------------
10-K filed with the Securities and Exchange Commission for 1993 and Buyer's
Quarterly Reports on Form 10-Q filed with the Securities and Exchange Commission
for the first three quarters of 1994 contain true, correct and complete copies
of Buyer's audited balance sheet as of December 31, 1992 and 1993, and the
related audited statements of income, cash flow and stockholders' equity for the
two years then ended, and Buyer's
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<PAGE>
unaudited balance sheets as at March 31, June 30 and September 30, 1994
(September 30, 1994 being hereinafter referred to as "Buyer's Balance Sheet
Date") and the related unaudited statements of income, cash flow and
stockholders' equity for the quarters then ended (collectively, the "Financial
Statements"). The Financial Statements present fairly in all material respects
the consolidated financial position of Buyer and its subsidiaries at such dates
and the results of their operations and cash flows for the periods then ended,
in conformity with GAAP. For the fiscal year ended December 31, 1994, Buyer had
consolidated revenues of not less than $34,300,000, and consolidated net income
before preferred dividends of not less than $2,300,000. Since Buyer's Balance
Sheet Date, there has occurred no material adverse change in the financial
condition of Buyer and its subsidiaries nor any occurrence, circumstance or
event which impairs or could reasonably be expected to impair the ability of
Buyer to duly and punctually pay or perform its obligations under the Note.
6.9. Disclosure. No representation or warranty by Buyer in this
----------
Agreement or in any other document to be furnished to Seller on the Closing Date
pursuant hereto contains or will contain any untrue statement of a material
fact, or omits or will omit to state a material fact necessary to make the
statements contained herein or therein not misleading.
SECTION 7. OBLIGATIONS OF THE PARTIES UNTIL THE CLOSING DATE
7.1. Conduct of Business Pending Closing. Between the date hereof
-----------------------------------
and the Closing Date, Seller shall conduct the Business solely in the ordinary
course of business consistent with past practice, maintain inventory and
supplies at normal levels by replenishing them as they are consumed, maintain
Seller's existence as a corporation and collect tuition and registration fees
only in accordance with Seller's normal past practice.
7.2. Negative Covenants of Seller. Between the date hereof and the
----------------------------
Closing Date (or the earlier termination of this Agreement), Seller shall not
(i) engage in any action, directly or indirectly, with the intent to adversely
impact the transactions contemplated by this Agreement; or (ii) without the
prior written approval of Buyer, cause or permit to occur any of the events or
occurrences described in Section 5.13 (Absence of Certain Changes) of this
Agreement, other than events described in Section 5.13.2, as to which events
Companies shall use their commercially reasonable efforts to prevent their
occurrence.
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<PAGE>
7.3. Affirmative Covenants. Between the date hereof and the Closing
---------------------
Date, Seller shall:
7.3.1. maintain the Purchased Assets in the same repair,
order and condition that they were in at the execution of this Agreement,
ordinary wear and tear excepted;
7.3.2. maintain in full force and effect all Permits;
7.3.3. maintain in full force and effect the insurance
policies and binders currently in effect relating to the Business and the
Purchased Assets including, without limitation, those listed on Schedule 5.15;
-------------
7.3.4. use its commercially reasonable efforts to preserve
intact Seller's present business organization, keep available the services of
its present employees and agents who do not voluntarily terminate their
employment with Seller (but this shall not require that Seller make any salary
increases or offer to an employee any additional benefit, compensation,
incentive or extraordinary item between the date hereof and the Closing Date),
and maintain its relations and goodwill with its suppliers, clients,
distributors, and any others having business relations with Seller;
7.3.5. maintain its corporate existence and not merge or
consolidate with any other entity, nor make any amendment to its articles of
incorporation or by-laws;
7.3.6. maintain all of the books and records of Seller in
accordance with its past practices;
7.3.7. comply in all material respects with all provisions
of the Contracts and with the provisions of all Laws; and
7.3.8. promptly advise Buyer in writing of the threat or
commencement against any Company of any dispute, claim, action, suit or
proceeding, arbitration or investigation or the occurrence of any development
(exclusive of general economic factors affecting the Business in general) of a
nature that is or could reasonably be expected to be materially adverse to the
operations, condition (financial or otherwise), properties, or assets of the
Business or the Purchased Assets.
7.4. Investigation.
-------------
7.4.1. (a) Prior to the Closing Date, Seller shall
allow Buyer and its employees, counsel, auditors and
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<PAGE>
accountants (collectively, "Representatives"), upon reasonable notice, to make,
or cause to be made, such reasonable investigation and physical inspections of
the Premises, the Purchased Assets and the Business and Seller's financial and
legal condition during normal business hours as Buyer deems necessary or
advisable. Seller shall permit Buyer and its Representatives, upon reasonable
notice during normal business hours, to have full access to the Premises, the
Purchased Assets and all relevant books and records of the Business, and Seller
shall furnish Buyer with such financial and operating data and other information
and copies of documents with respect to the products, services, operations and
properties of the Business as Buyer shall from time to time reasonably request.
Seller shall, and shall cause its employees, Representatives and other persons
and entities under its control to, cooperate fully with Buyer and Buyer's
Representatives.
(b) Notwithstanding anything to the contrary contained in Section
-------
7.4.1.(a), Buyer shall not conduct Phase II environmental testing, soil testing
---------
or other invasive procedures at the Premises, or contact governmental
authorities with respect to the Premises (other than as specifically permitted
under the Real Property Agreement of Sale), without Seller's consent, all in
accordance with and subject to the terms of Section 10.21.4 of the Real Property
---------------
Agreement of Sale (the terms of which Section 10.21.4 are hereby incorporated by
---------------
reference); provided, however, that if Seller fails to consent to any Phase II
-----------------
environmental testing, soil testing or other invasive procedure at the Premises,
or to Buyer's contacting governmental authorities with respect to the Premises
(other than as specifically permitted under the Real Property Agreement of
Sale), Buyer may cancel this Agreement and the Real Property Agreement of Sale
without further liability on the part of any party to the other.
(c) Any and all information obtained by Buyer or its
Representatives in connection with the transactions contemplated by this
Agreement or in the course of its investigations of Seller or Companies, whether
obtained before or after the date of this Agreement (collectively, the
"Evaluation Material"), shall be used only in connection with this Agreement,
the Real Property Agreement of Sale, and the transactions contemplated hereby
and thereby, and Buyer shall keep all Evaluation Material strictly confidential.
Without the prior written consent of Seller, Buyer will not, and will direct
Buyer's Representatives not to, disclose to any person or make public any
Evaluation Material. This provision shall terminate with respect to Evaluation
Material relating solely to Seller upon the completion of the Closing, and with
respect to the Premises upon the completion of the applicable closing under the
Real Property Agreement of Sale, and otherwise shall survive and
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<PAGE>
not expire with respect to Evaluation Material relating to the other Companies.
(d) Notwithstanding anything to the contrary set forth in Section
-------
7.4.1.(c), Buyer may disclose any Evaluation Material (i) to its Representatives
---------
on a need-to-know basis (it being agreed that such Buyer Representatives shall
be informed by Buyer of the confidential nature of such Evaluation Material and
shall be directed by Buyer not to disclose to any person or entity or make
public such Evaluation Material), (ii) to the extent required by any applicable
law, statute, rule or regulation, and (iii) in any action, suit or proceeding
between or among any of the parties hereto.
(e) In the event that this Agreement is terminated, Buyer will
promptly, without any request of Seller, deliver to Seller all written
Evaluation Material (including any Evaluation Material that may be in the
possession of any lender or agent of Buyer) without retaining any copies
thereof.
(f) For purposes of this Agreement, the term "Evaluation
Material" does not include information which (i) becomes generally available to
the public other than as a result of disclosure by Buyer or any Buyer
Representative in violation of the terms hereof, (ii) was available on a non-
confidential basis prior to its disclosure to Buyer by Companies or any of their
directors, officers, employees, agents or representatives, or (iii) becomes
available to Buyer on a non-confidential basis from a source which is not bound
by a confidentiality agreement with Companies or any of their directors,
officers, employees, agents or representatives.
7.4.2. Buyer shall be given the opportunity prior to Closing to
interview key employees of Seller to establish their competency and willingness
to continue their employment within the organization of Buyer. In advance of the
interview process, Seller shall provide to Buyer a complete organizational
structure plus a list of all employees, their functions and responsibilities,
their compensation packages, fringe benefits and time with Seller. Seller shall
also provide to Buyer copies of any existing employment agreements, written or
verbal, and a copy of all personnel policies relating to employees being
interviewed by Buyer. Buyer shall negotiate in good faith with Seller's key
employ ees regarding employment arrangements with Buyer after the Closing;
provided, however, that Buyer shall have no obligation to offer such employment
-------- -------
after the Closing Date, and, after the Closing Date, may terminate such
employment and offer compensation levels and other terms satisfactory to Buyer
in its sole discretion. No Company
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<PAGE>
shall interfere with, or discourage, Buyer's employment of any employee of the
Business to whom Buyer makes such an offer.
7.5. Pursuit of Consents. Prior to the Closing Date, Companies
-------------------
shall, at their expense, use their respective commercially reasonable efforts to
obtain the consent or approval of all persons or entities which are necessary
for the transfer of the Business and Purchased Assets to Buyer. This Section 7.5
-----------
shall not require Companies to pay money to any person or entity or agree to any
additional terms or conditions in exchange for its consent other than
reimbursements for reasonable legal fees of such party in processing such
consent. Buyer shall cooperate with Companies in obtaining such consents and
approvals.
7.6. Releases. Prior to the Closing Date, Buyer shall use
--------
commercially reasonable efforts to cooperate with Companies in obtaining
releases from all of Companies' obligations under guarantees, leases,
agreements, contracts, licenses or other instruments relating to the Business or
the Purchased Assets and which are being assumed by Buyer hereunder, as
requested by Companies (the "Obligations"); provided, however, that this Section
-------- ------- -------
7.6 shall not require Buyer to pay money to any person or entity or agree to any
---
additional terms or conditions in exchange for such releases.
7.7. Exclusive Dealing. Prior to the Closing Date, or until the
-----------------
earlier termination of this Agreement, no Company shall, except as described in
Section 8.9, directly or indirectly, through a finder, broker, consultant,
-----------
shareholder or other intermediary, solicit, negotiate with nor accept an offer
to sell from any person or entity (other than Buyer or its affiliates, assignees
or nominees) relating to a merger or consolidation of Seller and/or Keystone,
the sale or other disposition of the Purchased Assets or the Business (or any
portion thereof), or the sale or other disposition of any shares of capital
stock of Seller and/or Keystone, nor furnish any information to any third party
(other than Buyer or its affiliates, assignees or nominees) in regard to any of
the foregoing.
7.8. Public Announcements. Pending completion of the Closing, the
--------------------
parties hereto shall not, and shall not permit their respective Representatives,
agents or brokers to, issue any press releases or make any public statements
concerning the proposed transaction without the prior approval of the other
parties hereto in each such instance, and subject to the provisions of Section
-------
7.4 (Investigation), each party shall provide its best efforts to maintain
---
overall confidentiality of the execution of this Agreement and the transactions
contemplated hereby; provided, however, that nothing herein shall prevent either
-----------------
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<PAGE>
Seller or Buyer upon notice to the other from making such public announcements
as such party's counsel may consider advisable in order to satisfy that party's
legal and contractual obligations in such regard.
SECTION 8. CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS
Unless waived by Buyer, the obligation of Buyer to consummate the
purchase and sale of the Business and the Purchased Assets is subject to the
fulfillment, prior to or at the Closing Date, of each of the following
conditions:
8.1. Deliveries at Closing. Seller shall have delivered to Buyer all
---------------------
items required pursuant to Section 4.3.1.
-------------
8.2. Representations and Warranties. The representations and
------------------------------
warranties of Companies contained in this Agreement or on any schedule hereto or
any list, certificate or document delivered pursuant to the provisions hereof
shall be true, correct and complete in all material respects at and as of the
Closing Date as though such representations and warranties were made at and as
of such time, and Companies shall have delivered to Buyer certificates to that
effect, signed by an authorized officer of each Company.
8.3. Performance of Covenants. Companies shall have performed or
------------------------
complied in all material respects with each of the agreements and covenants
required by this Agreement to be performed or complied with by Companies prior
to or at the Closing, and Companies shall have delivered to Buyer certificates
to that effect, signed by an authorized officer of each Company.
8.4. Legal Matters; No Child Abuse or Sexual Abuse. No suit,
---------------------------------------------
action, investigation, or legal or administrative proceeding shall have been
brought or shall have been threatened by any person or entity (other than Buyer
or an affiliate thereof) which questions the validity or legality of the
transactions contemplated hereby. No allegation of child (including physical or
sexual) abuse or assault of any type or nature against any child shall have been
brought or shall have been threatened or contemplated by any person or entity
against either Seller, the Business or any employee, agent or contractor of
same.
8.5. No Casualty. Since Seller's Balance Sheet Date, neither the
-----------
Premises, the Purchased Assets nor the operations of the Business shall be
materially adversely affected in any way as a result of disaster, accident,
labor dispute, shortage, cessation or interruption of inventory shipments,
supplies or utility services, flood, fire or other casualty, drought,
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<PAGE>
embargo, civil disturbance, riot, uprising, activity of armed forces or act of
God or public enemy.
8.6. No Material Adverse Change. Since Seller's Balance Sheet Date,
--------------------------
there shall have been no material adverse change in the condition (financial or
otherwise), assets, liabilities, properties or operations of the Business, and
Companies shall have delivered to Buyer certificates to that effect, signed by
an authorized officer of each Company.
8.7. Governmental Approvals. All approvals, consents, permits,
----------------------
licenses or qualifications from any governmental body or agency having
jurisdiction required for the transfer of the Business and the Purchased Assets
to Buyer, and their lawful use, occupancy and enjoyment by Buyer as and for
child day-care facilities, shall have been obtained and shall be effective and
no such approval, consent, permit, license or qualification shall impose any
condition or provision or requirement on Buyer which was not imposed on Seller
by such body or agency or which is not otherwise imposed upon Buyer under
Buyer's Permits of a similar nature.
8.8. Other Consents and Approvals. The consent or approval of all
----------------------------
persons or entities (other than governmental authorities) necessary for the
transfer of the Business and the Purchased Assets to Buyer, and Buyer's use,
occupancy and enjoyment thereof as and for child day-care facilities, including
the approvals of Buyer's lenders (if required) as noted in Section 6.5
-----------
(Consents), and the consents and approvals (if any) listed in Schedule 5.4 and
------------
Schedule 5.16, shall have been granted, and no such consent or approval (i)
-------------
shall have been conditioned upon the modification, cancellation or termination
of any lease, contract, commitment, agreement, franchise, license, easement,
right or other authorization to be assigned to Buyer by any Company at Closing
or (ii) shall impose on Buyer any condition or provision or requirement either
that is not imposed on Seller or that is more restrictive than currently imposed
on Seller unless it is otherwise imposed upon Buyer under Buyer's current
authorizations.
8.9. Real Property Agreement of Sale. Simultaneously with the
-------------------------------
Closing, Real Property Owner shall have entered into an agreement to transfer
title to the Owned Real Property to Real Property Purchaser (the "Real Property
Agreement of Sale") and Buyer, Real Property Owner, Real Property Purchaser and
Congress Abstract Corporation, as agent for First American Title Insurance
Company shall have executed and delivered the Escrow Agreement.
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<PAGE>
SECTION 9. CONDITIONS PRECEDENT TO SELLER'S OBLIGATIONS
Unless waived by Seller, the obligation of Seller to consummate the
purchase and sale of the Business and the Purchased Assets is subject to the
fulfillment, prior to or at the Closing, of each of the following conditions:
9.1. Deliveries at Closing. Buyer shall have delivered to Seller all
items required pursuant to Section 4.3.2 and Section 4.3.3 hereof.
------------- -------------
9.2. Representations and Warranties. The representations and
------------------------------
warranties of Buyer in this Agreement or on any schedule hereto or any list,
certificate or document delivered pursuant to the provisions hereof shall be
true and correct in all material respects at and as of the Closing Date as
though such representations and warranties were made at and as of such time and
Buyer shall have delivered to Seller a certificate to that effect signed by an
authorized officer of Buyer.
9.3. Performance of Covenants. Buyer shall have performed or
------------------------
complied in all material respects with each of its agreements and covenants
required by this Agreement to be performed or complied with by it prior to or at
the Closing, and Buyer shall have delivered to Seller a certificate to that
effect signed by an authorized officer of Buyer.
9.4. No Material Adverse Change. Since Buyer's Balance Sheet Date,
--------------------------
there shall have occurred no material adverse change in Buyer's financial
condition, and Buyer shall have delivered to Companies a certificate to that
effect, signed by an authorized officer of Buyer.
9.5. Legal Matters. No suit, action, investigation or legal
-------------
or administrative proceeding shall have been brought or shall have been
threatened by any person or entity (other than Seller or an affiliate thereof)
which questions the validity or legality of the transactions contemplated
hereby.
9.6. Real Property Agreement of Sale. Simultaneously with the
-------------------------------
Closing, Buyer, Real Property Owner, Real Property Purchaser and Congress
Abstract Corporation, as agent for First American Title Insurance Company shall
have entered into the Real Property Agreement of Sale, and shall have executed
and delivered the Escrow Agreement.
9.7. Governmental Approvals. All approvals, consents, permits,
----------------------
licenses or qualifications from any governmental body or agency having
jurisdiction required for the transfer of the Business and the Purchased Assets
to Buyer, and their lawful use,
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<PAGE>
occupancy and enjoyment by Buyer as and for child day-care facilities (including
the approvals, if any, listed on Schedule 5.8), shall have been obtained and
------------
shall be effective.
9.8. Other Consents and Approvals. The consent or approval of
----------------------------
all persons or entities (other than governmental authorities) necessary for the
transfer of the Business and the Purchased Assets to Buyer, and Buyer's use,
occupancy and enjoyment thereof as and for child day-care facilities (including
the consents and approvals, if any, listed in Schedules 5.4 and 5.16), shall
------------- ----
have been granted.
SECTION 10. EMPLOYEES OF THE BUSINESS; EMPLOYEE BENEFITS
Except to the extent otherwise provided in Section 11.10 (Accrued
-------------
Vacation Pay):
10.1. Seller's Liability for Compensation. Buyer is not responsible
-----------------------------------
for providing any employees of the Business with any compensation or benefits in
respect of their services through the Closing Date.
10.2. COBRA. With respect to all employees of Seller as of the
-----
Closing Date who are participating in a group health plan subject to the
requirements of Section 4980(B) of the Code and ERISA Title I, Part VI
("COBRA"), Seller shall provide such employees with applicable COBRA
continuation coverage information and shall continue to provide such benefits
pursuant to such plan for those employees who properly elect and maintain such
continuation coverage, to the extent and for the period for which such
continuation coverage is elected by each such employee.
10.3. Seller's Liability for Benefits. Seller shall retain the
-------------------------------
obligation to pay any amounts owing to employees of the Business as bonus or
incentive awards, salaries, wages, benefits or other compensation for services
rendered on or before the Closing Date in accordance with the terms of the
applicable plans or policies of Seller, for which Seller has retained cash in
accordance with Section 1.1.10.
--------------
SECTION 11. OBLIGATIONS OF PARTIES AFTER CLOSING
11.1. Name. From and after the Closing, Buyer shall have all
----
of Seller's right (if any) to use the name "Carefree Learning Center," and any
variation thereof. At the Closing, Seller shall sign a consent to appropriation
of name or other instrument required by any governmental agency in order to
assign to Buyer all of Seller's right, title and interest (if any) in and to
such name, and within thirty (30) days following
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<PAGE>
the Closing Date, Seller shall change its name to a name dissimilar to "Carefree
Learning Center," or any variation thereof, whereupon each Company shall cease
using the name "Carefree Learning Center," or any variation thereof.
11.2. Discharge of Liabilities/Undisturbed Tenancy. Companies
--------------------------------------------
shall pay all of Seller's liabilities and obligations which are not assumed by
Buyer at Closing, as and when the same shall become due and payable. In the
event that Real Property Owner's lenders take any action adverse to Real
Property Owner as a result of the Keystone Lease Amendment, Companies agree to
take all actions to assure that, provided Buyer is not in default thereunder,
Buyer's tenancy under the Keystone Lease Amendment remains undisturbed during
the term of the Keystone Lease Amendment.
11.3. Releases. To the extent not previously satisfied
--------
pursuant to Section 7.6 (Releases), Buyer shall use commercially reasonable
-----------
efforts after the Closing to cooperate with Companies in obtaining releases of
each of the Companies from the Obligations; provided, however, that this Section
-------- ------- -------
1.13 shall not require Buyer to pay money to any person or entity or agree to
----
any additional terms or conditions in exchange for such releases. Buyer further
agrees to defend, indemnify and hold each Company harmless pursuant to Section
-------
11.6 (Indemnification) from and against any and all losses, costs, expenses,
----
claims, damages or liabilities (including reasonable attorneys' fees and
expenses and costs of suit) arising following the Closing out of or relating to
any of the Obligations. Additionally, for as long as Blue Shield remains
obligated on the Camp Hill Lease described more fully at Item 6 on Schedule C-2
------------
and for so long as Seller remains obligated on the Corporate Office Lease
described more fully at Item 1 on Schedule C-2 and on the Royersford Center
------------
Lease described more fully at Item 3 on Schedule C-2, Buyer shall cause Blue
------------
Shield or Seller, as the case may be, to be named as an additional insured on
all policies of insurance maintained by Buyer on the applicable leased
properties. Blue Shield or Seller, as the case may be, shall not be named loss
payee on any property/casualty insurance, so that Blue Shield or Seller, as the
case may be, shall not control insurance proceeds.
11.4. Covenant Not To Compete.
-----------------------
11.4.1. For a period of five (5) years from and after the
Closing Date, no Company nor any other person or entity of which at least 50% of
the voting securities or interests are owned by any Company or Companies and
which is engaged to any significant degree in the child care business (a
"Covered Party") shall, directly or indirectly, operate, manage, own, control or
provide consulting services to any child care facility of any
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<PAGE>
type which is now or hereafter located within a 10-mile radius of any child care
center which constitutes part of the Purchased Assets operated by Buyer at the
Closing Date, or any other child care center owned by Buyer in the Commonwealth
of Pennsylvania, the locations of which will be disclosed to Companies upon
their written request to Buyer.
11.4.2. From and after the Closing Date, no Covered Party shall
disclose directly or indirectly to any person or entity outside of the employ of
Buyer, without the express authorization of Buyer in each such instance, any
customer or client lists, pricing strategies, customer, client and employee
files and records, any proprietary data or trade secrets of Buyer or the
Business, or any financial or other information about Buyer or the Business not
in the public domain.
11.4.3. For a period of five (5) years from and after the
Closing Date, no Covered Party shall engage or participate in any effort or
action to induce any of Buyer's customers, clients, suppliers, associates,
employees or independent contractors to cease doing business, or to discontinue
their association or employment, with Buyer.
11.4.4. Notwithstanding the foregoing provisions of this Section
-------
11.4, no Covered Party shall be precluded hereby from purchasing or owning,
----
directly or indirectly, securities of any entity that are publicly traded so
long as the Covered Party does not own beneficially five percent (5%) or more of
any class of securities of such entity. Additionally, notwithstanding the
foregoing, each Covered Party may disclose any information subject to the
provisions of Section 11.4.2 (i) to its employees, counsel, auditors and
--------------
accountants on a need-to-know basis (it being agreed that any such person or
entity shall be informed by such Covered Party of the confidential nature of
such proprietary information and shall be directed by such Covered Party not to
disclose to any person or entity or make public such information), (ii) to the
extent required by any applicable laws, rules or regulations, and (iii) in any
action, suit or proceeding between Buyer and such Covered Party.
11.4.5. Each Company expressly acknowledges that damages alone
shall be an inadequate remedy for any breach or violation of any of the
provisions of this Section 11.4, and that Buyer, in addition to all other
------------
remedies under this Agreement, shall be entitled as a matter of right to
injunctive relief, including specific performance, with respect to any such
breach or violation, in any court of competent jurisdiction.
11.5. Survival of Representations and Warranties. All
--------------------------------------
representations, warranties, covenants and agreements made
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by each party in this Agreement or in any schedule, certificate, document or
list delivered by any such party pursuant hereto shall survive the Closing for
the period specified in Section 11.6.3, and each party hereto shall be entitled
--------------
to rely upon the representations and warranties of another party. Anything in
this Agreement to the contrary notwithstanding, the representations and
warranties of Companies and Buyer hereunder, and the right of Buyer or
Companies, as the case may be, to indemnification for breach thereof, shall not
be affected, limited, eliminated or modified by any investigation of Companies
or Buyer, as the case may be, made by Buyer or Companies or its or their
respective agents or Representatives.
11.6. Indemnification.
---------------
11.6.1. Companies, jointly and severally, shall indemnify
and hold harmless Buyer, and Buyer shall indemnify and hold harmless Companies
(the party or parties providing such indemnification being hereinafter referred
to individually and collectively as the "Indemnifying Party") against any and
all losses, costs, expenses, claims, damages or liabilities (including the
amount of any settlement approved by such Indemnifying Party and expenses of
enforcing this Agreement), which the party or parties seeking such
indemnification (such party or parties are hereinafter referred to individually
and collectively as the "Indemnified Party") may suffer, incur or become subject
to, and shall reimburse the Indemnified Party for any reasonable legal, audit or
other expenses incurred by it or them in connection with investigating any
claims and defending any actions, insofar as such losses, costs, expenses,
claims, damages, liabilities or actions arise out of or are based upon: (i) any
false, misleading or untrue representation or the breach of any warranty made by
the Indemnifying Party herein or in any schedule, written statement, list,
certificate or other instrument attached to this Agreement or delivered to the
Indemnified Party pursuant hereto; (ii) any breach or default in performance by
the Indemnifying Party of any of its covenants or agreements with the
Indemnified Party contained herein; (iii) in cases where Buyer is the
Indemnified Party and Companies are the Indemnifying Party, any liability or
obligation of Seller or a Company which is not assumed by Buyer at Closing
pursuant to the terms of this Agreement; or (iv) in cases where Companies are
the Indemnified Party and Buyer is the Indemnifying Party, any liability or
obligation of Seller which is assumed by Buyer at Closing pursuant to the terms
of this Agreement, any liability with respect to the Obligations, and any
liability for vacation benefits assumed by Buyer pursuant to Section 11.10
-------------
(Accrued Vacation Pay).
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11.6.2. An Indemnified Party seeking indemnification hereunder
shall promptly notify the Indemnifying Party of the assertion of any claim for
indemnification under this Section 11.6. With respect to any claim made by a
third party against which an Indemnified Party is seeking indemnification
hereunder, the Indemnifying Party shall have the right, at its own expense, to
participate in or assume control of the defense of such claim, and the
Indemnified Party shall fully cooperate with the Indemnifying Party subject to
reimbursement for actual out-of-pocket expenses incurred as the result of such
request by the Indemnifying Party. If the Indemnifying Party does not elect
either to assume control or otherwise participate in the defense of any third-
party claim, the Indemnifying Party shall be bound by the results obtained by
the Indemnified Party with respect to such claim.
11.6.3. All claims for breach of any representation or warranty
or the covenants contained herein in Section 7 (other than Section 7.4) under
--------- -----------
this Section 11.6 made by any party must be asserted prior to the second
------------
anniversary of the Closing Date, and except as otherwise provided herein, no
party shall be entitled to indemnity under this Section 11.6 or other relief at
------------
law or in equity for any such claims asserted after that date; provided,
--------
however, that in the case of income and other tax claims, notice may be given
-------
within the period of the applicable statute of limitations provided that neither
party takes, nor permits to be taken, any action to extend such period of
limitations without the other's written consent in advance. This Section 11.6.3
--------------
shall not impose any time limitation on the assertion of claims for breach of
covenant made by any party or for claims for indemnification asserted by Buyer
against any Company based upon the assertion against Buyer of a liability or
obligation of any Company which is not assumed by Buyer pursuant to Sections 3.2
------------
(Liabilities to be Assumed by Buyer) or 11.10 (Accrued Vacation Pay) or for
-----
claims for indemnification asserted by any Company against Buyer based upon the
assertion against such Company with respect to an Obligation, or of a liability
or obligation of Seller which was assumed by Buyer pursuant to this Agreement,
including without limitation Sections 3.2 or 11.10. Notwithstanding anything in
------------ -----
this Agreement to the contrary, including this Section 11.6, the indemnity
------------
obligations of Seller and Keystone (but not Blue Shield) hereunder shall expire
on the first annual anniversary of the Closing Date; provided, however, that the
-------- -------
indemnity obligations of Blue Shield hereunder shall not so expire, but shall
continue in accordance with the other terms of this Agreement.
11.6.4. Notwithstanding anything in this Agreement to the
contrary, including the provisions of this Section 11.6, no Indemnifying Party
------------
shall be obligated to
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<PAGE>
indemnify an Indemnified Party pursuant to Section 11.6.1.(i) until the
------------------
aggregate amount suffered or incurred by the Indemnified Party exceeds $35,000,
and then only for the amount so suffered or incurred by the Indemnified Party is
in excess of $35,000. The limitations on indemnification set forth in this
Section 11.6.4 shall not be applicable to any claim for indemnification pursuant
--------------
to Section 11.6.1.(ii), Section 11.6.1.(iii) or Section 11.6.1.(iv), or any
------------------- -------------------- -------------------
claim for indemnification pursuant to Section 11.6.1.(i) insofar as such claim
------------------
arises out of or is based upon Seller's failure to notify the Pennsylvania
Departments of Revenue and/or Labor ten (10) days prior to the Closing, and/or
to request and/or obtain a corporate clearance certificate. The liability of an
Indemnifying Party to provide indemnification pursuant to Section 11.6.1.(i) of
------------------
Buyer, on the one hand, or Companies, on the other, shall not exceed $500,000 in
the aggregate for all claims.
11.6.5. Buyer and Companies further agree that the rights and
obligations of the parties set forth in this Section 11.6 with respect to
------------
indemnification are and shall be the sole and exclusive remedies of the parties
hereto for any and all claims of the parties hereto arising under this Agreement
(other than any claims arising under Section 11.4 (Covenant Not to Compete) or
------------
Section 12 (Termination) of this Agreement or under the Keystone Lease Amendment
----------
or the Note which are not subject to the limitations herein), whether such
claims are based on other sections of this Agreement or based on statutory or
common law or otherwise. The parties hereby covenant and agree that they will
bring no claim against the other hereunder except claims arising under Section
-------
11.4 or Section 12 of this Agreement or under the Keystone Lease Amendment or
---- ----------
the Note and such claims as may be made pursuant to this Section 11.6.
11.7. Right of Offset. Buyer shall have the option of
---------------
offsetting, against any or all installments of the Purchase Price owed under the
Note, the Working Capital Note and/or the Chadds Ford Note (as those terms are
defined in the Real Property Agreement of Sale) following Closing, all or any
part of any amounts for which Buyer is entitled to indemnification by Companies
hereunder or under the indemnification provisions of Section 22.5 of the Real
------------
Property Agreement of Sale. Prior to exercising its right of offset, Buyer
shall provide written notice to Seller of its intent to exercise such offset,
specifying the amount to be offset. If Seller disputes the amount being offset
in a notice delivered to Buyer by Seller within ten (10) days of Buyer's
delivery of its written notice, Buyer shall deposit the disputed amount into
escrow pending resolution of the dispute, pursuant to an escrow agreement
reasonably satisfactory to Buyer and Seller.
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11.8. Closing Adjustments.
-------------------
11.8.1. Upon the completion of the Closing Balance Sheet,
Seller shall pay Buyer an amount equal to the sum of (i) any prepaid insurance
premiums attributable to periods after the Closing Date; plus (ii) an amount
equal to the deposits reflected as an asset of Seller on the Closing Balance
Sheet less the deposit under the Lehigh Corporate Center lease transferred to
Buyer.
11.8.2. Two (2) days prior to Closing, Blue Shield shall
provide Seller with cash through an increase in the line of credit relating to
the Blue Shield Obligation in an amount sufficient to enable Seller to repay any
outstanding overdrafts prior to Closing.
11.9. Discharge of Lease Obligations. On or before the fourth
------------------------------
day following the Closing Date, Buyer shall discharge in full all of Seller's
obligations under the equipment leases to the vans currently leased by Seller.
11.10. Accrued Vacation Pay. On or before the fourteenth day
--------------------
following the Closing Date, Companies shall deliver to Buyer a tabulation
showing the amount of accrued but unused vacation for each employee of the
Business as of the Closing Date who accepted employment with Buyer, and shall
deliver to Buyer a check in U.S. dollars in the aggregate amount of vacation pay
for all such employees in respect of such accrued but unused vacation. To the
extent Buyer receives such funds, Buyer shall be deemed to have assumed
liability for payment of the vacation pay owed by Seller to such employees,
which liability for vacation benefits shall be in addition to, and not in lieu
of, any vacation policies, benefits or grants which Buyer provides to such
employees following the Closing Date.
SECTION 12. TERMINATION
12.1. Termination. This Agreement may be terminated at any
-----------
time prior to the Closing by:
12.1.1. Buyer, if the conditions set forth in Section 8
---------
(Conditions Precedent to Buyer's Obligations) hereof have not been satisfied by
March 14, 1995;
12.1.2. Buyer or Seller, pursuant to the provisions of
Section 7.4.1.(b);
-----------------
12.1.3. Seller, if the conditions set forth in Section 9
---------
(Conditions Precedent to Seller's Obligations) hereof have not been satisfied by
March 14, 1995; or
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<PAGE>
12.1.4. mutual consent of Buyer and Seller.
12.2. Effect of Termination.
---------------------
12.2.1. In the event of the termination of this Agreement
prior to Closing, Buyer shall deliver to Seller all documents, work papers and
other materials obtained from Companies and copies thereof relating to Seller or
the transactions contemplated hereby, whether so obtained before or after the
execution hereof, and Buyer shall use its best efforts to keep confidential all
such information, except that such restriction shall not apply to any
information (i) which is in or comes into the public domain other than through
Buyer; (ii) which was in the possession of Buyer before the commencement of
negotiations contemplated hereby; or (iii) which at any time lawfully comes into
the possession of Buyer from third parties who have a right to disclose such
information otherwise than in connection with this Agreement. Anything in this
Agreement to the contrary notwithstanding, the provisions of this Section 12
----------
shall survive any termination of this Agreement.
12.2.2. If a party terminates this Agreement because one of its
condition precedents has not been fulfilled or pursuant to Section 7.4.1.(b), or
-----------------
if this Agreement is terminated by mutual consent, this Agreement shall become
null and void without any liability of any party to the other; provided,
--------
however, that such termination shall not preclude an action by either party to
-------
recover damages suffered or incurred by it as a result of such other party's
breach.
12.2.3. Nothing in this Section 12 shall affect any party's
----------
right to specific performance of another party's obligations hereunder.
SECTION 13. MISCELLANEOUS
13.1. Commercially Reasonable Efforts. Buyer and each Company
-------------------------------
shall use their respective commercially reasonable efforts with respect to
matters within their control to cause the transactions contemplated by this
Agreement to be consummated.
13.2. Costs and Expenses. Except as expressly otherwise
------------------
provided in this Agreement, each party hereto shall bear its own costs and
expenses in connection with this Agreement and the transactions contemplated
hereby. All sales and use taxes, if any, payable in connection with the
transfer of the Business and the Purchased Assets shall be paid one-half by
Buyer and one-half by Seller.
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<PAGE>
13.3. Risk of Loss.
------------
13.3.1. Risk of loss with respect to the property and rights to
be transferred hereunder shall not pass to Buyer until the property or rights
are transferred at the Closing hereunder.
13.3.2. In the event of destruction or condemnation before the
Closing Date of any portion of the Purchased Assets such that a child day-care
business cannot be carried out at one or more of the Purchased Centers for a
period of more than seven (7) days, Buyer shall have the right either to (i)
accept the proceeds of the insurance or condemnation payable with respect to
such destruction or condemnation and proceed with Closing without reduction in
the Purchase Price on account of such destruction or condemnation, or (ii)
exclude from the Purchased Assets that it is purchasing hereunder, the Purchased
Center so damaged or condemned and reduce the Purchase Price payable at Closing
by the value of the Purchased Center so destroyed or condemned, as mutually
agreed upon by Buyer and Seller, or, in the event that Buyer and Seller are
unable to agree upon the reduced Purchase Price, as determined by a qualified
appraiser selected by mutual agreement of Seller and Buyer. In the event that
Buyer elects to exclude the Purchased Center so destroyed or condemned, Seller
shall repair or replace the destroyed or condemned part of the Purchased Assets
to the condition as it existed prior to the destruction or condemnation and
reopen such Center for business, whereupon Buyer shall purchase the reopened
Center from Seller for a purchase price equal to the amount withheld at Closing.
13.3.3. Effective as at the Closing, Buyer shall be responsible
for procuring insurance coverage to protect the Purchased Assets and the
Business and shall have no right or cause of action against the insurance
policies previously purchased by or maintained on behalf of Seller or the
Companies.
13.4. Bulk Sales Law. Intentionally omitted.
--------------
13.5. Performance. In the event of a default, the non-
-----------
defaulting party shall have the right, in addition to any other remedies which
may be available, to obtain specific performance of the terms of this Agreement.
Should any party default in performance of any of the terms and conditions of
this Agreement or any other agreement referred to herein which results in the
filing of a lawsuit for damages, specific performance, or other remedy, the
prevailing party in such lawsuit shall be entitled to its reasonable attorneys'
fees and court costs from the losing party.
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<PAGE>
13.6. Assignment and Benefit. Buyer may assign this Agreement in
----------------------
whole or in part to any affiliate; provided, however, that no such assignment by
-------- -------
Buyer shall relieve Buyer of its obligations hereunder. No Company shall assign
this Agreement or any rights hereunder, or delegate any obligations hereunder,
without the prior written consent of Buyer. This Agreement shall be binding
upon the respective successors and permitted assigns of the parties hereto.
13.7. Schedules and Exhibits. Any and all schedules, exhibits
----------------------
and financial statements referenced or incorporated herein are deemed to be a
part of this Agreement and are binding and enforceable as to any terms contained
therein. The submission of any information on a schedule, exhibit or financial
statement shall constitute a representation by the party providing such
schedule, exhibit or financial statement of the truth, correctness and
completeness of all information set forth therein. The disclosures in the
schedules hereto shall relate only to the representations and warranties to
which they expressly refer and to no other representation or warranty in this
Agreement unless such schedule contains an appropriate cross-reference, in which
case such disclosure shall be deemed to be made on all schedules containing the
cross-reference. In the event of any inconsistency between the statements made
in the body of this Agreement and those contained on a schedule (other than an
expressed exception to a specifically-identified statement), those in this
Agreement shall control.
13.8. Effect and Construction of this Agreement. This
-----------------------------------------
Agreement and schedules, exhibits and financial statements referenced or
incorporated herein embody the entire agreement and understanding of the parties
and supersede any and all prior agreements, arrangements and understandings
relating to matters provided for herein. The captions are for convenience only
and will not control nor affect the meaning or construction of the provisions of
this Agreement. The terms defined herein and in any agreement executed in
connection herewith include the plural as well as the singular and the singular
as well as the plural, and the use of masculine pronouns shall include the
feminine and neuter. Except as otherwise indicated, all agreements defined
herein refer to the same as from time to time amended or supplemented or the
terms thereof waived or modified in accordance herewith and therewith. This
Agreement may be executed in one or more counterparts, each of which shall be
deemed an original, but all of which counterparts together shall be deemed to be
one and the same instrument.
13.9. Cooperation. Subject to the terms and conditions herein
-----------
provided, each of the parties hereto shall use its respective commercially
reasonable efforts to take, or cause
-40-
<PAGE>
to be taken, such action, to execute and deliver, or cause to be executed and
delivered, such additional documents and instruments and to do, or cause to be
done, all things necessary, proper or advisable under the provisions of this
Agreement and under applicable law to consummate and make effective the
transactions contemplated by this Agreement.
13.10. Notices. All notices and other communications required
-------
or permitted hereunder shall be in writing and shall be delivered personally,
sent by United States Registered or Certified Mail, return receipt requested,
postage prepaid or sent by express courier service with guaranteed overnight
delivery or via facsimile transmission (which is confirmed), in any such case
addressed as follows:
If to Companies or Seller:
c/o Pennsylvania Blue Shield
1800 Center Street, 1B, L4
Camp Hill, PA 17089
Attention: Donald L. Fisher
Facsimile: (717) 731-2898
with a copy to: Pennsylvania Blue Shield
1800 Center Street, 1A-L4
Camp Hill, PA 17089
Attention: F. Lisa Murtha, Esq.
Facsimile: (717) 731-2852
If to Buyer: Rose Tree Corporate Center II
Suite 3055
1400 North Providence Road
Media, PA 19063
Attention: President
Facsimile: (610) 891-8222
with a copy to: Robert H. Strouse, Esq.
Drinker Biddle & Reath
Suite 300
1000 Westlakes Drive
Berwyn, PA 19312-2409
Facsimile: (610) 993-8585
or to such other addresses or entities any party hereto may from time to time
direct by service of notice on the other parties as provided above. Any such
notices and other communications shall be deemed to have been properly given and
received when delivered to the addressee personally or via facsimile
transmission (which is confirmed), upon delivery by the United States Postal
Service
-41-
<PAGE>
or upon delivery by a courier service with guaranteed overnight delivery.
13.11. Amendment, Waiver, Discharge, etc. This Agreement may
---------------------------------
not be released, discharged, abandoned, amended, changed or modified in any
manner, except by an instrument in writing signed on behalf of each of the
parties hereto by their duly authorized officers or representatives in
compliance with applicable law. The failure of any party hereto to enforce at
any time any of the provisions of this Agreement shall in no way be construed to
be a waiver of any such provision, nor in any way to affect the validity of this
Agreement or any part thereof or the right of any party thereafter to enforce
each and every such provision. No waiver of any breach of this Agreement shall
be held to be a waiver of any other or subsequent breach.
13.12. Number of Days. Except as otherwise provided herein,
--------------
in computing the number of days for purposes of this Agreement, all days shall
be counted, including Saturdays, Sundays and holidays; provided, however, that
-------- -------
if the final day of any time period falls on a Saturday, Sunday or holiday, then
the final day shall be deemed to be the next day which is not a Saturday, Sunday
or holiday.
13.13. Rights of Persons Not Parties. Nothing contained in
-----------------------------
this Agreement shall be deemed to create rights in persons or entities not
parties hereto, other than the successors and permitted assigns of the parties
hereto.
13.14. Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the Commonwealth of Pennsylvania
without reference to that state's conflict of laws provision. Any action or
proceeding in connection with this Agreement may be commenced in state or
Federal court in Pennsylvania.
IN WITNESS WHEREOF, each of the parties hereto has duly executed
this Agreement, all as of the date first above written.
CAREFREE LEARNING CENTERS, INC.
By: __________________________
Title: ___________________________
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<PAGE>
KEYSTONE VENTURES, INC.
By: __________________________
Title: ___________________________
MEDICAL SERVICE ASSOCIATION OF
PENNSYLVANIA, D/B/A PENNSYLVANIA
BLUE SHIELD
By: __________________________
Title: ___________________________
NOBEL EDUCATION DYNAMICS, INC
By:_______________________________
Title:____________________________
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<PAGE>
The following is a summary of the schedules to the foregoing Asset Purchase
Agreement, which schedules have been omitted from this report. The Registrant
agrees to furnish supplementally a copy of any omitted schedule to the
Commission upon request.
<TABLE>
<C> <S> <C>
1. Schedule A: Purchase to Centers.
2. Schedule B: Owned Real Property.
3. Schedule C-1: Keystone Leases.
4. Schedule C-2: Third Party Leases.
5. Schedule 1.1.1: Tangible Personal Property
6. Schedule 1.1.6: Contracts
7. Schedule 1.1.8: Permits
8. Schedule 1.1.11: Business Records
9. Schedule 1.2.10: Excluded Assets
10. Schedule 2.2.2: Form of Note
11. Schedule 4.3.1.(a): Form of Bill of Sale
12. Schedule 4.3.1.(b): Form of Omnibus Assignment
13. Schedule 4.3.1.(e): Form of Opinion of Company's Counsel
14. Schedule 4.3.1.(h): Form of Keystone Lease Amendment
15. Schedule 4.3.1.(i): Form of Consent to Assignment
16. Schedule 4.3.1.(k): Form of Trademark Assignment
17. Schedule 4.3.2.(e): Form of Opinion of Buyer's Counsel
18. Schedule 4.3.2.(g): Form of Escrow Agreement
19. Schedule 5.3: Conflicting Agreements
20. Schedule 5.4: Required Consents and Approvals
21. Schedule 5.8: Necessary Permits Not Possessed by Seller
22. Schedule 5.10: Judgments and Litigation
23. Schedule 5.11.1: Annual Statements
24. Schedule 5.13: Material Adverse Changes since Seller's
Balance Sheet Date
25. Schedule 5.14: Defects in Title to Personal Property
26. Schedule 5.15: Intellectual Property, Form Contracts,
Insurances and Claims
27. Schedule 5.16: Defaults
28. Schedule 5.17: Managers
29. Schedule 5.19: Relationship Disputes and Controversies
30. Schedule 5.20: Employee Benefit Plans
31. Schedule 6.5: Consents
</TABLE>
<PAGE>
AGREEMENT OF SALE
BY AND AMONG
KEYSTONE REAL ESTATE DEVELOPMENT COMPANY, INC.,
NOBEL EDUCATION DYNAMICS, INC.
AND
BLUEGRASS REAL ESTATE COMPANY, INC.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
SECTION 1. SALE AND PURCHASE OF PROPERTY..................................... 2
1.1. Definitions....................................................... 2
1.2. Sale of Property.................................................. 3
1.3. Interest in Adjoining Streets..................................... 4
1.4. Excluded Assets................................................... 4
1.5. Excluded Liabilities.............................................. 5
1.6. Liabilities to be Assumed by Buyer................................ 6
1.7. Prepayment Penalties.............................................. 7
SECTION 2. PURCHASE PRICE AND PAYMENT........................................ 8
2.1. Purchase Price.................................................... 8
2.2. Delivery into Escrow.............................................. 9
SECTION 3. CLOSING........................................................... 11
3.1. KREDCO Closing.................................................... 12
3.2. Closing Balance Sheet............................................. 12
3.3. Deliveries at KREDCO Closing...................................... 13
3.4. Chadds Ford Closing............................................... 15
SECTION 4. SURVEYS........................................................... 17
4.1. Surveys........................................................... 17
4.2. Survey Defect Notice.............................................. 18
4.3. Removal........................................................... 18
4.4. Failure to Remove................................................. 18
SECTION 5. SELLER'S CONDITIONAL COVENANTS.................................... 18
5.1. Effect of Breach of Conditional Covenants......................... 18
5.2. Condition of Title................................................ 18
5.3. Prohibited Acts of Seller re: Condition of
Title............................................................. 18
5.4. Seller's Covenant re: Existing Mortgage(s) and
Taxes............................................................. 19
SECTION 6. SELLER'S NON-CONDITIONAL COVENANTS................................ 19
6.1. Effect of Breach of Non-Conditional Covenants..................... 19
6.2. Title to Personalty............................................... 19
6.3. Quiet Enjoyment................................................... 20
6.4. Negative Covenants of Seller...................................... 20
6.5. Chadds Ford Covenants............................................. 20
6.6. Exclusive Dealing................................................. 20
6.7. Public Announcements.............................................. 20
6.8. Covenant Regarding Assignment of Construction
Contract.......................................................... 21
SECTION 7. BUYER'S NON-CONDITIONAL COVENANTS................................. 21
7.1. Effect of Breach of Non-Conditional Covenants..................... 21
7.2. Negative Covenants of Buyer....................................... 21
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
7.3. Evaluation Material............................................... 21
7.4. Pre-Closing Releases.............................................. 22
SECTION 8. BUYER'S OPTIONS WITH RESPECT TO INCURABLE SURVEY
DEFECTS, FAILURE OF TITLE AND BREACH OF CONDITIONAL
COVENANTS................................................................ 23
SECTION 9. REPRESENTATION AND WARRANTY OF SELLER AS OF THE
EFFECTIVE DATE AND AS OF EACH CLOSING DATE............................... 24
SECTION 10. REPRESENTATIONS AND WARRANTIES OF SELLER AS OF
THE EFFECTIVE DATE....................................................... 24
10.1. Organization; Authority........................................... 24
10.2. Absence of Conflicting Agreements................................. 25
10.3. Consents and Approvals............................................ 25
10.4. Brokers........................................................... 25
10.5. Intentionally omitted............................................. 25
10.6. Compliance with Laws.............................................. 25
10.7. Permits........................................................... 26
10.8. Encumbrances Created by this Agreement............................ 26
10.9. Judgments and Litigation.......................................... 26
10.10. Financial Information............................................. 27
10.11. Tax Matters....................................................... 27
10.12. Absence of Certain Changes........................................ 28
10.13. Property.......................................................... 29
10.14. List of Project Contracts......................................... 30
10.15. Project Contracts; Validity, Defaults,
Notice/Consent.................................................... 30
10.16. Intentionally omitted............................................. 31
10.17. Labor Matters..................................................... 31
10.18. Intentionally omitted............................................. 31
10.19. Intentionally omitted............................................. 31
10.20. Non-Foreign Persons............................................... 31
10.21. Environmental Protection.......................................... 31
10.22. Intentionally omitted............................................. 33
10.23. Intentionally omitted............................................. 33
10.24. Disclosure........................................................ 33
10.25. Condemnation Proceedings.......................................... 33
10.26. Insurance......................................................... 33
10.27. All Work Completed................................................ 33
10.28. Independent Unit.................................................. 34
SECTION 11. EFFECT OF FAILURE OF SELLER'S REPRESENTATION
AND WARRANTY TO BE TRUE AND CORRECT...................................... 34
SECTION 12. REPRESENTATION AND WARRANTY OF BUYER
AND ASSIGNEE AS OF THE EFFECTIVE DATE AND AS OF EACH
CLOSING DATE............................................................. 34
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 13. REPRESENTATIONS AND WARRANTIES OF BUYER AND
ASSIGNEE AS OF THE EFFECTIVE DATE........................................ 35
13.1. Organization; Authority........................................... 35
13.2. Absence of Conflicting Agreements................................. 35
13.3. Consents.......................................................... 35
13.4. Litigation........................................................ 36
13.5. Brokers........................................................... 36
13.6. Financial Condition............................................... 36
13.7. Disclosure........................................................ 37
SECTION 14. EFFECT OF FAILURE OF BUYER'S OR ASSIGNEE'S
REPRESENTATION AND WARRANTY TO BE TRUE AND CORRECT....................... 37
SECTION 15. RISK OF LOSS..................................................... 37
SECTION 16. CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS...................... 37
SECTION 17. CONDITIONS PRECEDENT TO SELLER'S OBLIGATIONS..................... 38
SECTION 19. ASSESSMENTS...................................................... 39
SECTION 20. DEFAULT; TERMINATION............................................. 39
SECTION 21. ASSIGNMENT; NOMINEE.............................................. 40
SECTION 22. OBLIGATIONS OF PARTIES AFTER CLOSING............................. 40
22.1. Post-Closing Releases............................................. 40
22.2. Intentionally Omitted............................................. 40
22.3. Further Assurances................................................ 41
22.4. Survival of Representations and Warranties........................ 41
22.5. Indemnification................................................... 41
22.6. Right of Offset................................................... 43
22.7. KREDCO Closing Adjustments........................................ 44
SECTION 23. MISCELLANEOUS.................................................... 44
23.1. Time of the Essence.............................................. 44
23.2. Schedules and Exhibits........................................... 44
23.3. Effect and Construction of this Agreement........................ 44
23.4. Cooperation...................................................... 45
23.5. Notices.......................................................... 45
23.6. Amendment, Waiver, Discharge, etc................................ 45
23.7. Number of Days................................................... 45
23.8. Rights of Persons Not Parties.................................... 45
23.9. Governing Law.................................................... 45
</TABLE>
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<PAGE>
AGREEMENT OF SALE
THIS AGREEMENT OF SALE (this "Agreement"), dated as of March 10, 1995
(the "Effective Date"), by and among KEYSTONE REAL ESTATE DEVELOPMENT COMPANY,
INC., a Pennsylvania corporation ("Seller"), NOBEL EDUCATION DYNAMICS, INC., a
Delaware corporation ("Buyer") and BLUEGRASS REAL ESTATE COMPANY, INC., a
Pennsylvania corporation ("Assignee"); and joined into solely for purposes of
Section 22.5 hereof by MEDICAL SERVICE ASSOCIATION OF PENNSYLVANIA, a
Pennsylvania corporation doing business as Pennsylvania Blue Shield ("Blue
Shield").
BACKGROUND
A. Carefree Learning Centers, Inc., a Pennsylvania corporation
("Carefree"), Keystone Ventures, Inc., a Pennsylvania corporation ("Keystone
Ventures"), Blue Shield, a Pennsylvania corporation ("Blue Shield"), and Buyer
have entered into an Asset Purchase Agreement (the "Asset Purchase Agreement")
of even date. Closing has now occurred under the Asset Purchase Agreement, and
Carefree has sold to Buyer, and Buyer has purchased from Carefree, Carefree's
child day-care business. Carefree's child day-care business is hereinafter
referred to as the "Business." Seller and Carefree are each wholly-owned
subsidiaries of Keystone Ventures, and Keystone Ventures is a wholly-owned
subsidiary of Blue Shield. Assignee is a wholly-owned subsidiary of Buyer.
B. Seller holds title to, among other things:
1. the land, buildings, improvements and appurtenances thereto
located at four (4) of Carefree's existing child day-care centers (collectively,
the "Existing Centers");
2. the land, buildings, improvements and appurtenances thereto
located at one (1) child day-care center currently under construction (the
"Chadds Ford Center"); and
3. a leasehold estate (the "Audubon Leasehold Estate") in and to
that certain Ground Lease (the "Ground Lease") dated November 10, 1994, by and
between Audubon Village Associates, as Landlord, and Seller, as Tenant.
C. Pursuant to Section 4.3.1(h) of the Asset Purchase Agreement, Seller,
----------------
Buyer and Carefree have entered into a "Keystone Lease Amendment" (the "Keystone
Lease Amendment") pursuant to which Carefree has assigned to Buyer all of
Carefree's right, title and interest as tenant in the Existing
<PAGE>
Centers. Buyer has taken occupancy of the Existing Centers pursuant to the
Keystone Lease (as defined in Section 6.3) and the Keystone Lease Amendment for
-----------
the purpose of operating the Business therein.
D. The parties hereto desire to provide for the sale by Seller, and the
purchase by Buyer, of the "Property" (as defined in Section 1.2), after Buyer
-----------
obtains the "Surveys" referred to in Section 4.1. In order to evidence the
-----------
parties' satisfaction with elements of this purchase and sale transaction other
than the Surveys, Seller and Buyer have agreed to execute and deliver into
escrow as many of the "Seller's Transaction Documents" referred to in Section 9
---------
and the "Buyer's Transaction Documents" referred to in Section 12 as can
----------
practicably be executed and delivered at this time, with the expectation that
"Closing" hereunder shall occur no later than sixty (60) days after the date of
this Agreement.
E. Pursuant to the terms hereof, the parties contemplate that Buyer shall
remain bound to perform for the benefit of Seller all of the representations,
warranties, covenants, agreements, indemnifications, terms and conditions to be
performed hereunder by Buyer; PROVIDED, NEVERTHELESS, that title to the Property
-------- ------------
to be purchased hereunder shall be vested in the name of Assignee.
NOW, THEREFORE, in consideration of the premises and the mutual
representations, warranties, covenants and agreements herein contained, the
parties hereto, intending to be legally bound, agree as follows:
SECTION 1. SALE AND PURCHASE OF PROPERTY
1.1. Definitions. The following terms shall have the respective
-----------
meanings ascribed to them below when capitalized, which meanings shall be
applicable to singular or plural nouns and verbs of any tense:
1.1.1. "Audubon Land:" the Land which is subject to the
Audubon Leasehold Estate;
1.1.2. "Balance Sheet:" Seller's audited balance sheet as
at December 31, 1994, a copy of which is attached hereto as Schedule 1.1.2;
--------------
1.1.3. "Building:" singly, the buildings, improvements and
appurtenances thereto located at any Center; collectively, all of the buildings,
improvements and appurtenances thereto located at the Centers;
-2-
<PAGE>
1.1.4. "Center:" singly, any of the Existing Centers or
the Chadds Ford Center; collectively, all of the Existing Centers and the Chadds
Ford Center;
1.1.5. "Chadds Ford Closing:" the closing of the purchase
and sale of the Chadds Ford Center;
1.1.6. "Closings:" collectively, the KREDCO Closing and
the Chadds Ford Closing;
1.1.7. "Closing Date:" the KREDCO Closing Date or the
Chadds Ford Closing Date, whichever is applicable;
1.1.8. "KREDCO Closing:" the closing of the purchase and
sale of the Property, other than the Chadds Ford Center;
1.1.9. "Land:" singly, the land located at any Center,
including trees, shrubbery and plants now attached or appurtenant thereto or
located thereon; collectively, all of the land located at the Existing Centers
and the Chadds Ford Center; and
1.1.10. "Site:" any of the Centers or the Audubon Land;
collectively, all of the Centers and the Audubon Land.
The Centers, the Land and the Audubon Land are more particularly described in
Schedule 1 attached hereto and made a part hereof.
----------
1.2. Sale of Property. Subject to the terms and conditions of this
Agreement, Seller agrees to sell and convey to Buyer, and Buyer agrees to
purchase from Seller:
1.2.1. the Land;
1.2.2. the Buildings;
1.2.3. the Audubon Leasehold Estate; and
1.2.4. all other tangible and intangible properties and
assets owned or held by Seller, other than, in each case, the "Excluded Assets,"
as defined in Section 1.4. Such other tangible and intangible properties
-----------
include, but are not limited to, all prepaid expenses shown on the Closing
Balance Sheet (as hereinafter defined in Section 3.2) (except for prepaid
-----------
insurance and deferred taxes), and to the extent assignable, all maintenance
contracts, service contracts, equipment leases (including, if leased, telephone
systems), vehicle leases, real property leases and other contracts of Seller
that are described
-3-
<PAGE>
on Schedules 1.6.1.(d) and 1.6.2-2 attached hereto and made a part hereof.
--------------------------------
The foregoing are referred to herein, collectively, as the "Property." If Buyer,
from time to time, exercises its partial termination rights pursuant to Section
-------
8.1 (Buyer's Partial Termination Right), the term "Property" shall automatically
---
be amended, as of the effective date of such termination, to exclude therefrom
the Center(s) and/or the Audubon Leasehold Estate as to which Buyer exercises
such termination rights.
1.3. Interest in Adjoining Streets. Title to the Property shall be
-----------------------------
conveyed together with all rights, titles and interests, if any, of Seller in
and to land lying in the bed of any streets, roads, avenues, alleys or
passageways, opened or proposed, bounding or abutting the Land and/or the
Audubon Land, and all rights, titles and interests of Seller in and to any
awards made or to be made in lieu thereof and in and to any unpaid awards for
damage to the Property by reason of change of grade of any street, and Seller
will execute and deliver to Buyer, at the respective Closing, or thereafter, on
demand, all proper instruments for the conveyance of such titles and the
assignment and collection of any such awards, together with all rights, titles
and interests, if any, of Seller in and to any easements, rights of way or
passageways appurtenant to the Land and/or the Audubon Land being conveyed at
such Closing.
1.4. Excluded Assets. Notwithstanding anything to the contrary in
---------------
Sections 1.2 or 1.3, the following rights, properties and assets of Seller shall
------------ ---
not be included in the Property (collectively, the "Excluded Assets"):
1.4.1. the corporate seal, articles of incorporation,
minute books, stock books and all records and documents of Seller not described
on Schedule 1.4.1 attached hereto and made a part hereof (but Seller agrees to
--------------
give Buyer reasonable access thereto for a period of seven (7) years following
the KREDCO Closing Date for proper business purposes during normal business
hours and to permit Buyer to make copies thereof at Buyer's expense, and Buyer
agrees to give Seller reasonable access to all records and documents described
on Schedule 1.4.1 for a period of seven (7) years following the KREDCO Closing
--------------
Date for proper business purposes during normal business hours and to permit
Seller to make copies thereof at Seller's expense);
1.4.2. the Purchase Price and all rights which accrue or
will accrue to Seller under this Agreement and the Seller's Transaction
Documents (as hereinafter defined in Section 9);
---------
-4-
<PAGE>
1.4.3. all insurance policies of Seller and all
rights/claims of Seller thereunder;
1.4.4. all tax refunds and related interest and all
deferred taxes;
1.4.5. all prepaid insurance and surety bonds, (with cash
in an amount equal to all prepaid premiums for insurance for periods following
the KREDCO Closing Date to be paid by Seller to Buyer in accordance with the
provisions of Section 2.2.7 hereof;
-------------
1.4.6. any day-care facility license or other governmental
license of Seller which is not transferrable pursuant to any applicable law,
statute, rule or regulation;
1.4.7. all supplies and inventories which have been sold,
consumed or disposed of in the ordinary course of business subsequent to the
date of this Agreement and prior to the KREDCO Closing Date;
1.4.8. Seller's cash management system and cash to be
retained by Seller sufficient to pay employee bonuses reflected on the Closing
Balance Sheet; and
1.4.9. assets reflected on the Closing Balance Sheet as
"Other assets" (which principally consist of commitment fees for mortgages) and
"Deferred rent";
1.4.10. if Buyer exercises its partial termination rights
pursuant to Section 8.1 (Buyer's Partial Termination Right), the Center(s)
-----------
and/or the Audubon Leasehold Estate as to which Buyer timely exercises such
partial termination rights; or
1.4.11. the Tri-Party Escrow Agreement among Seller, the
Township of Birmingham and Main Line Federal Savings Bank, the Development
Agreement among Seller and the Township of Birmingham, each relating to the
Chadds Ford Site, and the Standard Form of Agreement between Seller and F.
Daniel Cathers and Associates.
1.5. Excluded Liabilities. Except as otherwise provided
--------------------
specifically in this Section 1, Buyer shall not assume, or in any way be liable
----------
or responsible for:
1.5.1. any other liabilities, obligations or debts of
Seller of any type or nature including, without limitation, tort claims asserted
against Seller arising out of actions or omissions occurring in periods prior to
the KREDCO Closing Date; claims against Seller arising out of the "Cash
-5-
<PAGE>
overdraft" line item set forth on the Closing Balance Sheet; tax liabilities for
periods prior to the KREDCO Closing Date (including, but not limited to, the
"Deferred income taxes" line item set forth on the Closing Balance Sheet);
liabilities relating to claims for damages based upon the breach by Seller of,
or strict liability arising under, any environmental or occupational health and
safety laws or regulations prior to the KREDCO Closing Date; liabilities or
obligations relating to the violation by Seller of any Federal or state laws
prior to the KREDCO Closing Date; liabilities incurred for the costs and
expenses of negotiating and consummating the transactions contemplated by this
Agreement or the Asset Purchase Agreement; or liabilities incurred prior to the
KREDCO Closing Date in connection with any employee benefit plan of Seller or
for unpaid wages, bonuses or payroll taxes; or
1.5.2. any liabilities, obligations or debts of Seller of
any type or nature whatsoever in respect of any Site as to which Buyer timely
exercises Buyer's partial termination rights pursuant to Section 8.1 (Buyer's
-----------
Partial Termination Right).
1.6. Liabilities to be Assumed by Buyer. Subject to the terms
----------------------------------
and conditions of this Agreement (including, but not limited to, Buyer's partial
termination rights pursuant to Section 8.1 (Buyer's Partial Termination Right)):
-----------
1.6.1. at the KREDCO Closing, Buyer shall assume, pursuant
to an assignment and assumption agreement in the form of Schedule 1.6.1 attached
--------------
hereto and made a part hereof (the "KREDCO Omnibus Assignment"), and thereafter
in due course pay and fully satisfy the following liabilities, responsibilities
and obligations of Seller in existence on the KREDCO Closing Date (the "KREDCO
Assumed Liabilities"):
(a) all accounts payable of Seller in the amount shown on
the Closing Balance Sheet as defined in and prepared pursuant to Section 3.2;
-----------
(b) amounts due from Seller to affiliates (exclusive of
the Blue Shield Obligation, as defined in Section 2.1.2, and the Chadds Ford
-------------
Obligation, as defined in Section 2.1.3), as shown on the Closing Balance Sheet;
-------------
(c) all liability of Seller for accrued expenses shown on
the Closing Balance Sheet other than accrued liability for corporate stock tax,
income taxes and employee bonuses; and
(d) all liabilities and obligations of Seller accruing
from and after the KREDCO Closing Date under the
-6-
<PAGE>
Ground Lease and under each contract listed on Schedule 1.6.1.(d) attached
------------------
hereto and made a part hereof (the Ground Lease and such contracts,
collectively, the "KREDCO Project Contracts") with respect to (and only with
respect to) performance which becomes due thereunder subsequent to the KREDCO
Closing Date. Liabilities and obligations under such Project Contracts which
have accrued, or the performance of which is due, on or prior to the KREDCO
Closing Date shall be the sole responsibility of Seller. Seller shall retain
(and shall indemnify Buyer pursuant to Section 22.5 for any liability, loss,
------------
cost or expense in respect of) all obligations and liabilities under KREDCO
Project Contracts in respect of services or value received, or in respect of
claims arising, on or prior to the KREDCO Closing.
1.6.2. at the Chadds Ford Closing, Buyer shall assume,
pursuant to an assignment and assumption agreement in the form of Schedule
--------
1.6.2-1 attached hereto and made a part hereof (the "Chadds Ford Assignment"),
-------
and thereafter in due course pay and fully satisfy all liabilities and
obligations of Seller (the "Chadds Ford Assumed Liabilities") accruing from and
after the Chadds Ford Closing Date under each contract listed on Schedule 1.6.2-
--------------
2 attached hereto and made a part hereof (such contracts, collectively, the
-
"Chadds Ford Project Contracts") with respect to (and only with respect to)
performance which becomes due thereunder subsequent to the Chadds Ford Closing
Date. Liabilities and obligations under such Chadds Ford Project Contracts
which have accrued, or the performance of which is due, on or prior to the
Chadds Ford Closing Date shall be the sole responsibility of Seller. Seller
shall retain (and shall indemnify Buyer pursuant to Section 22.5 for any
------------
liability, loss, cost or expense in respect of) all obligations and liabilities
under Chadds Ford Project Contracts in respect of services or value received, or
in respect of claims arising, on or prior to the Chadds Ford Closing.
The KREDCO Project Contracts and the Chadds Ford Project Contracts are sometimes
hereinafter referred to, collectively, as the "Project Contracts." The KREDCO
Assumed Liabilities and the Chadds Ford Assumed Liabilities are sometimes
hereinafter referred to, collectively, as the "Assumed Liabilities."
1.7. Prepayment Penalties. Nothing contained herein shall be
--------------------
construed as an assumption by Buyer of any costs, fees or expenses (including,
without limitation, any prepayment premiums or penalties) incurred in connection
with the satisfaction, upon execution and delivery of this Agreement, at the
KREDCO Closing, the Chadds Ford Closing or otherwise, of any of Seller's debt
obligations, all of which costs, fees and expenses shall be and remain the sole
responsibility of Seller and shall not be an Assumed Liability.
-7-
<PAGE>
SECTION 2. PURCHASE PRICE AND PAYMENT
2.1. Purchase Price. The purchase price for the Property
(the "Purchase Price") shall be the sum of the following amounts:
2.1.1. ONE MILLION FIVE HUNDRED THOUSAND DOLLARS
($1,500,000) in cash (the "Cash Payment") (of which FIVE HUNDRED THOUSAND
-----------
DOLLARS ($500,000) shall be payable as a "Deposit" pursuant to Section 2.2.2, a
------- -------------
the ONE MILLION DOLLAR ($1,000,000) balance of which shall be payable at the
----------
KREDCO Closing pursuant to Section 3.3.5; plus
------------- ----
2.1.2. Buyer's subordinated note (the "Working Capital
Note") payable to Blue Shield or its assigns in complete satisfaction and
payment of Seller's obligations to Blue Shield under Seller's line of credit
with Blue Shield for funds advanced thereunder, in the ordinary course of
business consistent with past practice (the "Blue Shield Obligation"), for
purposes other than (a) acquisition, development and construction of the Chadds
Ford Center, or (b) the payment of any sums or amounts payable by Seller under
this Agreement (except as specifically set forth in Section 2.2.7). The Working
-------------
Capital Note (c) shall be in an aggregate principal amount equal to the
principal amount of borrowings outstanding on the KREDCO Closing Date which have
been used for such purposes, and (d) shall be dated the KREDCO Closing Date, and
shall bear interest, mature and otherwise be in the form of Schedule 2.1.2
--------------
attached hereto and made a part hereof; plus
----
2.1.3. Buyer's subordinated note (the "Chadds Ford Note")
payable to Blue Shield or its assigns in an amount not to exceed the difference
between $1,411,000 and the principal amount of the Chadds Ford Debt (as
hereinafter defined in Section 2.1.5), in complete satisfaction and payment of
-------------
Seller's obligations to Blue Shield under Seller's line of credit with Blue
Shield for all funds advanced thereunder for acquisition, development and
construction of the Chadds Ford Center (the "Chadds Ford Obligation"), which
Chadds Ford Note shall be dated as of the Chadds Ford Closing Date (as
hereinafter defined in Section 3.4) and shall bear interest, mature and
-----------
otherwise be in the form of Schedule 2.1.3 attached hereto and made a part
--------------
hereof; plus
----
2.1.4. an amount in cash equal to up to TWO MILLION SIX
HUNDRED FORTY-SEVEN THOUSAND SEVEN HUNDRED FOURTEEN DOLLARS ($2,647,714), plus
---------
all accrued interest thereon as shown on the Closing Balance Sheet, on account
of the satisfaction of all of Seller's long-term debt obligations as shown on
the Closing Balance Sheet and as are more particularly described on
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<PAGE>
Schedule 2.1.4 attached hereto and made a part hereof (the "Long-Term Debt");
--------------
plus
----
2.1.5. an amount in cash equal to the difference between
$1,411,000 less the principal amount of the Chadds Ford Obligation, payable on
the Chadds Ford Closing Date, on account of the satisfaction of all of Seller's
debt obligations to Main Line Federal Savings Bank under a certain mortgage loan
made to Seller on October 14, 1994, in connection with the construction of the
Chadds Ford Center, as shown on the Closing Balance Sheet (the "Chadds Ford
Debt").
2.2. Delivery into Escrow. Contemporaneously herewith:
--------------------
2.2.1. Buyer, Seller, Assignee and Congress Abstract
Corporation ("Escrow Holder") are executing an escrow agreement, in the form of
Schedule 2.2.1 attached hereto and made a part hereof (the "Escrow Agreement").
--------------
Escrow Holder is holding in escrow, in accordance with the terms and conditions
of this Agreement and the Escrow Agreement, among other things:
(a) title commitments relating to the Existing Centers
and the Chadds Ford Center pursuant to which Escrow Holder irrevocably commits,
as agent for First American Title Insurance Company, to issue Owner's title
policies for Buyer (and Lender's title policies for Buyer's lender(s), if
applicable) (collectively, the "Title Commitments"), subject only to the receipt
at the applicable Closing of title affidavits in the forms attached thereto (the
"KREDCO Affidavits"); and
(b) settlement sheets relating to the Existing Centers
and the Chadds Ford Center (collectively, the "Settlement Sheets").
2.2.2. Buyer is delivering, or causing to be delivered, to
Escrow Holder the following amounts and documents, all of which shall be held in
escrow by Escrow Holder in accordance with the terms and conditions of this
Agreement and the Escrow Agreement:
(a) By wire transfer or by certified or cashiers' check,
the sum of Five Hundred Thousand Dollars ($500,000) (the "Deposit");
(b) An executed KREDCO Omnibus Assignment, pursuant to
which Seller shall assign to Buyer, and Buyer shall assume, all of the KREDCO
Assumed Liabilities;
(c) An executed original of the Working Capital Note
(subject to determination of original principal
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<PAGE>
amount at the KREDCO Closing in accordance with the provisions of Section
-------
2.1.2);
-----
(d) An executed original of the Chadds Ford Note
(subject to determination of the original principal amount at the Chadds Ford
Closing in accordance with the provisions of Section 2.1.3);
-------------
(e) The form of opinion of Drinker Biddle & Reath,
counsel to Buyer, to be dated as of the KREDCO Closing Date and the Chadds Ford
Closing Date, respectively, each in the form of Schedule 2.2.2.(e) attached
---------------
hereto and made a part hereof;
(f) An executed Chadds Ford Assignment, pursuant to
which Seller shall assign to Buyer, and Buyer shall assume, all of the Chadds
Ford Assumed Liabilities; and
(g) Incumbency certificates relating to the officers of
Buyer and Assignee, together with certified copies of unanimous executed
consents duly and properly adopting resolutions of Buyer's and Assignee's Board
of Directors authorizing the execution, delivery and performance of this
Agreement, the Escrow Agreement and Buyer's Transaction Documents (as
hereinafter defined in Section 1.2) and the transactions contemplated hereby and
-----------
thereby, including, without limitation, the execution of the Working Capital
Note and the Chadds Ford Note, and good standing or subsistence certificates for
Buyer and Assignee, as applicable.
2.2.3. Seller is delivering, or causing to be delivered, to
Escrow Holder, the following documents, all of which shall be held in escrow by
Escrow Holder in accordance with the terms and conditions of this Agreement and
the Escrow Agreement:
(a) Forms of special warranty deeds conveying to
Assignee title to the Land and each of the Buildings at the respective Existing
Centers, each in the form of Schedule 2.2.3(a) attached hereto and made a part
-----------------
hereof (collectively, the "Existing Center Deeds");
(b) An original executed Assignment and Assumption of
Lease with respect to the Audubon Leasehold Estate, in the form of Schedule 2.2.
-------------
3(b) attached hereto and made a part hereof (collectively, the "Audubon
----
Conveyance Documents"), duly executed and acknowledged by Seller, Buyer and all
other necessary parties in proper recordable form, a consent and release
pursuant to which, among other things, the lessor under the Audubon Leasehold
Estate releases Seller from the obligations with respect to the Audubon
Leasehold Estate;
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<PAGE>
(c) An executed bill of sale, in the form of Schedule
--------
2.2.3.(c) attached hereto and made a part hereof (the "Existing Center Bill of
---------
Sale") transferring to Assignee title to all the personalty relating to the
Existing Centers and the Audubon Leasehold Estate (the "Personalty"), to have
attached thereto a schedule identifying such Personalty, subject only to such
existing security interests (the "Existing Security Interests") in the
Personalty as shall be satisfied or removed by filing of termination statements
as of the applicable Closing;
(d) An affidavit in the form of Schedule 2.2.3.(d)
------------------
attached hereto and made a part hereof, confirming that Seller is not a
nonresident alien for purposes of United States income tax ("Seller's
Affidavit");
(e) A form of special warranty deed conveying title to
the Chadds Ford Center, in the form of Schedule 2.2.3.(e) attached hereto and
------------------
made a part hereof (the "Chadds Ford Deed"), duly executed and acknowledged by
Seller in proper recordable form;
(f) An executed bill of sale, in the form of Schedule
--------
2.2.3.(f) attached hereto and made a part hereof (the "Chadds Ford Bill of
---------
Sale"), transferring to Assignee title to all the personalty relating to the
Chadds Ford Center, to have attached thereto a schedule identifying such
personalty;
(g) A fully executed KREDCO Omnibus Assignment;
(h) The form of opinion of George A. Welsh, Esq., Vice
President of Legal Services, counsel to Blue Shield, to be dated the KREDCO
Closing Date and the Chadds Ford Closing Date, respectively, each in the form of
Schedule 2.2.3(l) attached hereto and made a part hereof;
-----------------
(i) A fully executed Chadds Ford Assignment;
(j) An incumbency certificate relating to the officers
of Seller, together with certified copies of unanimous executed consents
adopting resolutions of Seller's Board of Directors and of its shareholders,
duly and properly adopted, authorizing the execution of this Agreement, the sale
of the Property and all other actions incumbent upon Seller, as provided in this
Agreement; and
(k) A certificate of subsistence issued by the Secretary
of the Commonwealth of Pennsylvania relating to Seller, and dated as of a recent
date.
SECTION 3. CLOSING
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<PAGE>
3.1. KREDCO Closing. Unless otherwise agreed to in writing by Seller
--------------
and Buyer, the KREDCO Closing pursuant to this Agreement shall take place on a
date (the "KREDCO Closing Date") which, unless otherwise agreed, is the sixtieth
(60th) day after the Effective Date; PROVIDED, HOWEVER, that if destruction or
-------- -------
condemnation as contemplated in Section 15 (Risk of Loss) occurs with respect to
----------
any Existing Center, then the KREDCO Closing with respect only to such Existing
Center shall be adjourned for such reasonable time as may be necessary to
ascertain and receive any applicable insurance proceeds or condemnation awards
(with Buyer agreeing to use all reasonable efforts to promptly obtain such
proceeds or awards). Closing shall be held at the offices of Drinker Biddle &
Reath, Suite 300, 1000 Westlakes Drive, Berwyn, Pennsylvania 19312, and shall
commence at 10:00 a.m., local time. It is understood and agreed that Buyer's
inability timely to obtain the Surveys shall not give rise to any right to delay
the KREDCO Closing.
3.2. Closing Balance Sheet. Within thirty (30) days after the
---------------------
KREDCO Closing, Buyer and Seller shall jointly prepare a balance sheet of Seller
as of the KREDCO Closing Date (the "Closing Balance Sheet") showing in
accordance with generally accepted accounting principles, consistently applied
("GAAP"), Seller's assets and liabilities as of the KREDCO Closing Date, and
containing the same line items as appear on the Balance Sheet. The Closing
Balance Sheet shall be prepared using the same GAAP as Seller used in preparing
the Balance Sheet. If the parties are unable to agree on the Closing Balance
Sheet within such thirty (30) day period, any disputed items shall be submitted
by Buyer or Seller for resolution by Coopers & Lybrand, or, if unavailable or if
such firm shall deny such appointment, to another "big six" accounting firm
reasonably acceptable to Buyer and Seller (the "Arbitrator"). Buyer and Seller
covenant and agree to cooperate with the Arbitrator, and to provide to the
Arbitrator such information as the Arbitrator may reasonably request in
analyzing the disputed items. The Arbitrator shall review and determine the
disputed items in accordance with GAAP, consistently applied, which
determination shall be final and binding upon the parties. The fees and
expenses of the Arbitrator shall be shared equally by Buyer and Seller.
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<PAGE>
3.3. Deliveries at KREDCO Closing. At the KREDCO Closing, Buyer,
----------------------------
Seller and Escrow Holder shall take the following actions:
3.3.1. Seller shall deliver, or cause to be delivered, to
Escrow Holder:
(a) The KREDCO Affidavits, duly executed and
acknowledged by Seller; and
(b) The Existing Center Deeds, duly executed and
acknowledged by Seller, in proper recordable form.
3.3.2. Escrow Holder shall deliver, or shall cause to be
delivered, to Buyer:
(a) The Title Commitments for the Existing Centers and
the Owner's and Lender's title policies issued pursuant thereto;
(b) The Audubon Conveyance Documents;
(c) The Existing Center Bill of Sale;
(d) Seller's Affidavit; and
(e) The KREDCO Omnibus Assignment.
3.3.3. Seller shall deliver, or shall cause to be delivered,
to Buyer:
(a) An opinion of Seller's Counsel, dated the KREDCO
Closing Date, in the form delivered to Escrow Holder pursuant to Section
-------
2.2.3.(l);
---------
(b) To the extent available and in Seller's possession,
originals of all certificates of occupancy, licenses, permits, authorizations,
consents and approvals required by law and issued by any governmental or quasi-
governmental authority having jurisdiction over any of the Property which are
not Excluded Assets (collectively, the "Licenses"), other than Licenses which
relate to the Chadds Ford Center;
(c) To the extent available and in Seller's possession,
a complete set of as-built architectural and engineering drawings, utility
layout plans, surveys, land development, master and subdivision plans,
topographical plans and the like used in the development, subdivision and/or
construction of any of the Property (collectively, the "Plans"), other than
those which relate to the Chadds Ford Center;
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<PAGE>
(d) The originals of all KREDCO Project Contracts;
(e) The original or a copy of each bill for current real
estate and ad valorem taxes, sewer charges and assessments, water charges and
other utilities (collectively, the "Bills"), together with proof of payment
thereof (to the extent the same have been paid), other than those which relate
to the Chadds Ford Center;
(f) The closing certificates of Seller called for by
Section 16.1 as to a certain representation and warranty of Seller, and by
------------
Section 16.2.2 as to the performance of certain covenants of Seller;
--------------
(g) Closing statements containing Seller's
acknowledgement of its receipt of the Deposit, the "Cash Balance" (as
hereinafter defined), the Working Capital Note and the satisfaction of the Long-
Term Debt; and
(h) Such other instruments of transfer as shall be
reasonably necessary to vest in Buyer good and marketable title to the Property,
other than the Chadds Ford Center, or to otherwise carry out the provisions of
this Agreement.
3.3.4. Escrow Holder shall deliver, or shall cause to be
delivered, to Seller:
(a) The Deposit;
(b) The KREDCO Omnibus Assignment; and
(c) The Working Capital Note.
3.3.5. Buyer shall deliver, or shall cause to be delivered,
to Seller:
(a) By wire transfer or by certified or cashiers' check,
the amount of cash sufficient to satisfy the Long-Term Debt, except that (i) if
destruction or condemnation as contemplated in Section 15 (Risk of Loss) occurs
----------
with respect to a Site, and (ii) Seller or the holder(s) of any Long-Term Debt
shall retain and/or apply the insurance proceeds or condemnation awards payable
on account of such destruction or condemnation for any purposes other than the
restoration of the applicable Site, then the amount of such cash shall be
reduced by an amount equal to the insurance proceeds or condemnation awards so
retained or applied by Seller or by such holder(s);
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<PAGE>
(b) By wire transfer or by certified or cashiers' check,
the remaining One Million Dollar ($1,000,000) balance of the Cash Payment (the
"Cash Balance"), except that (i) if destruction or condemnation as contemplated
in Section 15 (Risk of Loss) occurs with respect to a Site, and (ii) Seller or
----------
the holder(s) of any Long-Term Debt shall retain and/or apply the insurance
proceeds or condemnation awards payable on account of such destruction or
condemnation for any purposes other than the restoration of the applicable Site,
then the amount of such cash shall be reduced by an amount equal to the
insurance proceeds or condemnation awards so retained or applied by Seller or by
such holder(s) not otherwise used to reduce the cash payable pursuant to Section
-------
3.3.5.(a) above;
---------
(c) the closing certificate of Buyer called for by
Section 17.1 as to a certain representation and warranty of Buyer;
------------
(d) The KREDCO Omnibus Assignment; and
(e) An opinion of Buyer's counsel, dated the KREDCO
Closing Date, in the form delivered to Escrow Holder pursuant to Section
-------
2.2.2.(e).
---------
3.3.6. Buyer, Seller and Escrow Holder shall execute and
deliver to each other the Settlement Sheets for the Existing Centers.
3.4. Chadds Ford Closing. Upon Seller's receipt of (a) a
-------------------
certificate of substantial completion for the Chadds Ford Center, certifying
that the Chadds Ford Center has been substantially completed in accordance with
the plans and specifications, and (b) Birmingham Township's issuance of a
temporary certificate of occupancy with respect to the Chadds Ford Center
subject to completion of punch list items, if available; otherwise, the issuance
of a permanent certificate of occupancy with respect to Chadds Ford Center,
Seller shall give Buyer notice of such receipt, together with true and correct
copies of such certificate of substantial completion and the applicable
certificate of occupancy. In Seller's notice, Seller shall specify a date and
time for the Closing of the purchase and sale of the Chadds Ford Center (the
"Chadds Ford Closing") pursuant to this Agreement, which such date shall be no
more than 20 and no less than 10 days after the date of Seller's notice, in the
offices of Drinker Biddle & Reath, Suite 300, 1000 Westlakes Drive, Berwyn,
Pennsylvania 19312, commencing at 10:00 a.m., local time, or at such other date,
time and/or place as may be agreed to by Buyer and Seller (the "Chadds Ford
Closing Date").
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<PAGE>
3.5. Deliveries at Chadds Ford Closing. At the Chadds Ford Closing,
---------------------------------
Buyer, Seller and Escrow Holder shall take the following actions:
3.5.1. Seller shall deliver, or cause to be delivered to
Escrow Holder:
(a) The KREDCO Affidavits for the Chadds Ford Center,
duly executed and acknowledged by Seller; and
(b) The Chadds Ford Deed, duly executed and acknowledged
by Seller, in proper recordable form.
3.5.2. Escrow Holder shall deliver, or shall cause to be
delivered, to Buyer:
(a) The Title Commitment for the Chadds Ford Center and
the Owner's and Lender's title policy issued pursuant thereto;
(b) The Chadds Ford Bill of Sale; and
(c) The Chadds Ford Assignment.
3.5.3. Seller shall deliver, or shall cause to be
delivered, to Buyer:
(a) The Licenses which relate to the Chadds Ford Center;
(b) The Plans which relate to the Chadds Ford Center;
(c) The Chadds Ford Project Contracts;
(d) The Bills which relate to the Chadds Ford Center,
together with proof of payment thereof (to the extent the same has been paid);
(e) The closing certificates of Seller called for by
Section 16.1 as to a certain representation and warranty of Seller, and by
------------
Section 16.2.2 as to the performance of certain covenants of Seller, as the same
--------------
may relate to the Chadds Ford Closing;
(f) Closing statements containing Seller's
acknowledgement of its receipt of the Chadds Ford Note and the satisfaction of
the Chadds Ford Debt;
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<PAGE>
(g) An opinion of Seller's counsel, dated the Chadds
Ford Closing Date, in the form delivered to Escrow Holder pursuant to Section
-------
2.2.3.(l); and
---------
(h) Such other instruments of transfer as shall be
reasonably necessary or appropriate to vest in Buyer good and marketable title
to the Chadds Ford Center, or to otherwise carry out the provisions of this
Agreement.
3.5.4. Escrow Holder shall deliver, or shall cause to be
delivered, to Seller the Chadds Ford Note and the Chadds Ford Assignment.
3.5.5. Buyer shall deliver, or shall cause to be delivered,
to Seller:
(a) By wire transfer or by certified or cashier's check,
the amount of cash sufficient to satisfy the Chadds Ford Debt;
(b) the closing certificate of Buyer called for by
Section 17.1 as to a certain representation and warranty of Buyer, as the same
------------
may relate to the Chadds ford Closing; and
(c) An opinion of Buyer's counsel, dated the Chadds Ford
Closing Date, in the form delivered to Escrow Holder pursuant to Section
-------
2.2.2.(e).
---------
3.5.6. Buyer, Seller and Escrow Holder shall execute and
deliver to each other the Settlement Sheets for the Chadds Ford Center.
SECTION 4. SURVEYS
4.1. Surveys. Buyer shall, at its sole cost and expense, use
-------
all reasonable efforts to obtain, on an expedited basis, updated surveys for
each Existing Center (collectively, the "Surveys"; each, a "Survey"). For each
Existing Center, the Survey shall: (a) provide a legal description of the
applicable Land; and (b) disclose no material slivers, strips, gores,
description voids or lapses, defects regarding contiguity or access to a public
right-of-way, easements, encroachments or violations or exceptions to title or
other title matters which would have a material adverse effect on value or use
and occupancy of the Site for a child care facility (collectively, "Survey
Defects;" each, a "Survey Defect"). For purposes of this Section 4.1, slivers,
-----------
strips, gores, description voids or lapses, defects regarding contiguity or
access to a public right-of-way, easements, encroachments or violations or
exceptions to title or other title matters set forth on the Title Commitments
shall not constitute Survey Defects unless the location of such title
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matters, as shown on the applicable Survey, would have a material adverse effect
on value or use and occupancy of the Site for a child care facility.
4.2. Survey Defect Notice. Upon receipt of the Survey with
--------------------
respect to any Site, Buyer shall deliver to Seller a copy of such Survey.
Within five (5) business days after receipt of such Survey, Buyer shall give
Seller written notice (a "Survey Defect Notice") of any Survey Defects. If Buyer
fails to give Seller a Survey Defect Notice within fifteen (15) business days
after receipt of the Survey for any Site, such Survey Defects with respect to
such Site existing shall be deemed to have been accepted and waived by Buyer.
4.3. Removal. Seller shall have fifteen (15) business days
-------
from the date of any applicable Survey Defect Notice (a) to have the Survey
Defects for the applicable Site removed from the title commitment or insured
over and provide evidence thereof to Buyer, or (b) to provide to Buyer other
adequate arrangements for such Survey Defects reasonably acceptable to Buyer.
4.4. Failure to Remove. If Seller fails to have such Survey
-----------------
Defects for the applicable Site (a) removed or insured over, or (b) provided for
in accordance with Section 4.3, the terms of Section 8.1 (Buyer's Partial
----------- -----------
Termination Right) shall be applicable.
SECTION 5. SELLER'S CONDITIONAL COVENANTS
5.1. Effect of Breach of Conditional Covenants. Seller's
-----------------------------------------
covenants set forth in this Section 5 are subject to the certification
----------
requirement at Closing set forth in Section 16.2.2, and the performance by
------
Seller of each of the following covenants with respect to a Site therefore
constitutes a condition to Buyer's obligation to purchase each applicable Site.
If title to any Site cannot be conveyed to Buyer at the applicable Closing in
accordance with the requirements of Section 5.2 as to a Site, or if Seller
-----------
breaches its covenants under Section 5.3 or 5.4 of this Agreement as to a Site,
----------- ---
then the terms of Section 8.1 (Buyer's Termination Right) shall be applicable to
-----------
such Site.
5.2. Condition of Title. Seller shall convey to Assignee fee
------------------
simple title to the Existing Centers and the Chadds Ford Center, all in
accordance with the Title Commitments.
5.3. Prohibited Acts of Seller re: Condition of Title. From
------------------------------------------------
the Effective Date until the KREDCO Closing Date (with respect to the Property
other than the Chadds Ford Center) or the Chadds Ford Closing Date (with respect
to the Chadds Ford Center) or earlier termination of this Agreement, Seller will
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<PAGE>
not, without first obtaining Buyer's prior written consent in each instance:
5.3.1. mortgage or encumber any Site;
5.3.2. execute any easements, covenants, conditions,
restrictions, rights-of-way or leases with respect to any Site;
5.3.3. enter into any recorded or unrecorded contracts or
leases (other than this Agreement and the Keystone Lease Amendment) with respect
to any Site;
5.3.4. seek any zoning changes or other governmental
approvals with respect to any Site; or
5.3.5. do, or permit or suffer to be done, anything which
would materially adversely affect the condition of title to the Site from and
after the Effective Date through the completion of the KREDCO Closing (with
respect to Sites other than the Chadds Ford Center) or the Chadds Ford Closing
(with respect to the Chadds Ford Center).
5.4. Seller's Covenant re: Existing Mortgage(s) and Taxes.
----------------------------------------------------
Except as disclosed on Schedule 10.2 attached hereto and made a part hereof,
-------------
during the term of this Agreement, Seller will keep any existing mortgage(s)
against each Site current and not in default and will pay in a timely fashion
all taxes and other public charges against each Site so as to avoid a forfeiture
of Buyer's rights under this Agreement as to such Site.
SECTION 6. SELLER'S NON-CONDITIONAL COVENANTS
6.1. Effect of Breach of Non-Conditional Covenants. Seller's
---------------------------------------------
covenants (including negative covenants) set forth in this Section 6 are NOT
---------- ---
subject to the certification requirement at Closing set forth in Section 16.2.2,
--------------
and the failure by Seller to perform any of the following covenants (or Seller's
breach of any negative covenants) therefore does NOT constitute a condition to,
---
or in any way void or impair, Buyer's obligation to purchase the Property;
PROVIDED, HOWEVER, that Buyer shall otherwise retain all of its rights and
-------- -------
remedies on account of such failure to perform, including, but not limited to,
Buyer's indemnification rights pursuant to Section 22.5.
------------
6.2. Title to Personalty. Seller shall convey to Assignee
-------------------
good and marketable title to the Personalty, subject only to the Existing
Security Interests.
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<PAGE>
6.3. Quiet Enjoyment. Seller hereby reaffirms Section 5 (Covenant of
--------------- ---------
Landlord) of each of the leases to which the Keystone Lease Amendment relates
(each, a "Keystone Lease"), to the effect that Buyer, as tenant under each such
Keystone Lease, upon paying the rental and performing the covenants to be
performed by the tenant under any Keystone Lease, shall and may peaceably and
quietly have, hold, and occupy the applicable Center for the term of the
applicable Keystone Lease, even in the event that any of Seller's lenders take
any action adverse to Seller, Buyer, any Center or any Keystone Lease as a
result of the Keystone Lease Amendment.
6.4. Negative Covenants of Seller. Between the date hereof
----------------------------
and the later to occur of the KREDCO Closing Date or the Chadds Ford Closing
Date (or the earlier termination of this Agreement), Seller shall not take, or
omit to take, any action which would cause any representation and warranty made
by Seller in this Agreement to be incorrect in any material respect, if such
representation or warranty were made as of the date of the KREDCO Closing Date
(with respect to representations and warranties made as to any of the Property
other than the Chadds Ford Center) or as of the date of the Chadds Ford Closing
(with respect to representations and warranties made as to the Chadds Ford
Center only).
6.5. Chadds Ford Covenants. Between the date hereof and the
---------------------
Chadds Ford Closing Date (or the earlier termination of this Agreement), Seller
shall proceed with commercially reasonable diligence with the construction of
the Chadds Ford Center in accordance with the Chadds Ford Plans and
Specifications (as shown in Schedule 6.5), shall make no material changes to the
------------
Plans and Specifications without the prior written consent of Buyer, and shall
keep Buyer informed regularly and promptly upon request of the status of such
construction.
6.6. Exclusive Dealing. Prior to the earlier of the final
-----------------
Closing Date or termination of this Agreement, Seller shall not, directly or
indirectly, through a finder, broker, consultant, shareholder or other
intermediary, solicit, negotiate with nor accept an offer to purchase the
Property from any person or entity (other than Buyer or its affiliates,
assignees or nominees), nor accept any offer relating to a merger or
consolidation of Seller, or the sale or other disposition of any shares of
capital stock of Seller, nor furnish any information to any third party (other
than Buyer or its affiliate(s), assignee(s) or nominee(s)) in regard to any of
the foregoing.
6.7. Public Announcements. Pending completion of the KREDCO
--------------------
Closing, Seller shall not, and shall not permit Seller's Representatives, agents
or brokers to, issue any press releases or make any public statements concerning
the proposed transaction
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<PAGE>
except in accordance with the terms and conditions of Section 7.8 of the Asset
-----------
Purchase Agreement.
6.8. Covenant Regarding Assignment of Construction Contract.
------------------------------------------------------
Seller shall use commercially reasonable efforts to cooperate with Buyer in
obtaining consent from Shields Construction Company, Inc. to the assignment by
Seller to Buyer, at the Chadds Ford Closing, of Seller's right, title and
interest in the Agreement between owner and contractor for Chadds Ford dated
October 14, 1994 (the "Chadds Ford Construction Contract"); provided, however,
-------- -------
that this Section 6.8 shall not require Seller to pay any money to any person or
-----------
entity or agree to any additional terms or conditions in exchange for such
consent to assignment. In the event that such consent to assignment cannot be
obtained, Seller covenants, upon the written request of Buyer, to use
commercially reasonable efforts to enforce, for the benefit of Buyer, Seller's
rights under the Chadds Ford Construction Contract, to the extent permitted by
law and under the terms of Chadds Ford Construction Contract.
SECTION 7. BUYER'S NON-CONDITIONAL COVENANTS
7.1. Effect of Breach of Non-Conditional Covenants. Buyer's
---------------------------------------------
covenants (including negative covenants) set forth in this Section 7 are NOT
---------- ---
subject to any certification requirement at Closing, and the failure by Buyer to
perform any of the following covenants (or Buyer's breach of any negative
covenants) therefore does NOT constitute a condition to, or in any way void or
---
impair, Seller's obligation to sell the Property; PROVIDED, HOWEVER, that Seller
-------- -------
shall otherwise retain all of its rights and remedies on account of such failure
to perform, including, but not limited to, Seller's indemnification rights
pursuant to Section 22.5.
------------
7.2. Negative Covenants of Buyer. Between the date hereof and
---------------------------
the later to occur of the KREDCO Closing Date or the Chadds Ford Closing Date
(or the earlier termination of this Agreement), Buyer shall not take, or omit to
take, any action which would cause any representation and warranty made by Buyer
in this Agreement to be incorrect in any material respect, if such
representation or warranty were made as of the date of the KREDCO Closing Date
or as of the date of the Chadds Ford Closing, as applicable.
7.3. Evaluation Material.
-------------------
7.3.1. Any and all information obtained by Buyer or its
Representatives in connection with the transactions contemplated by this
Agreement or in the course of its investigations of Seller, whether obtained
before or after the date of this Agreement (collectively, the "Evaluation
Material"),
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<PAGE>
shall be used only in connection with this Agreement, the Asset Purchase
Agreement, and the transactions contemplated hereby and thereby, and Buyer shall
keep all Evaluation Material strictly confidential. Without the prior written
consent of Seller, Buyer will not, and will direct Buyer's Representatives not
to, disclose to any person other than Assignee (which hereby agrees, as a
condition thereto, to be bound by this Section to same extent as Buyer) or make
public any Evaluation Material. This provision shall terminate (i) upon the
completion of the KREDCO Closing, as to the Evaluation Material relating to the
Property other than the Chadds Ford Center, and (ii) upon the completion of the
Chadds Ford Closing, as to the Evaluation Material relating to the Chadds Ford
Center.
7.3.2. Notwithstanding anything to the contrary set forth
in this Section 7.3.2, Buyer may disclose any Evaluation Material (a) to its
-------------
Representatives on a need-to-know basis (it being agreed that such Buyer
Representatives shall be informed by Buyer of the confidential nature of such
Evaluation Material and shall be directed by Buyer not to disclose to any person
or entity or make public such Evaluation Material), (b) to the extent required
by any applicable law, statute, rule or regulation, and (c) in any action, suit
or proceeding between the parties hereto.
7.3.3. For purposes of this Agreement, the term "Evaluation
Material" does not include information which: (a) becomes generally available
to the public other than as a result of disclosure by Buyer or any Buyer
Representative in violation of the terms hereof; (b) was available on a non-
confidential basis prior to its disclosure to Buyer by Seller or any of their
directors, officers, employees, agents or representatives; or (c) becomes
available to Buyer on a non-confidential basis from a source which is not bound
by a confidentiality agreement with Seller or any of its directors, officers,
employees, agents or representatives.
7.4. Pre-Closing Releases. Prior to each Closing Date, Buyer
--------------------
shall use commercially reasonable efforts to cooperate with Seller in obtaining
releases from all of Seller's obligations under guarantees, leases, agreements,
contracts, licenses or other instruments relating to Seller's business or the
Centers and which are being assumed by Buyer hereunder at such Closing, as
requested by Seller (the "Obligations"); provided, however, that this Section
-------- ------- -------
7.4 shall not require Buyer to pay any money to any person or entity or agree to
---
any additional terms or conditions in exchange for such releases.
7.5. Public Announcements. Pending completion of the KREDCO
--------------------
Closing, Buyer shall not, and shall not permit Buyer's Representatives, agents
or brokers to, issue any press releases
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<PAGE>
or make any public statements concerning the proposed transaction except in
accordance with the terms and conditions of Section 7.8 of the Asset Purchase
-----------
Agreement.
SECTION 8. BUYER'S OPTIONS WITH RESPECT TO INCURABLE SURVEY DEFECTS,
FAILURE OF TITLE AND BREACH OF CONDITIONAL COVENANTS
8.1. Buyer's Partial Termination Right. If (a) Seller,
---------------------------------
pursuant to Section 4.4, fails to have a Survey Defect for any Site removed or
-----------
insured over or adequately provided for in accordance with Section 4.3, or (b)
-----------
if title to any Site cannot be conveyed to Buyer at the applicable Closing in
accordance with the requirements of Section 5.2, or (c) if Seller breaches its
-----------
covenants under Section 5.3 or 5.4 of this Agreement with respect to any Site,
----------- ---
then Buyer shall have the option of either:
8.1.1. taking such title to such Site(s) as Seller can
cause to be conveyed and waiving the unfulfilled condition, without abatement of
the Purchase Price (except that any existing encumbrances affecting the
applicable Site (other than the Existing Security Interests, the Long-Term Debt
and/or the Chadds Ford Debt, as applicable) that Seller shall be required to
remove under this Agreement which can be cured forthwith by the payment of money
shall be paid and discharged by Seller from its own funds), whereupon the
parties hereto shall complete the transaction herein contemplated and the
provisions relating to the Survey Defect and/or condition of title shall be
deemed waived by Buyer; or
8.1.2. terminating this Agreement with respect to such
Site(s) by notice to Seller, whereupon:
(a) Paragraph 5 of the Keystone Lease Amendment shall,
without any further action of the parties, become effective, pursuant to which
Seller, as landlord, shall lease the applicable Site(s) to Buyer, as tenant, on
the terms set forth in the Keystone Lease Amendment; and
(b) this Agreement shall become null and void as to such
Site(s) which were terminated under this Agreement. Thereafter, neither party
hereto shall have any further rights, liabilities or obligations hereunder with
respect to such Site(s) which were terminated under this Agreement.
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<PAGE>
SECTION 9. REPRESENTATION AND WARRANTY OF SELLER AS OF THE
EFFECTIVE DATE AND AS OF EACH CLOSING DATE
Seller represents and warrants to Buyer, as of the Effective Date and
as of each applicable Closing Date, that Seller has the full legal right, power
and authority to execute, deliver and perform its obligations under this
Agreement, the Escrow Agreement and the other agreements and documents (to which
Seller is a party) required to be delivered into the Escrow by Seller or to
Buyer at either Closing pursuant hereto or thereto (collectively, the "Seller's
Transaction Documents"). The execution and delivery by Seller of this Agreement
on the date hereof, the execution and delivery by Seller on either Closing Date
of the Seller's Transaction Documents to which it is a party, and the
performance by Seller of its respective obligations hereunder and thereunder
have been duly and validly authorized by all necessary action of Seller. This
Agreement and the Escrow Agreement have been duly executed and delivered by
Seller. This Agreement and the Escrow Agreement are, and when executed and
delivered at either Closing each of Seller's Transaction Documents will be, the
legal, valid and binding obligations of Seller, enforceable against Seller in
accordance with their respective terms, except as such may be limited by
bankruptcy, insolvency, moratorium, reorganization or other similar laws
relating to or affecting the enforcement of creditors' rights generally, and
except that the availability of specific performance, injunctive relief or other
equitable remedies is subject to the discretion of the court before which any
such proceeding therefor may be brought.
SECTION 10. REPRESENTATIONS AND WARRANTIES OF SELLER AS OF THE
EFFECTIVE DATE
Seller represents and warrants to Buyer, as of the Effective Date (but
not as of any applicable Closing Date), as follows:
10.1. Organization; Authority. Seller has been duly
-----------------------
incorporated and is a corporation validly subsisting and in good standing under
the laws of the Commonwealth of Pennsylvania and has full corporate power and
authority and to own the Property and to carry on its business as now conducted.
Seller is not qualified to do business as a foreign corporation in any
jurisdiction, and neither the nature of the Property nor the conduct of its
business requires that it be so qualified. All of the shares of capital stock
of Seller are owned, both beneficially and of record, by Keystone Ventures. All
of the issued and outstanding shares of capital stock of Seller have been duly
authorized and are validly issued and outstanding.
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<PAGE>
10.2. Absence of Conflicting Agreements. Except as set forth on
---------------------------------
Schedule 10.2 attached hereto and made a part hereof, neither the execution or
-------------
delivery of this Agreement, the Escrow Agreement or any of Seller's Transaction
Documents by Seller, nor the performance by Seller of the transactions
contemplated hereby and thereby, does or will, with or without the giving of
notice, lapse of time or both, conflict with, or constitute a breach of or a
default under:
10.2.1. any applicable law, statute, rule, regulation,
judgment, order, writ, injunction, or decree of a governmental authority
(collectively, "Laws") applicable to Seller or by which Seller or its assets or
properties (including, but not limited to, the Property) are bound; or
10.2.2. the articles of incorporation or by-laws of Seller;
or
10.2.3. any lease or contract being assigned to Buyer
pursuant hereto, or any other material agreement, indenture, instrument or
contract to which Seller is now a party or by which Seller is bound.
10.3. Consents and Approvals. No consent, waiver, approval,
----------------------
license or authorization of, or filing, registration or qualification with, or
notice to, any governmental authority or any other person or entity is required
to be made, obtained or given by Seller in connection with the execution,
delivery and performance of this Agreement or any of Seller's Transaction
Documents, except for those disclosed on Schedule 10.3 attached hereto and made
-------------
a part hereof (each of which, except as disclosed on Schedule 10.3, has been
-------------
obtained).
10.4. Brokers. No person or entity acting on behalf of Seller
-------
or any of its affiliates or under the authority of any of the foregoing is or
will be entitled to any brokers', advisors' or finders' fee or any other
commission or similar fee, directly or indirectly, from any of such parties in
connection with any of the transactions contemplated by this Agreement.
10.5. Intentionally omitted.
10.6. Compliance with Laws. Except as reflected in the Phase
--------------------
I Reports, Seller has complied in all material respects with all Laws applicable
to the conduct of Seller's business on the Property and the ownership, use and
operation of the Property and has obtained (or required Carefree to obtain) all
licenses, approvals and permits required for the conduct thereof (other than
permits required for the completion and operation of the Chadds Ford Center).
Such licenses, approvals and permits are, to the best knowledge of Seller, in
full force and effect, and
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<PAGE>
Seller has not taken any action that could reasonably be expected to (or failed
to take any action the omission of which could reasonably be expected to) result
in the revocation of such licenses, approvals or permits. Except as reflected
in the Phase I Reports, Seller has not received any notice of violation from any
Federal, state or municipal entity or notice of an intention by any such
government entity to revoke any certificate of occupancy or other certificate,
license, approval or permit issued by it in connection with the use of the
Property that in each case has not been cured or otherwise resolved to the
satisfaction of such government entity, except where such failure or such action
could not or would not have a material adverse effect on the Property.
10.7. Permits. Schedule 10.7 is a true, correct and
------- -------------
complete list of all permits, franchises, licenses, patents, copyrights,
trademarks and other governmental authorizations which are necessary for Seller
to own the Property and for the conduct Seller's business as now conducted (the
"Permits"). Seller owns, possesses or has the legal right to use the Permits,
free of all liens, pledges, claims, or other encumbrances of any nature
whatsoever. All Permits are transferable without the consent of any other
person or entity unless otherwise indicated in Schedule 10.7. Seller knows of
-------------
no default under, nor has Seller received any notice of any claim or default or
any other claim or proceeding relating to, any such Permit.
10.8. Encumbrances Created by this Agreement. The execution
--------------------------------------
and delivery by Seller of this Agreement or any of the Seller's Transaction
Documents does not, and the consummation by Seller of the transactions
contemplated hereby or thereby will not, create any liens or other encumbrances
on any assets of Seller in favor of third parties other than Buyer.
10.9. Judgments and Litigation. Except for those matters
------------------------
disclosed in the Phase I Environmental Report for the Audubon Land and Audubon
Leasehold Estate and otherwise disclosed on Schedule 10.9 attached hereto and
-------------
made a part hereof, which such matters, individually or in the aggregate, would
not have a material adverse effect on either the transactions contemplated by
this Agreement or the Property, there is no outstanding order, writ, injunction,
fine, citation, penalty, decree or unsatisfied judgment against Seller, its
assets or the Property, of any court, governmental authority or arbitrator, and
there is no such dispute, claim, action, suit, proceeding, arbitration, inquiry
investigation pending or, to the best knowledge of Seller, threatened before any
court, governmental authority or arbitrator:
10.9.1. that questions any of the transactions contemplated
by this Agreement or the validity of this Agreement
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<PAGE>
or any of the Seller's Transaction Documents or any of the transactions
contemplated hereby or thereby or which, if adversely determined, could
reasonably be expected to have an adverse effect upon the ability of Seller to
enter into or perform its respective obligations under this Agreement or any of
Seller's Transaction Documents or any such transactions; or
10.9.2. with respect to any of the Property.
Except for the conflicts disclosed on Schedule 10.2, Seller is not aware of any
-------------
state of facts or occurrence of any event that might reasonably form the basis
of any claim against Seller, or its business or assets (including, but not
limited to, the Property), which might have a materially adverse effect on its
business or assets (including, but not limited to, the Property).
10.10. Financial Information.
---------------------
10.10.1. Schedule 10.10.1 attached hereto and made a part
----------------
hereof contains true, correct and complete copies of Seller's audited balance
sheets as at December 31, 1992, 1993 and 1994, and the related audited
statements of operations, cash flow and stockholders' equity at and for the
years then ended (the Balance Sheet and all such financial statements are
hereinafter referred to collectively as the "Annual Statements"). The Annual
Statements present fairly in all material respects the financial position of
Seller, the business and its operations at such dates and the results of its
operations and its cash flow for the periods then ended, in conformity with
GAAP, consistently applied.
10.10.2. Seller has no liabilities or obligations which are
required by GAAP to be reflected on the Balance Sheet as at December 31, 1994
defined in Section 1.1.2 that are not so reflected thereon, except for such
-------------
current liabilities (within the meaning of GAAP) as have been incurred by Seller
in the ordinary course of business, consistent in nature and amount with past
practice since Balance Sheet Date. Without limiting the foregoing, the Balance
Sheet at the Balance Sheet Date contains adequate reserves or other appropriate
provisions for accrued income and other taxes, depreciation and the costs of all
pension, retirement, incentive, bonus, profit-sharing, vacation, holiday or
other plans or policies (if any) for the benefit of Seller's employees.
10.11. Tax Matters. Seller has timely and properly filed all
-----------
Federal, state, county and local returns and reports relating to Taxes (as
hereinafter defined) and all such returns and reports were true, correct and
complete in all material respects when filed. All Federal, state, county and
local income, profits, franchise, sales, use, payroll, premium,
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<PAGE>
occupancy, property, severance, excise, withholding, customs, unemployment,
transfer and other taxes, including interest, additions to tax and penalties
(collectively, "Taxes") due or properly shown to be due on any return referred
to in the preceding sentence by Seller with respect to taxable periods ending on
or prior to, and the portion of any interim period up to, the date hereof have
been fully and timely paid or, in the case of Taxes not yet due, fully provided
for on Seller's Balance Sheet or, in the case of Taxes accruing after the
Balance Sheet Date, on the books of account of Seller. There are no levies,
liens, or other encumbrances relating to Taxes existing, pending or, to the
knowledge of Seller, threatened with respect to any asset of Seller. The tax
returns of Seller have never been audited by the Internal Revenue Service or any
other taxing authority. No issues have been raised with any representative or
employee of Seller and are currently pending by the Internal Revenue Service or
any other taxing authority in connection with such tax return and no waivers of
statutes of limitations have been given or requested with respect to any such
returns and reports or with respect to any Taxes. The books and records of
Seller are sufficient to prove in all material respects the correctness of all
tax returns for open tax years and to determine and to prove the adjusted tax
basis for Federal income tax purposes of each asset of Seller.
10.12. Absence of Certain Changes. Except for Seller's
--------------------------
incurring the Chadds Ford Debt and the obligations to be evidenced by the Chadds
Ford Note and the creation of its Construction-in-Process account, since
Seller's Balance Sheet Date, there has not been any material adverse change in
the condition (financial or otherwise), assets, liabilities, properties or
operations of the Business, and, except as disclosed in Schedule 10.1.2 attached
---------------
hereto and made a part hereof, Seller has not:
10.12.1. sold, assigned, leased, transferred, mortgaged,
pledged or imposed any lien or other encumbrance on any of its assets or
properties other than liens relating to the Chadds Ford Debt, except in the
ordinary course of business and consistent in nature and amount with past
practice;
10.12.2. suffered any material damage, destruction or loss,
whether or not covered by insurance, or suffered any repeated, recurring or
prolonged shortage, cessation or interruption of delivery of supplies or utility
services required to conduct the Business, or suffered any change in its
financial condition or in the nature of its business or operations which has had
or might have a material adverse effect on the operations, assets or properties
of its business;
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<PAGE>
10.12.3. increased the salaries or other compensation of, or
made any advance (excluding advances for ordinary and necessary business
expenses) or loan to, any of its shareholders, directors, officers or employees,
or made any increase in, or any additions to, other benefits to which any of its
shareholders, directors, officers or employees may be entitled other than salary
increases to non-management level employees made in the ordinary course of
business;
10.12.4. changed any of the accounting principles followed
by it or the methods of applying such principles;
10.12.5. entered into any material transaction, or any
material agreement (whether or not in writing) with respect to any future
transaction, other than this Agreement and the transactions contemplated hereby,
documents relating to the construction, development and operation of the Chadds
Ford Center and in the ordinary course of business and consistent in nature and
amount with past practice; or
10.12.6. declared, paid or made, or agreed to declare, pay
or make, any dividends, distributions or other payments in respect of its stock;
repurchased or redeemed any shares of its stock; delayed or deferred making
payment of its accounts payable, expenses or other obligations (including,
without limitation, any amounts of principal or interest payable pursuant to
loans) or otherwise dealt with its accounts payables in a manner not consistent
with past practice; or accelerated the collection of its accounts receivable,
made any extraordinary efforts to collect any of its accounts receivable or
otherwise collected its accounts receivable other than in the ordinary course of
business and consistent in nature with past practice.
10.13. Property.
--------
10.13.1. Seller: (a) is the sole owner of the Property
(including all real and personal property relating thereto) and (b) has good,
valid and marketable title to the Property (including all real and personal
property relating thereto), free and clear of all liens other than the Existing
Security Interests, title matters set forth in Title Commitments, and the liens
to be satisfied at the KREDCO Closing upon repayment of the Long-Term Debt and
the liens to be satisfied at the Chadds Ford Closing with respect to the Chadds
Ford Debt.
10.13.2. Except as described on Schedule 10.13.2 attached
----------------
hereto and made a part hereof:
(a) all of the Property (other than the Audubon
Leasehold Estate and the Chadds Ford Center) is in the possession or under the
control of Seller and is in good
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<PAGE>
condition and repair, ordinary wear and tear excepted, is reasonably suitable
for the purposes for which it is being used and is of a condition, nature and
quantity sufficient for the conduct of Seller's business as currently conducted;
and
(b) to the best of Seller's knowledge, there is no
material latent or patent structural, mechanical or other significant defect or
deficiency in the Property (other than the Audubon Leasehold Estate).
10.14. List of Project Contracts. To the best of Seller's
-------------------------
knowledge, except for the agreements, instruments and documents evidencing the
Long-Term Debt and the Chadds Ford Debt, and the Chadds Ford Construction
Contract and those which are Excluded Assets, there are no Project Contracts
other than as set forth on Schedules 1.6.1.(d) and 1.6.2-2 attached hereto and
--------------------------------
made a part hereof. For purposes of this Section 10.14, "Project Contract"
-------------
means and includes any of the following to which Seller is a party and by which
the Property may be subject or bound, in each such case as amended and currently
in effect, inclusive of any waivers relating thereto:
10.14.1. all agreements, instruments and documents
evidencing, securing, or pertaining to the contractual obligations of a person
or entity that involve annual payments or receipts in excess of $2,000;
10.14.2. all leases (including space leases and capital
leases, whether Seller is "lessor" or "lessee" thereunder), contracts,
agreements or commitments (whether written or oral) that are not terminable
without penalty on not more than 90 days' notice;
10.14.3. all ground leases where Seller is a ground lessee;
and
10.14.4. all reciprocal easement agreements affecting the
Property.
10.15. Project Contracts; Validity, Defaults, Notice/Consent.
-----------------------------------------------------
Each of the Project Contracts is valid and binding and in full force and effect,
enforceable against Seller in accordance with its terms and, to the best of
Seller's knowledge, upon the other parties thereto in accordance with its terms,
except as such may be limited by bankruptcy, insolvency, moratorium,
reorganization or other similar laws relating to or affecting the enforcement of
creditors' rights generally, and except that the availability of specific
performance, injunctive relief or other equitable remedies is subject to the
discretion of the court before which any such proceeding therefor may be
brought. Seller has, and to the best of Seller's knowledge, all
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other parties to the Project Contracts listed have complied with the provisions
thereof. To the best of Seller's knowledge, except as set forth on Schedule
--------
10.2, no party is in default thereunder, and no event has occurred which, but
----
for the passage of time or the giving of notice or both, would constitute a
default thereunder. Except as set forth in Schedule 10.2 or in Schedule 10.1.5,
------------- ---------------
no Project Contract requires notice to or the consent of any party thereto in
order for Seller effectively to assign to Buyer such Project Contract.
10.16. Intentionally omitted.
10.17. Labor Matters. There are no employees of Seller who,
-------------
by reason of the sale of the Property to Buyer or any of the transactions
contemplated by this Agreement, shall become employees of Buyer.
10.18. Intentionally omitted.
10.19. Intentionally omitted.
10.20. Non-Foreign Persons. Seller is not a foreign person,
-------------------
foreign partnership, foreign trust or foreign estate as defined in Section
1445(f)(3) of the Internal Revenue Code, as amended (the "Code") and the payment
of the Purchase Price will not be subject to the withholding requirements of
Section 1445 of the Code.
10.21. Environmental Protection. Except as otherwise
------------------------
disclosed in the Phase I Reports delivered to Buyer, to the best knowledge of
Seller:
10.21.1. The Property is now and always has been in
compliance in all material respects with all Federal, state, and local statutes,
ordinances, regulations, rules, standards, and requirements of common law
concerning or relating to industrial hygiene and the protection of health and
the environment (collectively, the "Environmental Laws");
10.21.2. There are no conditions on, about, beneath or
arising from the Property which might give right to liability, the imposition of
a statutory lien or require "Response," "Removal" or "Remedial Action," as
defined herein, under any of the Environmental Laws. As used in this Agreement,
the terms "Response," "Removal" and "Remedial Action" shall be defined with
reference to Sections 101(23) - 101(25) of the Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA"), as amended by the Superfund
Amendments and Reauthorization Act ("SARA"), 42 U.S.C. (S)(S) 9601(23) -
9601(25);
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<PAGE>
10.21.3. Except in material compliance with Environmental
Laws: (i) "Hazardous Substances," as defined below, have never been used,
handled, generated, processed, treated, stored, transported to or from,
released, discharged, or disposed of on, about or beneath the Property; (ii)
there are no transformers containing or contaminated with PCB's or above or
underground storage tanks on the Property; and (iii) there is no asbestos or
asbestos containing material on the Property. As used in this Agreement, the
term "Hazardous Substance" shall mean a hazardous substance, material or waste
including, without limitation, any substance which is: (a) petroleum, asbestos
or polychlorinated biphenyls; (b) defined, designated or listed as a "Hazardous
Substance" pursuant to Sections 307 and 311 of the Clean Water Act, 33 U.S.C.
(S)(S) 1317, 1321, Section 101(14) of CERCLA, 42 U.S.C. (S) 9601 or similar
provision of applicable state law; (c) listed in the United States Department of
Transportation Hazardous Material Table, 49 C.F.R. (S) 172.101; or (d) defined,
designated or listed as a "Hazardous Waste" under Section 1004(3) of the
Resource and Conservation and Recovery Act, 42 U.S.C. 9603(5) or similar
provision of applicable state law; and
10.21.4. Seller has received no notice of, nor is there
threatened or pending: (a) any claim, demand, investigation, enforcement,
Response, Removal, Remedial or other governmental or regulatory action
instituted or threatened against Seller or the Property pursuant to any of the
Environmental Laws; (b) any claim, demand, suit or action made or threatened by
any person or entity against Seller or the Property relating to any form of
damage, loss or injury resulting from, or claimed to result from, any Hazardous
Substance on, about, beneath or arising from the Property or any alleged
violation of the Environmental Laws; or (c) any communication to or from any
governmental or regulatory agency arising out of or in connection with Hazardous
Substances on, about, beneath, arising from or generated at the Property
including, without limitation, any notice of violation, citation, complaint,
order, directive, request for information or response thereto, notice letter,
demand letter or compliance schedule. If discovered prior to any Closing,
Seller shall immediately advise Buyer of any of the claims or communications
listed in Section 10.21.4 through Section 10.2.14 above and also shall
--------------- ---------------
immediately advise Buyer of the discovery of any Hazardous Substances
on, about, beneath, or arising from the Property or the discovery of
any condition on, about, beneath, or arising from the Property which
might give rise to liability, the imposition of a statutory lien or
require Response, Removal or Remedial Action under any of the
Environmental Laws.
10.21.5. For purposes of this Agreement, the term "Phase I
Reports" shall mean:
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(a) Environmental Site Assessment regarding New Britain
Village Square, New Britain, PA, prepared by SITE Engineers, Inc. for Vesterra
Corporation, dated November 29, 1989, together with all appendices and
attachments thereto;
(b) Preliminary Wetlands Assessment of a portion of Tax
Parcel 29 3 32, Newtown Township, Bucks County, PA, prepared by SITE Engineers,
Inc. for Seller, issued March 11, 1991, together with all appendices and
attachments thereto;
(c) Phase I Environmental Site Assessment for Lot 7 -
Chadds Ford Business Campus, Birmingham Township, prepared by NTH Consultants,
Ltd. and dated August 22, 1994, for Main Line Federal Savings Bank, together
with all attachments and appendices thereto; and
(d) Phase I Environmental Site Assessment regarding
Audubon Village Shopping Center, prepared by Altchem Environmental Services,
dated June 27, 1994, for Ann Rudolph, together with all appendices and
attachments thereto.
10.22. Intentionally omitted.
10.23. Intentionally omitted.
10.24. Disclosure. No representation or warranty by Seller in
----------
this Agreement or in any other document to be furnished to Buyer pursuant
hereto, and no information in any schedule attached to this Agreement, contains
or will contain any untrue statement of a material fact, or omits or will omit
to state a material fact necessary to make the statements contained herein or
therein not misleading.
10.25. Condemnation Proceedings. No proceedings have been
------------------------
commenced, or, to the best of Seller's knowledge, threatened, by an authority
having the power of eminent domain to condemn any portion of the Property or any
improvements thereon or, to the best of Seller's knowledge, any property owned
by a party to a reciprocal easement agreement affecting the Property.
10.26. Insurance. Schedule 10.26 attached hereto and made a
--------- --------------
part hereof sets forth an accurate and complete list of the currently existing
insurance policies relating to the Property or any part thereof and naming
Seller as the insured; all such policies are in full force and effect and all
premiums thereunder have been paid to the extent due; and no notice of
cancellation has been received with respect thereto and, to the best knowledge
of Seller, none is threatened.
10.27. All Work Completed. Except for the Audubon Leasehold
------------------
Estate and the Chadds Ford Center, all alterations,
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<PAGE>
improvements, or other work required to have been completed by Seller under any
agreement to which Seller is a party including, without limitation, all
alterations, improvements and other work required to prepare space for the
operation of Seller's business, has heretofore been completed and paid for in
full.
10.28. Independent Unit. Except as set forth on Schedule
---------------- --------
10.28, each Property is an independent unit which does not now rely on any
-----
facilities (other than facilities covered by the title exceptions shown on the
Title Commitments [including, without limitation, any reciprocal easement
agreement] or facilities of municipalities or public utility and water companies
and other than parking areas which any Property makes use of under any
reciprocal easement agreement) located on any property not included in the
Property to fulfill any municipal or governmental requirement or for the
furnishing to any Property of any essential building systems or utilities.
SECTION 11. EFFECT OF FAILURE OF SELLER'S REPRESENTATION AND
WARRANTY TO BE TRUE AND CORRECT
It is understood and agreed that the failure of any representation and
warranty of Seller (other than Seller's representation and warranty regarding
Seller's authorization, as set forth in Section 9, which is subject to the
----------
certification requirement at Closing set forth in Section 16.1) to be true,
------------
correct and complete in all material respects at and as of the applicable
Closing Date as though such representation and warranty were made at and as of
such Closing Date shall not constitute a condition to, or in any way void or
impair, Buyer's obligation to purchase the Property; PROVIDED, HOWEVER, that
-------- -------
Buyer shall otherwise retain all of its rights and remedies on account of such
failure, including, but not limited to, Buyer's indemnification rights pursuant
to Section 22.5.
------------
SECTION 12. REPRESENTATION AND WARRANTY OF BUYER AND ASSIGNEE AS OF
THE EFFECTIVE DATE AND AS OF EACH CLOSING DATE
Buyer and Assignee each represents and warrants to Seller, as of the
Effective Date and as of each applicable Closing Date, that Buyer and Assignee,
as the case may be, have the full legal right, power and authority to execute,
deliver and perform its obligations under this Agreement and the Escrow
Agreement and under the other agreements and documents to which it is a party
required to be delivered into the Escrow by Buyer or to Seller at either Closing
pursuant hereto or thereto, including, without limitation, the Working Capital
Note and the Chadds Ford Note (collectively, the "Buyer's Transaction
Documents"). The execution and delivery by Buyer and Assignee of this Agreement
on the date hereof, the execution and delivery by Buyer or Assignee on either
Closing Date of the Buyer's
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<PAGE>
Transaction Documents to which it is a party, and the performance by Buyer or
Assignee of its respective obligations hereunder and thereunder have been duly
and validly authorized by all necessary action of Buyer and Assignee, as the
case may be. This Agreement and the Escrow Agreement have been duly executed
and delivered by Buyer and Assignee. This Agreement and the Escrow Agreement
are, and when executed and delivered at either Closing each Buyer's Transaction
Documents will be, the legal, valid and binding obligations of Buyer or
Assignee, as the case may be, enforceable against Buyer or Assignee, as the case
may be, in accordance with their respective terms, except as such may be limited
by bankruptcy, insolvency, moratorium, reorganization or other similar laws
relating to or affecting the enforcement of creditors' rights generally, and
except that the availability of specific performance, injunctive relief or other
equitable remedies is subject to the discretion of the court before which any
such proceeding therefore may be brought.
SECTION 13. REPRESENTATIONS AND WARRANTIES OF BUYER AND ASSIGNEE AS
OF THE EFFECTIVE DATE
Buyer and Assignee, jointly and severally, hereby represent and
warrant to Seller, as of the Effective Date (but not as of any applicable
Closing Date), as follows:
13.1. Organization; Authority. Each of Buyer and Assignee is
-----------------------
a corporation duly incorporated, validly existing and in good standing under the
laws of the Commonwealth of Pennsylvania and has the corporate power and
authority to own and lease the properties now owned or leased by it and to
conduct the business presently being conducted by it.
13.2. Absence of Conflicting Agreements. Neither the
---------------------------------
execution or delivery of this Agreement or any of Buyer's Transaction Documents
by Buyer or Assignee, nor the performance by Buyer or Assignee of the
transactions contemplated hereby and thereby, with or without the giving of
notice, lapse of time or both, conflicts with, or constitutes a breach of or a
default under (i) the Articles of Incorporation or By-Laws of Buyer or Assignee,
(ii) any Law, or (iii) any material agreement, indenture, contract or instrument
to which Buyer or Assignee is a party or by which it is bound.
13.3. Consents. Except for the approvals of Buyer's lenders
--------
and Board of Directors (which approvals are described on Schedule 13.3 hereto
-------------
and have been obtained), no license, consent, waiver, authorization or approval
of or filing, registration, or qualification with, or notice to, any
governmental authority or any other person or entity (other than licenses,
approvals or consents of governmental agencies required in order for Buyer or
Assignee to operate the Business after the
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<PAGE>
KREDCO Closing Date), is required to be made, obtained or given by Buyer or
Assignee in connection with the execution, delivery and performance by Buyer or
Assignee of this Agreement or any of Buyer's Transaction Documents or for the
consummation by Buyer or Assignee of the transactions contemplated hereby or
thereby.
13.4. Litigation. There is no pending, or to the knowledge of
----------
Buyer or Assignee, threatened suit, action or litigation, or administrative,
arbitration or other proceeding or governmental inquiry or investigation which:
(i) if adversely determined, could reasonably be expected to have a material
adverse effect upon the ability of Buyer or Assignee to perform its obligations
hereunder or under any of Buyer's Transaction Documents; or (ii) questions the
validity of this Agreement or the transactions contemplated hereby.
13.5. Brokers. No person or entity acting on behalf of Buyer,
-------
Assignee or any of their affiliates or under the authority of any of the
foregoing is, or will be, entitled to any broker's, advisor's or finder's fee or
any other commission or similar fee, directly or indirectly, from any of such
parties in connection with any of the transactions contemplated by this
Agreement or the Asset Purchase Agreement.
13.6. Financial Condition. Buyer's most recent Annual Report
-------------------
on Form 10-K filed with the Securities and Exchange Commission for 1993 and
Buyer's Quarterly Reports on Form 10-Q filed with the Securities and Exchange
Commission for the first three quarters of 1994 contain true, correct and
complete copies of Buyer's audited balance sheets as of December 31, 1992 and
1993, and the related audited statements of income, cash flow and stockholders'
equity for the two years then ended, and Buyer's unaudited balance sheets as at
March 31, June 30 and September 30, 1994 (September 30, 1994 being hereinafter
referred to as "Buyer's Balance Sheet Date") and the related unaudited
statements of income, cash flow and stockholders' equity for the quarters then
ended (collectively, the "Financial Statements"). The Financial Statements
present fairly in all material respects the consolidated financial position of
Buyer and its subsidiaries at such dates and the results of their operations and
cash flows for the periods then ended, in conformity with GAAP. For the fiscal
year ended December 31, 1994, Buyer had consolidated revenues of not less than
$34,300,000, and consolidated net income before preferred dividends of not less
than $2,300,000. Since Buyer's Balance Sheet Date, there has occurred no
material adverse change in the financial condition of Buyer and its subsidiaries
nor any occurrence, circumstance or event which impairs or could reasonably be
expected to impair the ability of Buyer to duly and punctually pay or perform
its obligations under the Working Capital Note or the Chadds Ford Note. Assignee
is a newly formed entity with no current operations.
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<PAGE>
13.7. Disclosure. No representation or warranty by Buyer or
----------
Assignee in this Agreement or in any other document to be furnished to Seller
pursuant hereto contains or will contain any untrue statement of a material
fact, or omits or will omit to state a material fact necessary to make the
statements contained herein or therein not misleading.
SECTION 14. EFFECT OF FAILURE OF BUYER'S OR ASSIGNEE'S
REPRESENTATION AND WARRANTY TO BE TRUE AND CORRECT
It is understood and agreed that the failure of any representation and
warranty of Buyer or Assignee (other than Buyer's and Assignee's representation
and warranty regarding, respectively, Buyer's and Assignee's authorization, as
set forth in Section 12, which is subject to the certification requirement at
-----------
Closing set forth in Section 17.1) to be true, correct and complete in all
------------
material respects at and as of the applicable Closing Date as though such
representation and warranty were made at and as of such Closing Date shall not
constitute a condition to, or in any way void or impair, Seller's obligation to
sell the Property to Buyer; PROVIDED, HOWEVER, that Seller shall otherwise
-------- -------
retain all of its rights and remedies on account of such failure, including, but
not limited to, Seller's indemnification rights pursuant to Section 22.5.
------------
SECTION 15. RISK OF LOSS
Risk of loss with respect to all of the Property and rights to be
transferred hereunder shall pass to Buyer upon the Effective Date. The
occurrence of any destruction or condemnation of all or a portion of the
Property (other than the Chadds Ford Center) before the KREDCO Closing Date,
shall not in any way void or impair the parties' respective rights and
obligations hereunder. The parties hereby confirm their understanding and
agreement that, pursuant to the Keystone Lease Amendment, Buyer, as tenant, is
obligated to carry casualty insurance on the Existing Centers, naming Seller and
its mortgagees as co-loss payees. In the event that an insured casualty or a
condemnation occurs, the Purchase Price shall be adjusted in accordance with the
provisions of Sections 3.3.5 and 3.3.5. Risk of loss with respect to the Chadds
-------------- -----
Ford Center shall not pass to Buyer, and shall be retained by Seller, until the
Chadds Ford Closing Date.
SECTION 16. CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS
16.1. Purchase of Entire Property. Unless waived by Buyer,
---------------------------
the obligation of Buyer to consummate the purchase and sale of the Property is
subject to the condition that the representation and warranty of Seller
contained in Section 9 of
----------
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<PAGE>
this Agreement shall be true, correct and complete in all material respects at
and as of such Closing Date as though such representation and warranty were made
at and as of such time, and Seller shall have delivered to Buyer a certificate
to that effect, signed by an authorized officer of Seller.
16.2. Purchase of Each Site. Unless waived by Buyer, the
---------------------
obligation of Buyer to consummate the purchase and sale of each Site shall be
subject to the satisfaction or waiver of each of the following items:
16.2.1. Seller shall have delivered to Escrow Holder and
Buyer, and Escrow Holder shall have delivered to Buyer, all items with respect
to such Site required pursuant to Section 3.3 or Section 3.4, as applicable; and
----------- -----------
16.2.2. Seller shall have performed or complied in all
material respects with each of the agreements and covenants required by Section
-------
5 of this Agreement to be performed or complied with by Seller prior to or at
-
such Closing, and Seller shall have delivered to Buyer certificates to that
effect, signed by an authorized officer of Seller.
SECTION 17. CONDITIONS PRECEDENT TO SELLER'S OBLIGATIONS
17.1. Sale of Entire Property. Unless waived by Seller,
-----------------------
the obligation of Seller to consummate the purchase and sale of the Property is
subject to the condition that the representation and warranty of Buyer contained
in Section 12 of this Agreement shall be true, correct and complete in all
----------
material respects at and as of such Closing Date as though such representation
and warranty were made at and as of such time, and Buyer shall have delivered to
Seller a certificate to that effect, signed by an authorized officer of Buyer.
17.2. Sale of Each Site. Unless waived by Seller, the
-----------------
obligation of Seller to consummate the purchase and sale of each Site shall be
subject to the Buyer's satisfaction or waiver of the requirement that Buyer
shall have delivered to Escrow Holder and Seller, and Escrow Holder shall have
delivered to Seller, all items required pursuant to Section 3.3 or Section 3.4,
----------- -----------
as applicable.
SECTION 18. APPORTIONMENTS
18.1. All real estate transfer taxes on the transfer of
the Property shall be borne one-half by Buyer and one-half by Seller (except
with respect to the Audubon Land, as to which Buyer shall have no responsibility
for real estate transfer taxes payable in connection with the recording of the
memorandum of ground lease).
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<PAGE>
SECTION 19. ASSESSMENTS
Seller shall be responsible to pay for all assessments levied against
the Property prior to the Effective Date, by reason of work ordered, commenced
or completed prior thereto. If at either Closing any parcel of the Property, or
any portion or portions thereof, shall be affected by any assessment which is
required to be paid by Seller pursuant to the provisions of this Section 19 and
-----------
which is or may be payable in annual or other installments of which the first
installment is then a lien or has been paid, then for the purpose of this
Agreement, all of the unpaid installments of any such assessment including those
which would become due and payable after the Effective Date shall be deemed to
be due and payable and liened upon such Property as of the Effective Date and
shall be paid and discharged by Seller at the respective Closing.
SECTION 20. DEFAULT; TERMINATION
20.1. Default by Buyer. If Buyer fails timely to complete
----------------
either Closing as a result of breach of its obligations hereunder, then Seller
shall be entitled, in addition to any other remedies which may be available, at
its sole election:
20.1.1. to terminate this Agreement as to the Property
other than Chadds Ford upon a failure to consummate the KREDCO Closing or as to
the Chadds Ford Center upon a failure to consummate the Chadds Ford Closing and
retain a pro rated portion of the Deposit as liquidated damages on account of
Buyer's failure timely to complete such Closing; or
20.1.2. to apply the pro rated portion of the Deposit on
account of Seller's damages, and to pursue any and all rights and remedies
against Buyer that Seller may have, at law or in equity.
20.2. Default by Seller. If Seller fails timely to complete
-----------------
either Closing as a result of breach of its obligations hereunder, then Buyer
shall be entitled, in addition to any other remedies which may be available, at
its sole election:
20.2.1. to terminate this Agreement as to the Property
other than Chadds Ford upon a failure to consummate the KREDCO Closing or as to
the Chadds Ford Center upon a failure to consummate the Chadds Ford Closing and
to obtain the return of a pro rated portion of the Deposit; or
20.2.2. to obtain the refund of the pro rated portion of
the Deposit and to pursue any and all rights and remedies against Buyer that
Seller may have, at law or in equity; or
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<PAGE>
20.2.3. to seek specific performance of this Agreement as to
the Property other than Chadds Ford upon a failure to consummate the KREDCO
Closing or as to the Chadds Ford Center upon a failure to consummate the Chadds
Ford Closing.
20.3. Prevailing Party Attorneys' Fees. Should either party
--------------------------------
fail to complete either Closing in accordance with the terms of this Agreement,
then the non-defaulting party shall be entitled (if the defaulting party fails
to cure such default within ten (10) calendar days after a written demand for a
cure has been sent to the defaulting party), in addition to any other remedies
which may be available, at its sole election, to: (a) terminate its obligation
to perform under this Agreement; or (b) seek specific performance of this
Agreement. Should any party default in performance of any of the terms and
conditions of this Agreement or any other agreement referred to herein which
results in the filing of a lawsuit for damages, specific performance, or other
remedy, the prevailing party in such lawsuit shall be entitled to its reasonable
attorneys' fees and court costs from the losing party. This Agreement shall
terminate automatically, without necessity of any further notice whatsoever,
upon termination of the Asset Purchase Agreement.
SECTION 21. ASSIGNMENT; NOMINEE
Buyer shall remain bound to perform for the benefit of Seller all of
the representations, warranties, covenants, agreements, indemnifications, terms
and conditions to be performed hereunder by Buyer; PROVIDED, NEVERTHELESS, that
-------- ------------
title to the Property to be purchased hereunder shall be vested in the name of
Assignee. Buyer shall issue and continue to remain bound as primary obligor
under the Chadds Ford Note and the Working Capital Note.
SECTION 22. OBLIGATIONS OF PARTIES AFTER CLOSING
22.1. Post-Closing Releases. To the extent not previously
---------------------
satisfied pursuant to Section 7.4, Buyer shall use commercially reasonable
-----------
efforts after each Closing to cooperate with Seller in obtaining releases of
Seller from the Obligations; provided, however, that this Section 22.1 shall not
-------- ------- ------------
require Buyer to pay money to any person or entity or agree to any additional
terms or conditions in exchange for such releases. Buyer further agrees to
defend, indemnify and hold Seller harmless pursuant to Section 22.5 from and
------------
against any and all losses, costs, expenses, claims, damages or liabilities
(including reasonable attorneys' fees and expenses and costs of suit) arising
following the Closings out of or relating to any of the obligations.
22.2. Intentionally Omitted.
---------------------
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<PAGE>
22.3. Further Assurances. Following the completion of any
------------------
Closing, at the request of Buyer or Seller, Seller or Buyer shall deliver or
cause to be delivered to the requesting party any further instruments,
agreements or other documents and shall take all additional reasonable action as
may be necessary to carry out the transactions contemplated hereby.
22.4. Survival of Representations and Warranties. All
------------------------------------------
representations, warranties, covenants and agreements made by each party in this
Agreement or in any schedule, certificate, document or list delivered by any
such party pursuant hereto shall survive the final Closing for the period
specified in Section 22.5.3, and each party hereto shall be entitled to relyupon
--------------
the representations and warranties of another party. Anything in this Agreement
to the contrary notwithstanding, the representations and warranties of Seller
and Buyer hereunder, and the right of Buyer or Seller, as the case may be, to
indemnification for breach thereof, shall not be affected, limited, eliminated
or modified by any investigation of Seller or Buyer, as the case may be, made by
Buyer or Seller or their respective agents or Representatives.
22.5. Indemnification.
---------------
22.5.1. Seller and Blue Shield, jointly and severally,
shall indemnify and hold harmless Buyer and Assignee, and Buyer and Assignee,
jointly and severally, shall indemnify and hold harmless Seller (the party or
parties providing such indemnification being hereinafter referred to
individually and collectively as the "Indemnifying Party") against any and all
losses, costs, expenses, claims, damages or liabilities (including the amount of
any settlement approved by such Indemnifying Party and expenses of enforcing
this Agreement), which the party or parties seeking such indemnification (such
party or parties are hereinafter referred to individually and collectively as
the "Indemnified Party") may suffer, incur or become subject to, and shall
reimburse the Indemnified Party for any reasonable legal, audit or other
expenses incurred by it or them in connection with investigating any claims and
defending any actions, insofar as such losses, costs, expenses, claims, damages,
liabilities or actions arise out of or are based upon (a) any false, misleading
or untrue representation or the breach of any warranty made by the Indemnifying
Party herein or in any schedule, written statement, list, certificate or other
instrument attached to this Agreement or delivered to the Indemnified Party
pursuant hereto; (b) any breach or default in performance by the Indemnifying
Party of any of its covenants or agreements with the Indemnified Party contained
herein; (c) in cases where Buyer or Assignee is an Indemnified Party and Blue
Shield or Seller is an Indemnifying Party, any liability or obligation of Seller
which is not assumed by Buyer or Assignee
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<PAGE>
pursuant to the terms of this Agreement; or (d) in cases where Seller is the
Indemnified Party and Buyer or Assignee is the Indemnifying Party, any liability
relating to the Obligations or any liability or obligation of Seller which is
assumed by Buyer or Assignee pursuant to the terms of this Agreement.
22.5.2. An Indemnified Party seeking indemnification
hereunder shall promptly notify the Indemnifying Party of the assertion of any
claim for indemnification under this Section 22.5. With respect to any claim
------------
made by a third party against which an Indemnified Party is seeking
indemnification hereunder, the Indemnifying Party shall have the right, at its
own expense, to participate in or assume control of the defense of such claim,
and the Indemnified Party shall fully cooperate with the Indemnifying Party
subject to reimbursement for actual out-of-pocket expenses incurred as the
result of such request by the Indemnifying Party. If the Indemnifying Party
does not elect either to assume control or otherwise participate in the defense
of any third-party claim, the Indemnifying Party shall be bound by the results
obtained by the Indemnified Party with respect to such claim.
22.5.3. All claims for breach of any representation or
warranty under this Section 22.5, or the covenant contained in Section 5, made
------------ ----------
by any party must be asserted prior to the second anniversary of the final
Closing Date, and except as otherwise provided herein, no party shall be
entitled to indemnity under this Section 22.5 or other relief at law or in
------------
equity for any such claims asserted after that date; provided, however, that in
-------- -------
the case of income and other tax claims, notice may be given within the period
of the applicable statute of limitations provided that neither party takes, nor
permits to be taken, any action to extend such period of limitations without the
other's written consent in advance. This Section 22.5.3 shall not impose any
--------------
time limitation on the assertion of claims for breach of covenant made by any
party or for claims for indemnification asserted by Buyer or Assignee against
Seller based upon the assertion against Buyer or Assignee of a liability or
obligation of Seller which is not assumed by Buyer or Assignee pursuant to
Section 1.6 or for claims for indemnification asserted by Seller against Buyer
-----------
or Assignee based upon the assertion against Seller of a liability or obligation
of Seller which was assumed by Buyer or Assignee pursuant to this Agreement,
including without limitation Section 1.6. Notwithstanding anything in this
-----------
Agreement to the contrary, including this Section 22.5, the indemnity
obligations of Seller (but not Blue Shield) hereunder shall expire on the first
annual anniversary of the Closing Date; provided, however, that the indemnity
-------- -------
obligations of Blue Shield hereunder shall not so expire, but shall continue in
accordance with the other terms of this Agreement.
-42-
<PAGE>
22.5.4. Notwithstanding anything in this Agreement to the
contrary, including the provisions of this Section 22.5, no Indemnifying Party
------------
shall be obligated to indemnify an Indemnified Party pursuant to Section 22.5.1
--------------
until the aggregate amount suffered or incurred by the Indemnified Party exceeds
$75,000, and then only to the extent that the amount so suffered or incurred by
the Indemnified Party is in excess of $75,000. The limitations on
indemnification set forth in this Section 22.5.4 shall not be applicable to any
--------------
claim for indemnification pursuant to Section 22.5.1, Section 22.5.1 or Section
------ -------------------------
22.5.1, or any claim for indemnification pursuant to Section 22.5.1 insofar as
------ --------------
such claim arises out of or is based upon Seller's failure to notify the
Pennsylvania Departments of Revenues and/or Labor ten (10) days prior to the
Closing, and/or to request and/or obtain a corporate clearance certificate. The
liability of an Indemnifying Party to provide indemnification pursuant to
Section 22.5.1 of Buyer or Assignee, on the one hand, or Seller, on the other,
--------------
shall not exceed, in the aggregate for all claims, $1,342,000.
22.5.5. Buyer, Assignee, Blue Shield and Seller further
agree that the rights and obligations of the parties set forth in this Section
-------
22.5 with respect to indemnification are and shall be the sole and exclusive
----
remedies of the parties hereto for any and all claims of the parties hereto
arising under this Agreement (other than any claims arising under Section 20
-----------
(Default; Termination) of this Agreement or under the Keystone Lease Amendment,
the Working Capital Note or the Chadds Ford Note, which are not subject to the
limitations herein), whether such claims are based on other sections of this
Agreement or based on statutory or common law or otherwise. The parties hereby
covenant and agree that they will bring no claim against the other hereunder
except claims arising under Section 20 (Default; Termination) of this Agreement
-----------
or under the Keystone Lease Amendment, the Working Capital Note or the Chadds
Ford Note, and such claims as may be made pursuant to this Section 22.5.
------------
22.6. Right of Offset. Buyer shall have the option of
---------------
offsetting, against any or all installments of the Purchase Price owed under the
Working Capital Note and/or the Chadds Ford Note or the Note (as that term is
defined in the Asset Purchase Agreement) following either Closing, all or any
part of any amounts for which Buyer is entitled to indemnification by Seller
hereunder or under the indemnification provisions of Section 11.6 of the Asset
------------
Purchase Agreement. Prior to exercising its right of offset, Buyer shall
provide written notice to Seller of its intent to exercise such offset,
specifying the amount to be offset. If the Seller disputes the amount being
offset in a notice delivered to Buyer by Seller within ten (10) days of
-43-
<PAGE>
Buyer's delivery of its written notice, Buyer shall deposit the disputed amount
into escrow pending resolution of the dispute, pursuant to an escrow agreement
reasonably satisfactory to Buyer and Seller.
22.7. KREDCO Closing Adjustments. Upon the completion of the
--------------------------
Closing Balance Sheet, Seller shall pay Buyer an amount equal to any prepaid
insurance premiums attributable to periods after the KREDCO Closing Date. Two
(2) days prior to the KREDCO Closing, Pennsylvania Blue Shield shall provide
Seller with cash, through an increase in the line of credit with Blue Shield, in
an amount sufficient to enable Seller to repay any outstanding overdrafts prior
to the KREDCO Closing.
SECTION 23. MISCELLANEOUS
23.1. Time of the Essence. Time, wherever mentioned herein,
-------------------
shall be of the essence of this Agreement.
23.2. Schedules and Exhibits. Any and all schedules, exhibits
----------------------
and financial statements referenced or incorporated herein are deemed to be a
part of this Agreement and are binding and enforceable as to any terms contained
therein. The submission of any information on a schedule, exhibit or financial
statement shall constitute a representation by the party providing such
schedule, exhibit or financial statement of the truth, correctness and
completeness of all information set forth therein. The disclosures in the
schedules hereto shall relate only to the representations and warranties to
which they expressly refer and to no other representation or warranty in this
Agreement unless such schedule contains an appropriate cross-reference, in which
case such disclosure shall be deemed to be made on all schedules containing the
cross-reference. In the event of any inconsistency between the statements made
in the body of this Agreement and those contained on a schedule (other than an
expressed exception to a specifically-identified statement), those in this
Agreement shall control.
23.3. Effect and Construction of this Agreement. This
-----------------------------------------
Agreement and the schedules, exhibits and financial statements referenced or
incorporated herein embody the entire agreement and understanding of the parties
and supersede any and all prior agreements, arrangements and understandings
relating to matters provided for herein. The captions are for convenience only
and will not control nor affect the meaning or construction of the provisions of
this Agreement. The terms defined herein and in any agreement executed in
connection herewith include the plural as well as the singular and the singular
as well as the plural, and the use of masculine pronouns shall include the
feminine and neuter. Except as otherwise indicated, all
-44-
<PAGE>
agreements defined herein refer to the same as from time to time amended or
supplemented or the terms thereof waived or modified in accordance herewith and
therewith. This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which counterparts together shall
be deemed to be one and the same instrument.
23.4. Cooperation. Subject to the terms and conditions herein
-----------
provided, each of the parties hereto shall use its respective commercially
reasonable efforts to take, or cause to be taken, such action, to execute and
deliver, or cause to be executed and delivered, such additional documents and
instruments and to do, or cause to be done, all things necessary, proper or
advisable under the provisions of this Agreement and under applicable law to
consummate and make effective the transactions contemplated by this Agreement.
23.5. Notices. All notices and other communications required
-------
or permitted hereunder shall be in writing and shall be deemed to be properly
given when delivered in the manner set forth in the Asset Purchase Agreement.
23.6. Amendment, Waiver, Discharge, etc. This Agreement may
---------------------------------
not be released, discharged, abandoned, amended, changed or modified in any
manner, except by an instrument in writing signed on behalf of each of the
parties hereto by their duly authorized officers or representatives in
compliance with applicable law. The failure of any party hereto to enforce at
any time any of the provisions of this Agreement shall in no way be construed to
be a waiver of any such provision, nor in any way to affect the validity of this
Agreement or any part thereof or the right of any party thereafter to enforce
each and every such provision. No waiver of any breach of this Agreement shall
be held to be a waiver of any other or subsequent breach.
23.7. Number of Days. Except as otherwise provided herein, in
--------------
computing the number of days for purposes of this Agreement, all days shall be
counted, including Saturdays, Sundays and holidays; provided, however, that if
-------- -------
the final day of any time period falls on a Saturday, Sunday or holiday, then
the final day shall be deemed to be the next day which is not a Saturday, Sunday
or holiday.
23.8. Rights of Persons Not Parties. Nothing contained in
-----------------------------
this Agreement shall be deemed to create rights in persons or entities not
parties hereto, other than the successors and permitted assigns of the parties
hereto.
23.9. Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the Commonwealth of Pennsylvania
without reference to that state's
-45-
<PAGE>
conflict of laws provision. Any action or proceeding in connection with this
Agreement may be commenced in state or Federal court in Pennsylvania.
IN WITNESS WHEREOF, each of the parties hereto has duly executed
this Agreement, all as of the date first above written.
SELLER:
KEYSTONE REAL ESTATE DEVELOPMENT
COMPANY, INC.
By: ____________________________
Title: ____________________________
BUYER:
NOBEL EDUCATION DYNAMICS, INC.
By: ____________________________
Title: ____________________________
ASSIGNEE:
BLUEGRASS REAL ESTATE COMPANY, INC.
By: ____________________________
Title: ____________________________
MEDICAL SERVICE ASSOCIATION OF
PENNSYLVANIA, d/b/a/ Pennsylvania
Blue Shield
By: ____________________________
Title: ____________________________
-46-
<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
<S> <C>
Agreement.................................................................. 1
Annual Statements......................................................... 27
Asset Purchase Agreement................................................... 1
Assignee................................................................... 1
Audubon Land............................................................... 2
Audubon Leasehold Estate................................................... 1
Blue Shield................................................................ 1
Business Closing........................................................... 3
Business................................................................... 1
Buyer...................................................................... 1
Buyer's Balance Sheet Date................................................ 36
Buyer's Transaction Documents............................................. 34
Carefree................................................................... 1
Cash Payment............................................................... 8
Center..................................................................... 3
Chadds Ford Assumed Liabilities............................................ 7
Chadds Ford Center......................................................... 1
Chadds Ford Closing........................................................ 3
Chadds Ford Debt........................................................... 9
Chadds Ford Project Contracts.............................................. 7
Closing Balance Sheet..................................................... 12
Closings................................................................... 3
Code...................................................................... 31
Contracts.................................................................. 3
Deposit.................................................................... 9
Effective Date............................................................. 1
Environmental Laws........................................................ 31
Escrow Holder.............................................................. 9
Evaluation Material....................................................... 21
Excluded Assets............................................................ 4
Existing Center Deeds..................................................... 10
Existing Centers........................................................... 1
Existing Security Interests............................................... 11
Financial Statements...................................................... 36
Ground Lease............................................................... 1
Hazardous Substance....................................................... 32
Indemnified Party......................................................... 41
Indemnifying Party........................................................ 41
Keystone Lease............................................................ 20
Keystone Lease Amendment................................................... 1
Keystone Ventures.......................................................... 1
KREDCO Assumed Liabilities................................................. 6
KREDCO Closing............................................................. 3
KREDCO Closing Date....................................................... 12
KREDCO Omnibus Assignment.................................................. 6
KREDCO Project Contracts................................................... 7
Land....................................................................... 3
Laws...................................................................... 25
Long-Term Debt............................................................. 9
</TABLE>
-1-
<PAGE>
<TABLE>
<S> <C>
Obligations.............................................................. 22
Omnibus Assignment........................................................ 9
Permits.................................................................. 26
Personalty............................................................... 11
Property.................................................................. 4
Purchase Price............................................................ 8
Seller.................................................................... 1
Seller's Transaction Documents........................................... 24
Site...................................................................... 3
Survey................................................................... 17
Survey Defect............................................................ 17
Survey Defect Notice..................................................... 18
Taxes.................................................................... 28
Working Capital Note...................................................... 8
</TABLE>
-2-
<PAGE>
The following is a summary of the schedules to the foregoing Agreement
of Sale, which schedules have been omitted from this report. The Registrant
agrees to furnish supplementally a copy of any omitted schedule to the
Commission upon request.
<TABLE>
<C> <S> <C>
1. Schedule 1: Property at 12/31/94
2. Schedule 1.1.2: Balance Sheet
3. Schedule 1.4.1: Business Records
4. Schedule 1.6.1: Form of KREDCO Omnibus Agreement
5. Schedule 1.6.1(d): KREDCO Project Contracts
6. Schedule 1.6.2-1: Form of Chadds Ford Omnibus Agreement
7. Schedule 1.6.2-2: Chadds Ford Project Contracts
8. Schedule 2.1.2: Form of Note
9. Schedule 2.1.3: Form of Note
10. Schedule 2.1.4: Long-Term Debt
11. Schedule 2.2.1: Form of Escrow Agreement
12. Schedule 2.2.2(e): Form of Opinion of Buyer's Counsel
13. Schedule 2.2.3(a): Form of Existing Center Deeds
14. Schedule 2.2.3(b): Form of Audubon Conveyance Document
15. Schedule 2.2.3(c): Form of Existing Center Bill of Sale
16. Schedule 2.2.3(d): Form of Seller's Affidavit
17. Schedule 2.2.3(e): Form of Chadds Ford Deed
18. Schedule 2.2.3(f): Form of Chadds Ford Bill
19. Schedule 2.2.3(l): Form of Opinion of Seller's Counsel
20. Schedule 6.5: Chadds Ford Plans and Specifications
21. Schedule 10.2: Conflicting Agreements
22. Schedule 10.3: Seller's Consents
23. Schedule 10.7: Permits
24. Schedule 10.9: Judgments and Litigation
25. Schedule 10.10.1: Annual Statements
26. Schedule 10.12: Material Adverse Changes Since the
Balance Sheet Date
27. Schedule 10.13.2: Property Defects
28. Schedule 10.15: Excluded Project Contracts with
Birmingham Township and Main Line Federal Savings Bank
29. Schedule 10.26: Insurance
30. Schedule 10.28: Facilities Relied Upon
31. Schedule 13.3: Required Buyer's Consents
</TABLE>
<PAGE>
SUBORDINATED PROMISSORY NOTE
$1,584,962.45 MEDIA, PENNSYLVANIA
MARCH 10, 1995
FOR VALUE RECEIVED, NOBEL EDUCATION DYNAMICS, INC., a Delaware
corporation with an address at Rose Tree Corporate Center II, 1400 North
Providence Road, Suite 3055, Media, PA 19063 ("MAKER"), promises to pay to
-----
MEDICAL SERVICE ASSOCIATION OF PENNSYLVANIA, D/B/A PENNSYLVANIA BLUE SHIELD, a
Pennsylvania corporation ("PAYEE"), at its office at 1800 Center Street, 1B, L4,
-----
Camp Hill, Pennsylvania, or at such other address as may hereafter be specified
by Payee, in lawful money of the United States of America, the principal sum of
ONE MILLION FIVE HUNDRED EIGHTY-FOUR THOUSAND NINE HUNDRED SIXTY-TWO AND 45/100
DOLLARS ($1,584,962.45) together with interest thereon at the rate, in the
installments and at the times hereinafter provided.
1. MATURITY DATE; PRINCIPAL AND INTEREST PAYMENTS.
----------------------------------------------
1.1 MATURITY DATE. The outstanding principal balance of
-------------
this Note plus all accrued and unpaid interest thereon and all other sums due
hereunder shall be due and payable in full on or before midnight on December 31,
2002 (the "MATURITY DATE" ).
-------------
1.2 INTEREST RATE. Except as otherwise provided herein, the
-------------
principal sum outstanding from time to time hereunder shall bear interest at a
rate (the "INTEREST RATE") equal to eight percent (8%) per annum. Accrued but
-------------
unpaid interest shall be paid on each Payment Date (as defined hereafter). Upon
the occurrence of and during the continuation of an Event of Default described
in Section 4.1 hereof, an Insolvency Event or a Payment Blockage Period, the
-----------
principal amount outstanding from time to time hereunder shall automatically
bear interest at a rate (the "Default Rate") equal to twelve percent (12%) per
annum.
1.3 PAYMENTS OF PRINCIPAL AND INTEREST. Maker shall pay the
----------------------------------
principal of this Note in eight (8) consecutive annual installments in arrears
commencing on December 31, 1995 and continuing on each December 31 thereafter
(EACH, A "PAYMENT DATE"), as follows:
------------
<PAGE>
<TABLE>
<CAPTION>
Payment Date Principal Payment
------------ -----------------
<S> <C>
December 31, 1995 6.25% of Original Principal Amount
December 31, 1996 7.80% of Original Principal Amount
December 31, 1997 9.40% of Original Principal Amount
December 31, 1998 12.50% of Original Principal Amount
December 31, 1999 12.50% of Original Principal Amount
December 31, 2000 12.50% of Original Principal Amount
December 31, 2001 12.50% of Original Principal Amount
December 31, 2002 26.55% of Original Principal Amount
-------
100.00%
</TABLE>
1.4 TIME AND MANNER OF PAYMENT. All payments (including
--------------------------
prepayments) to be made in respect of principal, interest or other amounts due
from Maker hereunder shall be made to Payee in United States dollars in funds
immediately available at Payee's office set forth in the caption of this Note or
as otherwise specified by Payee, without setoff, counterclaim or other deduction
of any nature except as permitted pursuant to the terms of that certain Asset
Purchase Agreement of even date herewith by and among Payee, Maker, Carefree
Learning Centers, Inc., and Keystone Ventures, Inc. (the "ASSET PURCHASE
--------------
AGREEMENT"), which is hereby incorporated herein by reference, and that certain
---------
Real Estate Acquisition Agreement of even date herewith by and among Maker,
Bluegrass Real Estate Company, Inc., and Keystone Real Estate Development
Company, Inc.
2. PREPAYMENTS. This Note may be prepaid in whole or in part at any
-----------
time prior to the Maturity Date without prior notice to Payee, without penalty
or premium. Any partial prepayments shall be applied to installments of
principal last falling due. No partial prepayment shall postpone or interrupt
payments of interest or the payment of the remaining principal balance, all of
which shall continue to be due and payable at the time and in the manner set
forth above.
3. SUBORDINATION.
-------------
3.1 TO SENIOR INDEBTEDNESS. Notwithstanding anything in
----------------------
this Note to the contrary, the indebtedness evidenced by this Note shall be
subordinate and junior, to the extent and in the manner set forth below, to all
"Senior Indebtedness" of Maker.
3.1.1 SENIOR INDEBTEDNESS. (a) As used herein, the term
-------------------
"Senior Indebtedness" of Maker means (i) all "Existing Senior Indebtedness" of
Maker, as defined in Section 3.1.2 below, (ii) all "Permitted Additional Senior
-------------
Indebtedness" of Maker, as defined in Section 3.1.3, and (iii) all interest,
-------------
prepayment premiums, collection charges and expenses, and post-petition interest
accruing after an Insolvency Event as defined in Section 3.2.1 below, payable by
-------------
Maker to any holder of Senior Indebtedness with respect to Senior Indebtedness.
-2-
<PAGE>
(b) Notwithstanding anything herein to the contrary, Senior
Indebtedness does not include (i) accounts payable to trade creditors of Maker
however treated or classified on Maker's balance sheet, (ii) rental obligations
under operating leases, or (iii) any indebtedness which by its express terms is
subordinated or pari passu with the right of payment set forth in this Note.
3.1.2 EXISTING SENIOR INDEBTEDNESS. As used herein, the term
----------------------------
"Existing Senior Indebtedness" means (i) all indebtedness of Maker to CoreStates
Bank, N.A. and Foothill Capital Corp. under that certain Amended and Restated
Revolving Credit and Term Loan Agreement, dated May 2, 1990, as amended,
restated, substituted, or modified from time to time (the "CoreStates Credit
Facility"), up to a maximum principal amount equal to $12,952,878, which amount
equals 110% of the sum of (i) the principal amount outstanding under the
CoreStates Credit Facility on the date hereof, plus (ii) the maximum additional
principal amount which Maker has the right to borrow under the CoreStates Credit
Facility on the date hereof.
3.1.3 PERMITTED ADDITIONAL SENIOR INDEBTEDNESS.
----------------------------------------
(a) Additional indebtedness for borrowed money to a financial
institution in excess of $250,000 in original principal amount and all liability
for rental obligations under any lease which, in accordance with generally
accepted accounting principles, are shown as capitalized obligations on Maker's
balance sheet provided any such liability exceeds $250,000 incurred by Maker
from time to time after the date of this Note, shall constitute "Permitted
Additional Senior Indebtedness" hereunder, if and to the extent, on the date on
which such additional debt is incurred, Maker's Debt-To-Equity Ratio, as
hereinafter defined, does not exceed 4.5 to 1. If the aforesaid additional debt
so incurred qualifies as Permitted Additional Senior Indebtedness on the date it
is incurred, it shall not thereafter lose that status by reason of Maker's Debt-
To-Equity Ratio on any subsequent date exceeding 4.5 to 1.
(b) For purposes hereof, the Maker's Debt-To-Equity Ratio shall be
calculated on any date as the ratio of (i) Maker's total consolidated
liabilities reflected on the liabilities side of its consolidated balance sheet
as of such date, other than accounts payable and accrued liabilities, all as
computed in accordance with generally accepted accounting principles,
consistently applied, and (ii) the Company's stockholder's equity (which
includes all redeemable preferred stock) shown on its balance sheet on such
date, in each case as computed in accordance with generally accepted accounting
principles, consistently applied.
-3-
<PAGE>
(c) Maker shall deliver written notice to Payee, either prior to or
contemporaneously with the occurrence of Permitted Additional Senior
Indebtedness stating the amount of the Permitted Additional Senior Indebtedness
to be incurred (and considered as Senior Indebtedness) and the name of the
financial institution or other person providing such accommodation and
confirming that immediately after such obligation is incurred, Maker's Debt-To-
Equity Ratio does not exceed 4.5 to 1.
3.2 SUBORDINATION OF PAYMENTS. The indebtedness evidenced by
-------------------------
this Note shall be subordinated and junior in right of payment to all Senior
Indebtedness of Maker in the following manner:
3.2.1 INSOLVENCY, ETC. In the event of any assignment by
---------------
Maker for the benefit of its creditors, any bankruptcy, receivership,
liquidation, reorganization or other similar proceeding, whether instituted by
or against Maker or Maker's business or assets, or any dissolution, liquidation
or other winding-up of the affairs of Maker or of Maker's business (each an
"Insolvency Event"), and in all such cases, then the holders of the Senior
Indebtedness shall be entitled to receive payment in full of all Senior
Indebtedness before Payee is entitled to receive any further payment on account
of principal of or interest on this Note; and to that end the holders of the
Senior Indebtedness shall be entitled to receive, to the extent necessary to
make payment in full of all Senior Indebtedness remaining unpaid after giving
effect to any concurrent payment or distribution (or provision therefor) to the
holders of the Senior Indebtedness, for application in payment thereof, any
payment or distribution of any kind or character, whether in cash or property or
securities, which may be payable or deliverable in any such proceedings in
respect of this Note.
3.2.2 DEFAULT ON SENIOR INDEBTEDNESS AND PREPAYMENT AND
-------------------------------------------------
ACCELERATION.
------------
(A) So long as a default exists in the payment of any Senior
Indebtedness whether by acceleration or otherwise, and the giving of written
notice thereof to Payee by the holders of such Senior Indebtedness (a "Payment
Default"), all principal and interest due on such Senior Indebtedness shall
first be paid in full, or such payment duly provided for in a manner
satisfactory to the holders of such Senior Indebtedness, before any further
payment is made on account of the principal of or interest on this Note.
(B) Upon the happening of an event of default (other than a
Payment Default) with respect to any Senior Indebtedness (as defined in any
instrument or agreement under which such Senior Indebtedness is outstanding)
which permits the holders of the Senior Indebtedness to accelerate the maturity
-4-
<PAGE>
thereof, and upon receipt by Payee of written notice thereof and commencement of
a "Payment Blockage Period" (as defined below) by the holders of such Senior
Indebtedness, then, unless and until such event of default shall have been
cured, to the extent that such event of default is curable, or waived or shall
have ceased to exist, no further payment (each such payment, a "Blocked
Payment") shall thereafter be made by Maker with respect to the principal of or
interest on this Note for a period (each a "Payment Blockage Period") commencing
on the date of receipt of such notice and ending 180 days thereafter (unless
such Payment Blockage Period shall be terminated by written notice to Payee from
the holders of Senior Indebtedness). For purposes of this Section 3.2.2, if one
-------------
or more Payment Blockage Periods has been in effect for an aggregate of 60 days
or more (whether or not consecutive) during any six month period, a new Payment
Blockage Period may not be commenced by the holders of Senior Indebtedness,
unless 190 days have lapsed since the expiration or termination of the last of
such previous Payment Blockage Periods. Additionally, as long as no Payment
Blockage Period is in effect at the end of a Standstill Period and Payee
receives all principal, interest and other sums due to it within five (5) days
of the expiration of such Standstill Period, any Event of Default arising under
Section 4.1 or Section 4.3(ii) which relates to the principal, interest or other
----------- ---------------
sums so received shall be deemed to be cured.
3.2.3 PAYMENTS IMPROPERLY RECEIVED. In the event that any
----------------------------
payment (including any pre-payment) on account of principal of or interest on
this Note shall be received by Payee before all Senior Indebtedness is paid in
full, and at a time when Maker shall be prohibited from making such payment by
Sections 3.2.1 or 3.2.2 hereof, such payment(s) shall be held in trust by Payee
-------------- -----
for the benefit of and shall be paid over to the holders of all Senior
Indebtedness ratably according to the aggregate amounts remaining unpaid on
account of the Senior Indebtedness held by each such holder, to the extent
necessary to make payment in full of all Senior Indebtedness. The foregoing
notwithstanding, however, Payee shall not be required to pay any such
distribution of payment to the holders of Senior Indebtedness, if, with respect
to payments or distributions received by Payee during a Payment Default,
Insolvency Event or Payment Blockage Period, Payee has not received written
notice from a holder of the Senior Indebtedness or otherwise does not have
actual knowledge of any applicable Payment Default, Insolvency Event, or Payment
Blockage Period. Notwithstanding anything contained herein to the contrary,
Payee shall be permitted to (i) turn over any payments required to be remitted
to the holders of the Senior Indebtedness to any one or more of the holders of
the Senior Indebtedness and all such holders agree to ratably share such payment
among themselves, and (ii) rely upon the statements of any party reasonably
claiming to be a holder of Senior Indebtedness.
-5-
<PAGE>
3.2.4 RIGHTS.
------
(A) No right of the holders of the Senior Indebtedness to
enforce the subordination provisions contained herein shall be impaired by any
act or failure to act by Maker or Payee. The provisions of this Section 3.2 are
-----------
solely for the purpose of defining the relative rights of the holders of the
Senior Indebtedness, on the one hand, and Payee on the other hand, with respect
to the order in which payments or distributions by or on behalf of Maker shall
be applied to the Senior Indebtedness and the obligations of Maker pursuant to
this Note, and nothing herein shall impair, as between Maker, its creditors
other than the holders of the Senior Indebtedness, and Payee, the obligation of
Maker which is unconditional and absolute, to pay Payee the principal of and
interest on this Note in accordance with its terms, or affect the relative
rights of Payee and creditors of Maker other than the holders of the Senior
Indebtedness. Without limiting the foregoing, Payee has the right to send any
notice described in Section 4.1 hereof at any time Maker fails to make any
-----------
installments of interest, principal and/or principal and interest or any other
sum due hereunder, including without limitation, during any Payment Blockage
Period, and Standstill Period, any period following any Insolvency Event or any
Payment Default period.
(B) Any failure on the part of Maker to make any payment on
account of this Note when due shall, subject to any grace or cure period
applicable under Section 4 or the last sentence of Section 3.2.2 hereof,
--------- -------------
constitute an Event of Default, even if such failure results from the operation
of this Section 3.2. Payee may accelerate the maturity of, or institute any
-----------
proceedings to enforce, this Note, or exercise all remedies otherwise permitted
by applicable law or under this Note upon any Event of Default specified in
Section 4 hereof, subject to the rights of the holders of the Senior
---------
Indebtedness under this Section 3.2 to receive cash, property or securities
-----------
otherwise payable or deliverable to Payee, and provided that, with respect to
--------
any Event of Default specified herein, Payee shall have first given to the
holders of the Senior Indebtedness one hundred ten (110) days' advance notice
(such 110 day period, a "Standstill Period") of its intention to exercise such
remedies.
(C) Upon any payment or distribution of assets of Maker
subsequent to an Insolvency Event, Payee shall be entitled to rely upon any
order or decree made by any court of competent jurisdiction in which
dissolution, winding-up, liquidation, reorganization, or other similar
proceedings are pending or upon a certificate of the liquidating trustee or
agent or other person or entity making any distribution to Payee for the purpose
of ascertaining the persons or entities entitled to participate in such
distribution, the identity of the holders of the Senior Indebtedness or other
indebtedness of Maker, the
-6-
<PAGE>
amount thereof and payable thereon, the amount or amounts paid or distributed
thereon and all other facts pertinent thereto or to this Section 3.2.
-----------
(D) Payee hereby agrees that, without any notice to or consent
from Payee, and without any other action in respect of Payee on the part of the
holders of the Senior Indebtedness: (x) the Senior Indebtedness and any
collateral security therefor may (subject to the definition of Senior
Indebtedness) from time to time be renewed, extended, modified, accelerated,
compromised, waived, surrendered or released, (y) documents in connection with
Senior Indebtedness, including collateral security documents and guarantees, may
be amended or modified from time to time, and (z) any collateral security held
by the holder of Senior Indebtedness at any time for the payment of such Senior
Indebtedness may be sold, exchanged, waived, surrendered or released.
3.2.5 SUBROGATION. In the event that cash, securities, or other
-----------
property otherwise payable or deliverable to Payee shall have been applied
pursuant to this Section 3.2 to the payment of Senior Indebtedness, then,
-----------
subject to the payment in full of all Senior Indebtedness, Payee shall (x) be
entitled to receive from the holders of the Senior Indebtedness any payments or
distributions received by the holders of the Senior Indebtedness in excess of
the amount sufficient to pay all Senior Indebtedness in full, and (y) be
subrogated to all rights of the holders of the Senior Indebtedness to receive
any payments or distributions of cash, property, or assets of Maker applicable
to the Senior Indebtedness, until all principal of and interest on this Note
shall be paid in full. No such payments or distributions received by the
holders of the Senior Indebtedness which, but for the provisions of this Section
-------
3.2, would otherwise have been made to Payee shall, as between Maker, its
---
creditors other than the holders of the Senior Indebtedness, and Payee, be
deemed to have been made as a payment by Maker to or on account of the Senior
Indebtedness, it being understood that the provisions of this Section 3.2 are
-----------
and are intended solely for the purpose of defining the relative rights of
Payee, on the one hand, and the holders of the Senior Indebtedness, on the other
hand.
3.2.6 WAIVER. No failure to exercise, and no delay in
------
exercising, on the part of the holders of the Senior Indebtedness, any
right, power or privilege hereunder shall operate as a waiver thereof; nor shall
any single or partial exercise of any right, power or privilege hereunder
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege. The rights and remedies provided in any agreement
relating to any of the Senior Indebtedness, related collateral security
documents and all other agreements, instruments and documents referred to in any
of the foregoing are
-7-
<PAGE>
cumulative and shall not be exclusive of any rights or remedies provided by law.
3.2.7 BINDING EFFECT. Maker covenants and agrees, and Payee by
--------------
acceptance of this Note likewise covenants and agrees that: (x) this Note is
issued subject to the provisions of this Section 3.2, (y) Payee will be bound by
-----------
such provisions, and (z) the holders of the Senior Indebtedness shall be
entitled to enforce the provisions of this Section 3.2 directly against Payee.
-----------
3.3 ENFORCEMENT. Payee irrevocably authorizes the holders of
-----------
the Senior Indebtedness (but each such holder of the Senior Indebtedness has no
obligation), upon the occurrence of an Insolvency Event and if Payee shall have
failed to file any proof of claim or similar claim within the earlier of (i)
thirty (30) days after the holders of the Senior Indebtedness have requested
Payee to file such claim, or (ii) fifteen days of any date upon which Payee's
claim would be barred in the applicable proceeding, provided that Payee has
--------
received actual notice of the time limitations for filing with respect to such
claim, under the circumstances set forth in Section 3.2.1, to demand, sue for,
-------------
collect and receive every such payment or distribution described in that
Section, to file claims and proofs of claims in any statutory or non-statutory
proceeding, to vote the full amount of the indebtedness hereunder in their sole
discretion in connection with any resolution, arrangement, plan of
reorganization, compromise, settlement or extension and to take all such other
action (including, without limitation, the right to participate in any
composition of creditors and the right to vote the amount of the indebtedness
hereunder at creditors' meetings for the election of trustees, acceptances of
plans of reorganization and otherwise), in the name of the holders of the Senior
Indebtedness or in the name of Payee or otherwise, as the holders of the Senior
Indebtedness may deem necessary or advisable for the enforcement of the
subordination provisions of this Note. Payee agrees to cooperate with the
holders of the Senior Indebtedness as reasonably requested in writing, to the
extent necessary to permit the holders of the Senior Indebtedness to exercise
their rights described in the preceding sentence. At such time as the holders
of the Senior Indebtedness have exercised their rights under this Section 3.3,
-----------
they promptly will return any instruments evidencing the indebtedness hereunder
that have been delivered to them by Payee under this Section 3.3, if they have
-----------
not been required to deliver such instruments to any other person or entity by
order of court (or other similar authority having jurisdiction over the matter)
or by law. Notwithstanding the foregoing, payments received by the holders of
the Senior Indebtedness shall not reduce the obligation of Maker to Payee under
this Note, and only payments received by Payee and not subject to any claim by
the holders of the Senior Indebtedness shall reduce the obligation of Maker to
Payee hereunder.
-8-
<PAGE>
4. EVENTS OF DEFAULT. Each of the following shall constitute an
-----------------
event of default (each, an "EVENT OF DEFAULT") hereunder:
----------------
4.1 PAYMENT FAILURE. If Maker fails to make any payment of
---------------
any installment of interest, principal and/or principal and interest hereunder
or any other sum due hereunder within five (5) days after Maker's receipt of
notice from Payee of Maker's failure to make such payment on the date such
payment is due.
4.2 BANKRUPTCY. If any proceeding under the Bankruptcy Code
----------
or any law of the United States or of any state relating to insolvency,
receivership, or debt adjustment is instituted by Maker, or if any such
proceeding is instituted against Maker and is consented to by the respondent or
an order for relief shall be entered in such proceeding or such proceeding shall
remain undismissed for sixty (60) days, or if Maker becomes a debtor under the
Bankruptcy Code or a trustee or receiver is appointed for any substantial part
of its property, or if Maker makes an assignment for the benefit of creditors,
admits in writing its inability to pay debts generally as they become due or
becomes insolvent.
4.3 OTHER DEFAULTS. If a default or event of default shall
--------------
occur at any time under the terms of any Senior Indebtedness of Maker (i) as a
result of the failure to pay principal or interest on such Senior Indebtedness,
(ii) for which a Payment Blockage Period is instituted, or (iii) in the case of
other defaults which results in the acceleration of the maturity of such Senior
Indebtedness.
4.4 JUDGMENTS. If any final unappealable judgment for the
---------
payment of money in excess of $100,000 in the aggregate shall be entered against
Maker by a court having jurisdiction in the premises, which judgment is not paid
or discharged, vacated, bonded or stayed pending appeal within a period of
thirty (30) days from the date of entry.
5. REMEDIES. Upon the occurrence of any Event of Default hereunder,
--------
the entire unpaid principal balance of this Note, together with all accrued and
unpaid interest thereon and all other sums owing hereunder shall become
immediately due and payable, without presentation, demand or further action of
any kind, and Payee may forthwith exercise, singly, concurrently, successively
or otherwise, any and all rights and remedies available to Payee hereunder. The
failure of the holder hereof to accelerate the outstanding principal balance of
this Note upon the occurrence of an Event of Default hereunder shall not
constitute a waiver of such default or of the right to accelerate this Note at
any time thereafter so long as the Event of Default remains uncured. If Payee
retains the services of counsel in
-9-
<PAGE>
order to enforce any remedy available to Payee hereunder, all reasonable
attorneys' fees which are actually incurred by Payee shall be payable upon
demand.
6. INTEREST LIMITATIONS. Nothing herein contained nor any
--------------------
transaction related hereto shall be construed or shall operate either presently
or prospectively to require Maker to pay interest at a rate greater than is now
lawful in such case to contract for, but shall require payment of interest only
to the extent of such lawful rate. Any interest paid in excess of the lawful
rate shall be refunded to Maker.
7. REPORTS. Maker shall provide Payee with a copy of each report
-------
filed with the Securities and Exchange Commission during the term of this Note
within ten (10) days of such filing.
8. SEVERABILITY. In the event that for any reason one or more of
------------
the provisions of this Note or their application to any person or circumstance
shall be held to be invalid, illegal or unenforceable in any respect or to any
extent, such provisions shall, to such extent, be held for naught as though not
herein contained but shall nevertheless remain valid, legal and enforceable in
all such other respects and to such extent as may be permissible. In addition,
any such invalidity, illegality or unenforceability shall not affect any other
provisions of this Note, but this Note shall be construed as if such invalid,
illegal or unenforceable provisions had never been contained herein.
9. SUCCESSORS AND ASSIGNS. This Note inures to the benefit of
----------------------
Payee, its successors and assigns, and is binding upon Maker, its successors and
assigns, and the words "Payee" and "Maker" whenever used herein shall be deemed
and construed to include such respective successors and assigns.
10. NOTICES. All notices and other communications required or
-------
permitted hereunder shall be in writing and shall be delivered personally, sent
by United States Registered or Certified Mail, return receipt requested, postage
prepaid or sent by express courier service with guaranteed overnight delivery or
via facsimile transmission (which is confirmed), in any such case addressed as
follows:
10.1 As between Maker and Payee:
10.1.1 if to Maker:
Rosetree Corporate Center II
1400 North Providence Road, Suite 3055
Media, PA 19063
Attention: President
Facsimile: (610) 891-8222
-10-
<PAGE>
with a copy to
Robert H. Strouse, Esq.
Drinker Biddle & Reath
1000 Westlakes Drive, Suite 300
Berwyn, PA 19312
Facsimile: (610) 993-8585
10.1.2 if to Payee:
Pennsylvania Blue Shield
1800 Center Street, 1B, L4
Camp Hill, PA 17089
Attention: Donald L. Fisher
Facsimile: (717) 731-2898
with a copy to
Pennsylvania Blue Shield
1800 Center Street, 1A-L4
Camp Hill, PA 17089
Attention: F. Lisa Murtha, Esq.
Facsimile: (717) 731-2852
10.2 As by any holder of the Senior Indebtedness, made as follows:
Pennsylvania Blue Shield
1800 Center Street, 1B, L4
Camp Hill, PA 17089
Attention: Donald L. Fisher
Facsimile: (717) 731-2898
with a copy to
Pennsylvania Blue Shield
1800 Center Street, 1A-L4
Camp Hill, PA 17089
Attention: F. Lisa Murtha, Esq.
Facsimile: (717) 731-2852
or to such other addresses or entities any party hereto may from time to time
direct by service of notice on the other parties as provided above. Any such
notices and other communications shall be deemed to have been properly given and
received when delivered to the addressee personally or via facsimile
transmission (which is confirmed), upon delivery by the United States Postal
Service, or upon delivery by a courier service with guaranteed overnight
delivery.
11. CAPTIONS. The captions or headings of the sections in this Note
--------
are for convenience only and shall not
-11-
<PAGE>
control or affect the meaning or construction of any of the terms or provisions
of this Note.
12. GOVERNING LAW; AMENDMENT. This Note shall be governed by and
------------------------
construed in accordance with the laws of the Commonwealth of Pennsylvania. This
Note may only be amended by an instrument in writing signed by both Maker and
Payee.
IN WITNESS WHEREOF, Maker, intending to be legally bound hereby, has
duly executed this Note, under seal, on the date and year first above written.
MAKER:
NOBEL EDUCATION DYNAMICS, INC.
By:______________________________
A.J. Clegg, Chairman
-12-
<PAGE>
SUBORDINATED PROMISSORY NOTE
MEDIA, PENNSYLVANIA
_____________, 1995
FOR VALUE RECEIVED, NOBEL EDUCATION DYNAMICS, INC., a Delaware
corporation with an address at Rose Tree Corporate Center II, 1400 North
Providence Road, Suite 3055 , Media, PA 19063 ("MAKER"), promises to pay to
-----
MEDICAL SERVICE ASSOCIATION OF PENNSYLVANIA, D/B/A PENNSYLVANIA BLUE SHIELD, a
Pennsylvania corporation ("PAYEE"), at its office at 1800 Center Street, 1B, L4,
-----
Camp Hill, Pennsylvania, or at such other address as may hereafter be specified
by Payee, in lawful money of the United States of America, the principal sum
specified in Section 2.1.2 of the Agreement of Sale (as hereinafter defined) in
-------------
Section 1.4), together with interest thereon at the rate, in the installments
-----------
and at the times hereinafter provided.
1. MATURITY DATE; PRINCIPAL AND INTEREST PAYMENTS.
----------------------------------------------
1.1 MATURITY DATE. The outstanding principal balance of
-------------
this Note plus all accrued and unpaid interest thereon and all other sums due
hereunder shall be due and payable in full on or before midnight on December 31,
2002 (the "MATURITY DATE" ).
-------------
1.2 INTEREST RATE. Except as otherwise provided herein, the
-------------
principal sum outstanding from time to time hereunder shall bear interest at a
rate (the "INTEREST RATE" ) equal to eight percent (8%) per annum. Accrued but
unpaid interest shall be paid on each Payment Date (as defined hereafter). Upon
the occurrence of and during the continuation of an Event of Default described
in Section 4.1 hereof, an Insolvency Event or a Payment Blockage Period, the
-----------
principal amount outstanding from time to time hereunder shall automatically
bear interest at a rate (the "Default Rate") equal to twelve percent (12%) per
annum.
1.3 PAYMENTS OF PRINCIPAL AND INTEREST. Maker shall pay the
----------------------------------
principal of this Note in eight (8) consecutive annual installments in arrears
commencing on December 31, 1995 and continuing on each December 31 thereafter
(EACH, A "PAYMENT DATE"), as follows:
------------
<PAGE>
<TABLE>
<CAPTION>
Payment Date Principal Payment
------------ -----------------
<S> <C>
December 31, 1995 6.25% of Original Principal Amount
December 31, 1996 7.80% of Original Principal Amount
December 31, 1997 9.40% of Original Principal Amount
December 31, 1998 12.50% of Original Principal Amount
December 31, 1999 12.50% of Original Principal Amount
December 31, 2000 12.50% of Original Principal Amount
December 31, 2001 12.50% of Original Principal Amount
December 31, 2002 26.55% of Original Principal Amount
-------
100.00%
</TABLE>
1.4 TIME AND MANNER OF PAYMENT. All payments (including
--------------------------
prepayments) to be made in respect of principal, interest or other amounts due
from Maker hereunder shall be made to Payee in United States dollars in funds
immediately available at Payee's office set forth in the caption of this Note or
as otherwise specified by Payee, without setoff, counterclaim or other deduction
of any nature except as permitted pursuant to the terms of that certain Asset
Purchase Agreement of even date herewith by and among Payee, Maker, Carefree
Learning Centers, Inc., and Keystone Ventures, Inc. (the "ASSET PURCHASE
--------------
AGREEMENT"), which is hereby incorporated herein by reference, and that certain
---------
Real Property Agreement of Sale of even date herewith by and among Maker,
Bluegrass Real Estate Company, Inc., and Keystone Real Estate Development
Company, Inc. (the "Agreement of Sale").
2. PREPAYMENTS. This Note may be prepaid in whole or in part at any
-----------
time prior to the Maturity Date without prior notice to Payee, without penalty
or premium. Any partial prepayments shall be applied to installments of
principal last falling due. No partial prepayment shall postpone or interrupt
payments of interest or the payment of the remaining principal balance, all of
which shall continue to be due and payable at the time and in the manner set
forth above.
3. SUBORDINATION.
-------------
3.1 TO SENIOR INDEBTEDNESS. Notwithstanding anything in
----------------------
this Note to the contrary, the indebtedness evidenced by this Note shall be
subordinate and junior, to the extent and in the manner set forth below, to all
"Senior Indebtedness" of Maker.
3.1.1 SENIOR INDEBTEDNESS. (a) As used herein, the term
-------------------
"Senior Indebtedness" of Maker means (i) all "Existing Senior Indebtedness" of
Maker, as defined in Section 3.1.2 below, (ii) all "Permitted Additional Senior
-------------
Indebtedness" of Maker, as defined in Section 3.1.3, and (iii) all interest,
-------------
prepayment premiums, collection charges and expenses, and post-petition interest
accruing after an Insolvency Event as defined in Section
-------
-2-
<PAGE>
3.2.1 below, payable by Maker to any holder of Senior Indebtedness with respect
-----
to Senior Indebtedness.
(b) Notwithstanding anything herein to the contrary, Senior
Indebtedness does not include (i) accounts payable to trade creditors of Maker
however treated or classified on Maker's balance sheet, (ii) rental obligations
under operating leases, or (iii) any indebtedness which by its express terms is
subordinated or pari passu with the right of payment set forth in this Note.
3.1.2 EXISTING SENIOR INDEBTEDNESS. As used herein, the term
----------------------------
"Existing Senior Indebtedness" means (i) all indebtedness of Maker to CoreStates
Bank, N.A. and Foothill Capital Corp. under that certain Amended and Restated
Revolving Credit and Term Loan Agreement, dated May 2, 1990, as amended,
restated, substituted, or modified from time to time (the "CoreStates Credit
Facility"), up to a maximum principal amount equal to $12,952,878, which amount
equals 110% of the sum of (i) the principal amount outstanding under the
CoreStates Credit Facility on the date hereof, plus (ii) the maximum additional
principal amount which Maker has the right to borrow under the CoreStates Credit
Facility on the date hereof.
3.1.3 PERMITTED ADDITIONAL SENIOR INDEBTEDNESS.
----------------------------------------
(a) Additional indebtedness for borrowed money to a financial
institution in excess of $250,000 in original principal amount and all liability
for rental obligations under any lease which, in accordance with generally
accepted accounting principles, are shown as capitalized obligations on Maker's
balance sheet provided any such liability exceeds $250,000 incurred by Maker
from time to time after the date of this Note, shall constitute "Permitted
Additional Senior Indebtedness" hereunder, if and to the extent, on the date on
which such additional debt is incurred, Maker's Debt-To-Equity Ratio, as
hereinafter defined, does not exceed 4.5 to 1. If the aforesaid additional debt
so incurred qualifies as Permitted Additional Senior Indebtedness on the date it
is incurred, it shall not thereafter lose that status by reason of Maker's Debt-
To-Equity Ratio on any subsequent date exceeding 4.5 to 1.
(b) For purposes hereof, the Maker's Debt-To-Equity Ratio shall
be calculated on any date as the ratio of (i) Maker's total consolidated
liabilities reflected on the liabilities side of its consolidated balance sheet
as of such date, other than accounts payable and accrued liabilities, all as
computed in accordance with generally accepted accounting principles,
consistently applied, and (ii) the Company's stockholder's equity (which
includes all redeemable preferred stock) shown on its balance sheet on such
date, in each case as computed in accordance with generally accepted accounting
principles, consistently applied.
-3-
<PAGE>
(c) Maker shall deliver written notice to Payee, either prior to
or contemporaneously with the occurrence of Permitted Additional Senior
Indebtedness stating the amount of the Permitted Additional Senior Indebtedness
to be incurred (and considered as Senior Indebtedness) and the name of the
financial institution or other person providing such accommodation and
confirming that immediately after such obligation is incurred, Maker's Debt-To-
Equity Ratio does not exceed 4.5 to 1.
3.2 SUBORDINATION OF PAYMENTS. The indebtedness evidenced
-------------------------
by this Note shall be subordinated and junior in right of payment to all Senior
Indebtedness of Maker in the following manner:
3.2.1 INSOLVENCY, ETC. In the event of any assignment
----------------
by Maker for the benefit of its creditors, any bankruptcy, receivership,
liquidation, reorganization or other similar proceeding, whether instituted by
or against Maker or Maker's business or assets, or any dissolution, liquidation
or other winding-up of the affairs of Maker or of Maker's business (each an
"Insolvency Event"), and in all such cases, then the holders of the Senior
Indebtedness shall be entitled to receive payment in full of all Senior
Indebtedness before Payee is entitled to receive any further payment on account
of principal of or interest on this Note; and to that end the holders of the
Senior Indebtedness shall be entitled to receive, to the extent necessary to
make payment in full of all Senior Indebtedness remaining unpaid after giving
effect to any concurrent payment or distribution (or provision therefor) to the
holders of the Senior Indebtedness, for application in payment thereof, any
payment or distribution of any kind or character, whether in cash or property or
securities, which may be payable or deliverable in any such proceedings in
respect of this Note.
3.2.2 DEFAULT ON SENIOR INDEBTEDNESS AND PREPAYMENT
---------------------------------------------
AND ACCELERATION.
-----------------
(A) So long as a default exists in the payment of any
Senior Indebtedness whether by acceleration or otherwise, and the giving of
written notice thereof to Payee by the holders of such Senior Indebtedness (a
"Payment Default"), all principal and interest due on such Senior Indebtedness
shall first be paid in full, or such payment duly provided for in a manner
satisfactory to the holders of such Senior Indebtedness, before any further
payment is made on account of the principal of or interest on this Note.
(B) Upon the happening of an event of default (other
than a Payment Default) with respect to any Senior Indebtedness (as defined in
any instrument or agreement under which such Senior Indebtedness is outstanding)
which permits the holders of the Senior Indebtedness to accelerate the maturity
-4-
<PAGE>
thereof, and upon receipt by Payee of written notice thereof and commencement of
a "Payment Blockage Period" (as defined below) by the holders of such Senior
Indebtedness, then, unless and until such event of default shall have been
cured, to the extent that such event of default is curable, or waived or shall
have ceased to exist, no further payment (each such payment, a "Blocked
Payment") shall thereafter be made by Maker with respect to the principal of or
interest on this Note for a period (each a "Payment Blockage Period") commencing
on the date of receipt of such notice and ending 180 days thereafter (unless
such Payment Blockage Period shall be terminated by written notice to Payee from
the holders of Senior Indebtedness). For purposes of this Section 3.2.2, if one
-------------
or more Payment Blockage Periods has been in effect for an aggregate of 60 days
or more (whether or not consecutive) during any six month period, a new Payment
Blockage Period may not be commenced by the holders of Senior Indebtedness,
unless 190 days have lapsed since the expiration or termination of the last of
such previous Payment Blockage Periods. Additionally, as long as no Payment
Blockage Period is in effect at the end of a Standstill Period and Payee
receives all principal, interest and other sums due to it within five (5) days
of the expiration of such Standstill Period, any Event of Default arising under
Section 4.1 or Section 4.3(ii) which relates to the principal, interest or other
----------- ---------------
sums so received shall be deemed to be cured.
3.2.3 PAYMENTS IMPROPERLY RECEIVED. In the event that
----------------------------
any payment (including any pre-payment) on account of principal of or interest
on this Note shall be received by Payee before all Senior Indebtedness is paid
in full, and at a time when Maker shall be prohibited from making such payment
by Sections 3.2.1 or 3.2.2 hereof, such payment(s) shall be held in trust by
-------------- -----
Payee for the benefit of and shall be paid over to the holders of all Senior
Indebtedness ratably according to the aggregate amounts remaining unpaid on
account of the Senior Indebtedness held by each such holder, to the extent
necessary to make payment in full of all Senior Indebtedness. The foregoing
notwithstanding, however, Payee shall not be required to pay any such
distribution of payment to the holders of Senior Indebtedness, if, with respect
to payments or distributions received by Payee during a Payment Default,
Insolvency Event or Payment Blockage Period, Payee has not received written
notice from a holder of the Senior Indebtedness or otherwise does not have
actual knowledge of any applicable Payment Default, Insolvency Event, or Payment
Blockage Period. Notwithstanding anything contained herein to the contrary,
Payee shall be permitted to (i) turn over any payments required to be remitted
to the holders of the Senior Indebtedness to any one or more of the holders of
the Senior Indebtedness and all such holders agree to ratably share such payment
among themselves, and (ii) rely upon the statements of any party reasonably
claiming to be a holder of Senior Indebtedness.
-5-
<PAGE>
3.2.4 RIGHTS.
------
(A) No right of the holders of the Senior Indebtedness
to enforce the subordination provisions contained herein shall be impaired by
any act or failure to act by Maker or Payee. The provisions of this Section 3.2
-----------
are solely for the purpose of defining the relative rights of the holders of the
Senior Indebtedness, on the one hand, and Payee on the other hand, with respect
to the order in which payments or distributions by or on behalf of Maker shall
be applied to the Senior Indebtedness and the obligations of Maker pursuant to
this Note, and nothing herein shall impair, as between Maker, its creditors
other than the holders of the Senior Indebtedness, and Payee, the obligation of
Maker which is unconditional and absolute, to pay Payee the principal of and
interest on this Note in accordance with its terms, or affect the relative
rights of Payee and creditors of Maker other than the holders of the Senior
Indebtedness. Without limiting the foregoing, Payee has the right to send any
notice described in Section 4.1 hereof at any time Maker fails to make any
-----------
installments of interest, principal and/or principal and interest or any other
sum due hereunder, including without limitation, during any Payment Blockage
Period, and Standstill Period, any period following any Insolvency Event or any
Payment Default period.
(B) Any failure on the part of Maker to make any
payment on account of this Note when due shall, subject to any grace or cure
period applicable under Section 4 or the last sentence of Section 3.2.2 hereof,
--------- -------------
constitute an Event of Default, even if such failure results from the operation
of this Section 3.2. Payee may accelerate the maturity of, or institute any
------------
proceedings to enforce, this Note, or exercise all remedies otherwise permitted
by applicable law or under this Note upon any Event of Default specified in
Section 4 hereof, subject to the rights of the holders of the Senior
---------
Indebtedness under this Section 3.2 to receive cash, property or securities
-----------
otherwise payable or deliverable to Payee, and provided that, with respect to
--------
any Event of Default specified herein, Payee shall have first given to
the holders of the Senior Indebtedness one hundred ten (110) days' advance
notice (such 110 day period, a "Standstill Period") of its intention to exercise
such remedies.
(C) Upon any payment or distribution of assets of
Maker subsequent to an Insolvency Event, Payee shall be entitled to rely upon
any order or decree made by any court of competent jurisdiction in which
dissolution, winding-up, liquidation, reorganization, or other similar
proceedings are pending or upon a certificate of the liquidating trustee or
agent or other person or entity making any distribution to Payee for the purpose
of ascertaining the persons or entities entitled to participate in such
distribution, the identity of the holders of the Senior Indebtedness or other
indebtedness of Maker, the
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<PAGE>
amount thereof and payable thereon, the amount or amounts paid or distributed
thereon and all other facts pertinent thereto or to this Section 3.2.
-----------
(D) Payee hereby agrees that, without any notice to or
consent from Payee, and without any other action in respect of Payee on the part
of the holders of the Senior Indebtedness: (x) the Senior Indebtedness and any
collateral security therefor may (subject to the definition of Senior
Indebtedness) from time to time be renewed, extended, modified, accelerated,
compromised, waived, surrendered or released, (y) documents in connection with
Senior Indebtedness, including collateral security documents and guarantees, may
be amended or modified from time to time, and (z) any collateral security held
by the holder of Senior Indebtedness at any time for the payment of such Senior
Indebtedness may be sold, exchanged, waived, surrendered or released.
3.2.5 SUBROGATION. In the event that cash, securities,
-----------
or other property otherwise payable or deliverable to Payee shall have been
applied pursuant to this Section 3.2 to the payment of Senior Indebtedness,
-----------
then, subject to the payment in full of all Senior Indebtedness, Payee shall (x)
be entitled to receive from the holders of the Senior Indebtedness any payments
or distributions received by the holders of the Senior Indebtedness in excess of
the amount sufficient to pay all Senior Indebtedness in full, and (y) be
subrogated to all rights of the holders of the Senior Indebtedness to receive
any payments or distributions of cash, property, or assets of Maker applicable
to the Senior Indebtedness, until all principal of and interest on this Note
shall be paid in full. No such payments or distributions received by the holders
of the Senior Indebtedness which, but for the provisions of this Section 3.2,
-----------
would otherwise have been made to Payee shall, as between Maker, its creditors
other than the holders of the Senior Indebtedness, and Payee, be deemed to have
been made as a payment by Maker to or on account of the Senior Indebtedness, it
being understood that the provisions of this Section 3.2 are and are
-----------
intended solely for the purpose of defining the relative rights of Payee, on the
one hand, and the holders of the Senior Indebtedness, on the other hand.
3.2.6 WAIVER. No failure to exercise, and no delay in
------
exercising, on the part of the holders of the Senior Indebtedness, any right,
power or privilege hereunder shall operate as a waiver thereof; nor shall any
single or partial exercise of any right, power or privilege hereunder preclude
any other or further exercise thereof or the exercise of any other right, power
or privilege. The rights and remedies provided in any agreement relating to any
of the Senior Indebtedness, related collateral security documents and all other
agreements, instruments and documents referred to in any of the foregoing are
-7-
<PAGE>
cumulative and shall not be exclusive of any rights or remedies provided by law.
3.2.7 BINDING EFFECT. Maker covenants and agrees, and
--------------
Payee by acceptance of this Note likewise covenants and agrees that: (x) this
Note is issued subject to the provisions of this Section 3.2, (y) Payee will be
-----------
bound by such provisions, and (z) the holders of the Senior Indebtedness shall
be entitled to enforce the provisions of this Section 3.2 directly against
-----------
Payee.
3.3 ENFORCEMENT. Payee irrevocably authorizes the holders of
-----------
the Senior Indebtedness (but each such holder of the Senior Indebtedness has no
obligation), upon the occurrence of an Insolvency Event and if Payee shall have
failed to file any proof of claim or similar claim within the earlier of (i)
thirty (30) days after the holders of the Senior Indebtedness have requested
Payee to file such claim, or (ii) fifteen days of any date upon which Payee's
claim would be barred in the applicable proceeding, provided that Payee has
--------
received actual notice of the time limitations for filing with respect to such
claim, under the circumstances set forth in Section 3.2.1, to demand, sue for,
-------------
collect and receive every such payment or distribution described in that
Section, to file claims and proofs of claims in any statutory or non-statutory
proceeding, to vote the full amount of the indebtedness hereunder in their sole
discretion in connection with any resolution, arrangement, plan of
reorganization, compromise, settlement or extension and to take all such other
action (including, without limitation, the right to participate in any
composition of creditors and the right to vote the amount of the indebtedness
hereunder at creditors' meetings for the election of trustees, acceptances of
plans of reorganization and otherwise), in the name of the holders of the Senior
Indebtedness or in the name of Payee or otherwise, as the holders of the Senior
Indebtedness may deem necessary or advisable for the enforcement of the
subordination provisions of this Note. Payee agrees to cooperate with the
holders of the Senior Indebtedness as reasonably requested in writing, to the
extent necessary to permit the holders of the Senior Indebtedness to exercise
their rights described in the preceding sentence. At such time as the holders of
the Senior Indebtedness have exercised their rights under this Section 3.3, they
-----------
promptly will return any instruments evidencing the indebtedness hereunder that
have been delivered to them by Payee under this Section 3.3, if they have not
-----------
been required to deliver such instruments to any other person or entity by order
of court (or other similar authority having jurisdiction over the matter) or by
law. Notwithstanding the foregoing, payments received by the holders of the
Senior Indebtedness shall not reduce the obligation of Maker to Payee under this
Note, and only payments received by Payee and not subject to any claim by the
holders of the Senior Indebtedness shall reduce the obligation of Maker to Payee
hereunder.
-8-
<PAGE>
4. EVENTS OF DEFAULT. Each of the following shall constitute an
-----------------
event of default (each, an "EVENT OF DEFAULT") hereunder:
----------------
4.1 PAYMENT FAILURE. If Maker fails to make any payment of
---------------
any installment of interest, principal and/or principal and interest hereunder
or any other sum due hereunder within five (5) days after Maker's receipt of
notice from Payee of Maker's failure to make such payment on the date such
payment is due.
4.2 BANKRUPTCY. If any proceeding under the Bankruptcy Code
----------
or any law of the United States or of any state relating to insolvency,
receivership, or debt adjustment is instituted by Maker, or if any such
proceeding is instituted against Maker and is consented to by the respondent or
an order for relief shall be entered in such proceeding or such proceeding shall
remain undismissed for sixty (60) days, or if Maker becomes a debtor under the
Bankruptcy Code or a trustee or receiver is appointed for any substantial part
of its property, or if Maker makes an assignment for the benefit of creditors,
admits in writing its inability to pay debts generally as they become due or
becomes insolvent.
4.3 OTHER DEFAULTS. If a default or event of default shall
--------------
occur at any time under the terms of any Senior Indebtedness of Maker (i) as a
result of the failure to pay principal or interest on such Senior Indebtedness,
(ii) for which a Payment Blockage Period is instituted, or (iii) in the case of
other defaults which results in the acceleration of the maturity of such Senior
Indebtedness.
4.4 JUDGMENTS. If any final unappealable judgment for the
---------
payment of money in excess of $100,000 in the aggregate shall be entered against
Maker by a court having jurisdiction in the premises, which judgment is not paid
or discharged, vacated, bonded or stayed pending appeal within a period of
thirty (30) days from the date of entry.
5. REMEDIES. Upon the occurrence of any Event of Default hereunder,
--------
the entire unpaid principal balance of this Note, together with all accrued and
unpaid interest thereon and all other sums owing hereunder shall become
immediately due and payable, without presentation, demand or further action of
any kind, and Payee may forthwith exercise, singly, concurrently, successively
or otherwise, any and all rights and remedies available to Payee hereunder. The
failure of the holder hereof to accelerate the outstanding principal balance of
this Note upon the occurrence of an Event of Default hereunder shall not
constitute a waiver of such default or of the right to accelerate this Note at
any time thereafter so long as the Event of Default remains uncured. If Payee
retains the services of counsel in
-9-
<PAGE>
order to enforce any remedy available to Payee hereunder, all reasonable
attorneys' fees which are actually incurred by Payee shall be payable upon
demand.
6. INTEREST LIMITATIONS. Nothing herein contained nor any
--------------------
transaction related hereto shall be construed or shall operate either presently
or prospectively to require Maker to pay interest at a rate greater than is now
lawful in such case to contract for, but shall require payment of interest only
to the extent of such lawful rate. Any interest paid in excess of the lawful
rate shall be refunded to Maker.
7. REPORTS. Maker shall provide Payee with a copy of each report
-------
filed with the Securities and Exchange Commission during the term of this Note
within ten (10) days of such filing.
8. SEVERABILITY. In the event that for any reason one or more of
------------
the provisions of this Note or their application to any person or circumstance
shall be held to be invalid, illegal or unenforceable in any respect or to any
extent, such provisions shall, to such extent, be held for naught as though not
herein contained but shall nevertheless remain valid, legal and enforceable in
all such other respects and to such extent as may be permissible. In addition,
any such invalidity, illegality or unenforceability shall not affect any other
provisions of this Note, but this Note shall be construed as if such invalid,
illegal or unenforceable provisions had never been contained herein.
9. SUCCESSORS AND ASSIGNS. This Note inures to the benefit of
----------------------
Payee, its successors and assigns, and is binding upon Maker, its successors and
assigns, and the words "Payee" and "Maker" whenever used herein shall be deemed
and construed to include such respective successors and assigns.
10. NOTICES. All notices and other communications required or
-------
permitted hereunder shall be in writing and shall be delivered personally, sent
by United States Registered or Certified Mail, return receipt requested, postage
prepaid or sent by express courier service with guaranteed overnight delivery or
via facsimile transmission (which is confirmed), in any such case addressed as
follows:
10.1 As between Maker and Payee:
10.1.1 if to Maker:
Rosetree Corporate Center II
1400 North Providence Road, Suite 3055
Media, PA 19063
Attention: President
Facsimile: (610) 891-8222
-10-
<PAGE>
with a copy to
Robert H. Strouse, Esq.
Drinker Biddle & Reath
1000 Westlakes Drive, Suite 300
Berwyn, PA 19312
Facsimile: (610) 993-8585
10.1.2 if to Payee:
Pennsylvania Blue Shield
1800 Center Street, 1B, L4
Camp Hill, PA 17089
Attention: Donald L. Fisher
Facsimile: (717) 731-2898
with a copy to
Pennsylvania Blue Shield
1800 Center Street, 1A-L4
Camp Hill, PA 17089
Attention: F. Lisa Murtha, Esq.
Facsimile: (717) 731-2852
10.2 As by any holder of the Senior Indebtedness, made as follows:
Pennsylvania Blue Shield
1800 Center Street, 1B, L4
Camp Hill, PA 17089
Attention: Donald L. Fisher
Facsimile: (717) 731-2898
with a copy to
Pennsylvania Blue Shield
1800 Center Street, 1A-L4
Camp Hill, PA 17089
Attention: F. Lisa Murtha, Esq.
Facsimile: (717) 731-2852
or to such other addresses or entities any party hereto may from time to time
direct by service of notice on the other parties as provided above. Any such
notices and other communications shall be deemed to have been properly given and
received when delivered to the addressee personally or via facsimile
transmission (which is confirmed), upon delivery by the United States Postal
Service, or upon delivery by a courier service with guaranteed overnight
delivery.
11. CAPTIONS. The captions or headings of the sections in this Note
--------
are for convenience only and shall not
-11-
<PAGE>
control or affect the meaning or construction of any of the terms or provisions
of this Note.
12. GOVERNING LAW; AMENDMENT. This Note shall be governed by and
------------------------
construed in accordance with the laws of the Commonwealth of Pennsylvania. This
Note may only be amended by an instrument in writing signed by both Maker and
Payee.
IN WITNESS WHEREOF, Maker, intending to be legally bound hereby, has
duly executed this Note, under seal, on the date and year first above written.
MAKER:
NOBEL EDUCATION DYNAMICS, INC.
By:______________________________
A.J. Clegg, Chairman
-12-
<PAGE>
SUBORDINATED PROMISSORY NOTE
MEDIA, PENNSYLVANIA
_____________, 1995
FOR VALUE RECEIVED, NOBEL EDUCATION DYNAMICS, INC., a Delaware
corporation with an address at Rose Tree Corporate Center II, 1400 North
Providence Road, Suite 3055, Media, PA 19063 ("MAKER"), promises to pay to
-----
MEDICAL SERVICE ASSOCIATION OF PENNSYLVANIA, D/B/A PENNSYLVANIA BLUE SHIELD, a
Pennsylvania corporation ("PAYEE"), at its office at 1800 Center Street, 1B, L4,
-----
Camp Hill, Pennsylvania, or at such other address as may hereafter be specified
by Payee, in lawful money of the United States of America, the principal sum of
specified in Section 2.1.3 of the Agreement of Sale (as hereinafter defined) in
-------------
Section 1.4), together with interest thereon at the rate, in the installments
-----------
and at the times hereinafter provided.
1. MATURITY DATE; PRINCIPAL AND INTEREST PAYMENTS.
----------------------------------------------
1.1 MATURITY DATE. The outstanding principal balance of this
-------------
Note plus all accrued and unpaid interest thereon and all other sums due
hereunder shall be due and payable in full on or before midnight on December 31,
2002 (the "MATURITY DATE").
-------------
1.2 INTEREST RATE. Except as otherwise provided herein,
-------------
the principal sum outstanding from time to time hereunder shall bear interest at
a rate (the "INTEREST RATE") equal to eight percent (8%) per annum. Accrued but
-------------
unpaid interest shall be paid on each Payment Date (as defined hereafter). Upon
the occurrence of and during the continuation of an Event of Default described
in Section 4.1 hereof, an Insolvency Event or a Payment Blockage Period, the
-----------
principal amount outstanding from time to time hereunder shall automatically
bear interest at a rate (the "Default Rate") equal to twelve percent (12%) per
annum.
1.3 PAYMENTS OF PRINCIPAL AND INTEREST. Maker shall pay the
----------------------------------
principal of this Note in eight (8) consecutive annual installments in arrears
commencing on December 31, 1995 and continuing on each December 31 thereafter
(EACH, A "PAYMENT DATE"), as follows:
------------
<PAGE>
<TABLE>
<CAPTION>
Payment Date Principal Payment
------------ -----------------
<S> <C>
December 31, 1995 6.25% of Original Principal Amount
December 31, 1996 7.80% of Original Principal Amount
December 31, 1997 9.40% of Original Principal Amount
December 31, 1998 12.50% of Original Principal Amount
December 31, 1999 12.50% of Original Principal Amount
December 31, 2000 12.50% of Original Principal Amount
December 31, 2001 12.50% of Original Principal Amount
December 31, 2002 26.55% of Original Principal Amount
-------
100.00%
</TABLE>
1.4 TIME AND MANNER OF PAYMENT. All payments (including
--------------------------
prepayments) to be made in respect of principal, interest or other amounts due
from Maker hereunder shall be made to Payee in United States dollars in funds
immediately available at Payee's office set forth in the caption of this Note or
as otherwise specified by Payee, without setoff, counterclaim or other deduction
of any nature except as permitted pursuant to the terms of that certain Asset
Purchase Agreement of even date herewith by and among Payee, Maker, Carefree
Learning Centers, Inc., and Keystone Ventures, Inc. (the "ASSET PURCHASE
-------------------
AGREEMENT"), which is hereby incorporated herein by reference, and that certain
---------
Real Property Agreement of Sale of even date herewith by and among Maker,
Bluegrass Real Estate Company, Inc., and Keystone Real Estate Development
Company, Inc. (the "Agreement of Sale").
2. PREPAYMENTS. This Note may be prepaid in whole or in part at any
-----------
time prior to the Maturity Date without prior notice to Payee, without penalty
or premium. Any partial prepayments shall be applied to installments of
principal last falling due. No partial prepayment shall postpone or interrupt
payments of interest or the payment of the remaining principal balance, all of
which shall continue to be due and payable at the time and in the manner set
forth above.
3. SUBORDINATION.
-------------
3.1 TO SENIOR INDEBTEDNESS. Notwithstanding anything in this
----------------------
Note to the contrary, the indebtedness evidenced by this Note shall be
subordinate and junior, to the extent and in the manner set forth below, to all
"Senior Indebtedness" of Maker.
3.1.1 SENIOR INDEBTEDNESS. (a) As used herein, the term
-------------------
"Senior Indebtedness" of Maker means (i) all "Existing Senior Indebtedness" of
Maker, as defined in Section 3.1.2 below, (ii) all "Permitted Additional Senior
-------------
Indebtedness" of Maker, as defined in Section 3.1.3, and (iii) all interest,
-------------
prepayment premiums, collection charges and expenses, and post-petition interest
accruing after an Insolvency Event as defined in Section
-------
-2-
<PAGE>
3.2.1 below, payable by Maker to any holder of Senior Indebtedness with respect
-----
to Senior Indebtedness.
(b) Notwithstanding anything herein to the contrary, Senior
Indebtedness does not include (i) accounts payable to trade creditors of Maker
however treated or classified on Maker's balance sheet, (ii) rental obligations
under operating leases, or (iii) any indebtedness which by its express terms is
subordinated or pari passu with the right of payment set forth in this Note.
3.1.2 EXISTING SENIOR INDEBTEDNESS. As used herein, the term
----------------------------
"Existing Senior Indebtedness" means (i) all indebtedness of Maker to CoreStates
Bank, N.A. and Foothill Capital Corp. under that certain Amended and Restated
Revolving Credit and Term Loan Agreement, dated May 2, 1990, as amended,
restated, substituted, or modified from time to time (the "CoreStates Credit
Facility"), up to a maximum principal amount equal to $12,952,878, which amount
equals 110% of the sum of (i) the principal amount outstanding under the
CoreStates Credit Facility on the date hereof, plus (ii) the maximum additional
principal amount which Maker has the right to borrow under the CoreStates Credit
Facility on the date hereof.
3.1.3 PERMITTED ADDITIONAL SENIOR INDEBTEDNESS.
----------------------------------------
(a) Additional indebtedness for borrowed money to a financial
institution in excess of $250,000 in original principal amount and all liability
for rental obligations under any lease which, in accordance with generally
accepted accounting principles, are shown as capitalized obligations on Maker's
balance sheet provided any such liability exceeds $250,000 incurred by Maker
from time to time after the date of this Note, shall constitute "Permitted
Additional Senior Indebtedness" hereunder, if and to the extent, on the date on
which such additional debt is incurred, Maker's Debt-To-Equity Ratio, as
hereinafter defined, does not exceed 4.5 to 1. If the aforesaid additional debt
so incurred qualifies as Permitted Additional Senior Indebtedness on the date it
is incurred, it shall not thereafter lose that status by reason of Maker's Debt-
To-Equity Ratio on any subsequent date exceeding 4.5 to 1.
(b) For purposes hereof, the Maker's Debt-To-Equity Ratio shall
be calculated on any date as the ratio of (i) Maker's total consolidated
liabilities reflected on the liabilities side of its consolidated balance sheet
as of such date, other than accounts payable and accrued liabilities, all as
computed in accordance with generally accepted accounting principles,
consistently applied, and (ii) the Company's stockholder's equity (which
includes all redeemable preferred stock) shown on its balance sheet on such
date, in each case as computed in accordance with generally accepted accounting
principles, consistently applied.
-3-
<PAGE>
(c) Maker shall deliver written notice to Payee, either prior to
or contemporaneously with the occurrence of Permitted Additional Senior
Indebtedness stating the amount of the Permitted Additional Senior Indebtedness
to be incurred (and considered as Senior Indebtedness) and the name of the
financial institution or other person providing such accommodation and
confirming that immediately after such obligation is incurred, Maker's Debt-To-
Equity Ratio does not exceed 4.5 to 1.
3.2 SUBORDINATION OF PAYMENTS. The indebtedness evidenced by
-------------------------
this Note shall be subordinated and junior in right of payment to all Senior
Indebtedness of Maker in the following manner:
3.2.1 INSOLVENCY, ETC. In the event of any assignment by
---------------
Maker for the benefit of its creditors, any bankruptcy, receivership,
liquidation, reorganization or other similar proceeding, whether instituted by
or against Maker or Maker's business or assets, or any dissolution, liquidation
or other winding-up of the affairs of Maker or of Maker's business (each an
"Insolvency Event"), and in all such cases, then the holders of the Senior
Indebtedness shall be entitled to receive payment in full of all Senior
Indebtedness before Payee is entitled to receive any further payment on account
of principal of or interest on this Note; and to that end the holders of the
Senior Indebtedness shall be entitled to receive, to the extent necessary to
make payment in full of all Senior Indebtedness remaining unpaid after giving
effect to any concurrent payment or distribution (or provision therefor) to the
holders of the Senior Indebtedness, for application in payment thereof, any
payment or distribution of any kind or character, whether in cash or property or
securities, which may be payable or deliverable in any such proceedings in
respect of this Note.
3.2.2 DEFAULT ON SENIOR INDEBTEDNESS AND PREPAYMENT AND
-------------------------------------------------
ACCELERATION.
------------
(A) So long as a default exists in the payment of any
Senior Indebtedness whether by acceleration or otherwise, and the giving of
written notice thereof to Payee by the holders of such Senior Indebtedness (a
"Payment Default"), all principal and interest due on such Senior Indebtedness
shall first be paid in full, or such payment duly provided for in a manner
satisfactory to the holders of such Senior Indebtedness, before any further
payment is made on account of the principal of or interest on this Note.
(B) Upon the happening of an event of default (other than a
Payment Default) with respect to any Senior Indebtedness (as defined in any
instrument or agreement under which such Senior Indebtedness is outstanding)
which permits the holders of the Senior Indebtedness to accelerate the maturity
-4-
<PAGE>
thereof, and upon receipt by Payee of written notice thereof and commencement of
a "Payment Blockage Period" (as defined below) by the holders of such Senior
Indebtedness, then, unless and until such event of default shall have been
cured, to the extent that such event of default is curable, or waived or shall
have ceased to exist, no further payment (each such payment, a "Blocked
Payment") shall thereafter be made by Maker with respect to the principal of or
interest on this Note for a period (each a "Payment Blockage Period") commencing
on the date of receipt of such notice and ending 180 days thereafter (unless
such Payment Blockage Period shall be terminated by written notice to Payee from
the holders of Senior Indebtedness). For purposes of this Section 3.2.2, if one
-------------
or more Payment Blockage Periods has been in effect for an aggregate of 60 days
or more (whether or not consecutive) during any six month period, a new Payment
Blockage Period may not be commenced by the holders of Senior Indebtedness,
unless 190 days have lapsed since the expiration or termination of the last of
such previous Payment Blockage Periods. Additionally, as long as no Payment
Blockage Period is in effect at the end of a Standstill Period and Payee
receives all principal, interest and other sums due to it within five (5) days
of the expiration of such Standstill Period, any Event of Default arising under
Section 4.1 or Section 4.3(ii) which relates to the principal, interest or other
----------- ---------------
sums so received shall be deemed to be cured.
3.2.3 PAYMENTS IMPROPERLY RECEIVED. In the event that any
----------------------------
payment (including any pre-payment) on account of principal of or interest on
this Note shall be received by Payee before all Senior Indebtedness is paid in
full, and at a time when Maker shall be prohibited from making such payment by
Sections 3.2.1 or 3.2.2 hereof, such payment(s) shall be held in trust by Payee
for the benefit of and shall be paid over to the holders of all Senior
Indebtedness ratably according to the aggregate amounts remaining unpaid on
account of the Senior Indebtedness held by each such holder, to the extent
necessary to make payment in full of all Senior Indebtedness. The foregoing
notwithstanding, however, Payee shall not be required to pay any such
distribution of payment to the holders of Senior Indebtedness, if, with respect
to payments or distributions received by Payee during a Payment Default,
Insolvency Event or Payment Blockage Period, Payee has not received written
notice from a holder of the Senior Indebtedness or otherwise does not have
actual knowledge of any applicable Payment Default, Insolvency Event, or Payment
Blockage Period. Notwithstanding anything contained herein to the contrary,
Payee shall be permitted to (i) turn over any payments required to be remitted
to the holders of the Senior Indebtedness to any one or more of the holders of
the Senior Indebtedness and all such holders agree to ratably share such payment
among themselves, and (ii) rely upon the statements of any party reasonably
claiming to be a holder of Senior Indebtedness.
-5-
<PAGE>
3.2.4 RIGHTS.
------
(A) No right of the holders of the Senior Indebtedness to
enforce the subordination provisions contained herein shall be impaired by any
act or failure to act by Maker or Payee. The provisions of this Section 3.2 are
-----------
solely for the purpose of defining the relative rights of the holders of the
Senior Indebtedness, on the one hand, and Payee on the other hand, with respect
to the order in which payments or distributions by or on behalf of Maker shall
be applied to the Senior Indebtedness and the obligations of Maker pursuant to
this Note, and nothing herein shall impair, as between Maker, its creditors
other than the holders of the Senior Indebtedness, and Payee, the obligation of
Maker which is unconditional and absolute, to pay Payee the principal of and
interest on this Note in accordance with its terms, or affect the relative
rights of Payee and creditors of Maker other than the holders of the Senior
Indebtedness. Without limiting the foregoing, Payee has the right to send any
notice described in Section 4.1 hereof at any time Maker fails to make any
-----------
installments of interest, principal and/or principal and interest or any other
sum due hereunder, including without limitation, during any Payment Blockage
Period, and Standstill Period, any period following any Insolvency Event or any
Payment Default period.
(B) Any failure on the part of Maker to make any payment
on account of this Note when due shall, subject to any grace or cure period
applicable under Section 4 or the last sentence of Section 3.2.2 hereof,
--------- -------------
constitute an Event of Default, even if such failure results from the operation
of this Section 3.2. Payee may accelerate the maturity of, or institute any
proceedings to enforce, this Note, or exercise all remedies otherwise permitted
by applicable law or under this Note upon any Event of Default specified in
Section 4 hereof, subject to the rights of the holders of the Senior
---------
Indebtedness under this Section 3.2 to receive cash, property or securities
-----------
otherwise payable or deliverable to Payee, and provided that, with respect to
--------
any Event of Default specified herein, Payee shall have first given to the
holders of the Senior Indebtedness one hundred ten (110) days' advance notice
(such 110 day period, a "Standstill Period") of its intention to exercise such
remedies.
(C) Upon any payment or distribution of assets of Maker
subsequent to an Insolvency Event, Payee shall be entitled to rely upon any
order or decree made by any court of competent jurisdiction in which
dissolution, winding-up, liquidation, reorganization, or other similar
proceedings are pending or upon a certificate of the liquidating trustee or
agent or other person or entity making any distribution to Payee for the purpose
of ascertaining the persons or entities entitled to participate in such
distribution, the identity of the holders of the Senior Indebtedness or other
indebtedness of Maker, the
-6-
<PAGE>
amount thereof and payable thereon, the amount or amounts paid or distributed
thereon and all other facts pertinent thereto or to this Section 3.2.
-----------
(D) Payee hereby agrees that, without any notice to or
consent from Payee, and without any other action in respect of Payee on the part
of the holders of the Senior Indebtedness: (x) the Senior Indebtedness and any
collateral security therefor may (subject to the definition of Senior
Indebtedness) from time to time be renewed, extended, modified, accelerated,
compromised, waived, surrendered or released, (y) documents in connection with
Senior Indebtedness, including collateral security documents and guarantees, may
be amended or modified from time to time, and (z) any collateral security held
by the holder of Senior Indebtedness at any time for the payment of such Senior
Indebtedness may be sold, exchanged, waived, surrendered or released.
3.2.5 SUBROGATION. In the event that cash, securities, or
-----------
other property otherwise payable or deliverable to Payee shall have been applied
pursuant to this Section 3.2 to the payment of Senior Indebtedness, then,
-----------
subject to the payment in full of all Senior Indebtedness, Payee shall (x) be
entitled to receive from the holders of the Senior Indebtedness any payments or
distributions received by the holders of the Senior Indebtedness in excess of
the amount sufficient to pay all Senior Indebtedness in full, and (y) be
subrogated to all rights of the holders of the Senior Indebtedness to receive
any payments or distributions of cash, property, or assets of Maker applicable
to the Senior Indebtedness, until all principal of and interest on this Note
shall be paid in full. No such payments or distributions received by the holders
of the Senior Indebtedness which, but for the provisions of this Section 3.2,
-----------
would otherwise have been made to Payee shall, as between Maker, its creditors
other than the holders of the Senior Indebtedness, and Payee, be deemed to have
been made as a payment by Maker to or on account of the Senior Indebtedness, it
being understood that the provisions of this Section 3.2 are and are intended
-----------
solely for the purpose of defining the relative rights of Payee, on the one
hand, and the holders of the Senior Indebtedness, on the other hand.
3.2.6 WAIVER. No failure to exercise, and no delay in
------
exercising, on the part of the holders of the Senior Indebtedness, any right,
power or privilege hereunder shall operate as a waiver thereof; nor shall any
single or partial exercise of any right, power or privilege hereunder preclude
any other or further exercise thereof or the exercise of any other right, power
or privilege. The rights and remedies provided in any agreement relating to any
of the Senior Indebtedness, related collateral security documents and all other
agreements, instruments and documents referred to in any of the foregoing are
-7-
<PAGE>
cumulative and shall not be exclusive of any rights or remedies provided by law.
3.2.7 BINDING EFFECT. Maker covenants and agrees, and
--------------
Payee by acceptance of this Note likewise covenants and agrees that: (x) this
Note is issued subject to the provisions of this Section 3.2, (y) Payee will be
bound by such provisions, and (z) the holders of the Senior Indebtedness shall
be entitled to enforce the provisions of this Section 3.2 directly against
Payee.
3.3 ENFORCEMENT. Payee irrevocably authorizes the holders of
-----------
the Senior Indebtedness (but each such holder of the Senior Indebtedness has no
obligation), upon the occurrence of an Insolvency Event and if Payee shall have
failed to file any proof of claim or similar claim within the earlier of (i)
thirty (30) days after the holders of the Senior Indebtedness have requested
Payee to file such claim, or (ii) fifteen days of any date upon which Payee's
claim would be barred in the applicable proceeding, provided that Payee has
--------
received actual notice of the time limitations for filing with respect to such
claim, under the circumstances set forth in Section 3.2.1, to demand, sue for,
-------------
collect and receive every such payment or distribution described in that
Section, to file claims and proofs of claims in any statutory or non-statutory
proceeding, to vote the full amount of the indebtedness hereunder in their sole
discretion in connection with any resolution, arrangement, plan of
reorganization, compromise, settlement or extension and to take all such other
action (including, without limitation, the right to participate in any
composition of creditors and the right to vote the amount of the indebtedness
hereunder at creditors' meetings for the election of trustees, acceptances of
plans of reorganization and otherwise), in the name of the holders of the Senior
Indebtedness or in the name of Payee or otherwise, as the holders of the Senior
Indebtedness may deem necessary or advisable for the enforcement of the
subordination provisions of this Note. Payee agrees to cooperate with the
holders of the Senior Indebtedness as reasonably requested in writing, to the
extent necessary to permit the holders of the Senior Indebtedness to exercise
their rights described in the preceding sentence. At such time as the holders
of the Senior Indebtedness have exercised their rights under this Section 3.3,
-----------
they promptly will return any instruments
<PAGE>
[LETTERHEAD OF NOBEL EDUCATION DYNAMICS, INC. APPEARS HERE]
THE WALL STREET GROUP, INC. Summary: Nobel Education Dynamics,
32 East 57th Street Inc. completes purchase
New York, NY 10022 of Carefree Learning
(212)888-4848 Centers from PA Blue
Shield.
Company Contact:
A. J. Clegg
Chairman/CEO
(610)891-8200
FOR IMMEDIATE RELEASE:
---------------------
MEDIA, PENNSYLVANIA, MARCH 13, 1995 . . . NOBEL EDUCATION DYNAMICS, INC.
(NASDAQ:NEDI) announced the completion of the purchase of the Carefree Learning
Centers from a subsidiary of Pennsylvania Blue Shield, according to Jack Clegg,
Nobel's Chairman and CEO.
Carefree is comprised of eight operating learning centers with three in
development. Carefree is operating at an annual revenue rate of approximately
$5,700,000.
In 1994, Nobel Education Dynamics, Inc. had revenues of $34,371,501 and net
income of $2,339,765 which was 37% over Nobel's 1993 net earnings. Earnings per
share in 1994 were $0.12 (fully diluted).
The basic terms of the acquisition were $500,000 in cash and the assumption of
Carefree's approximately $1.6 million of subordinated debt to Pennsylvania Blue
Shield in an eight-year note with fixed interest of eight percent (8%) and
skewed principal payments plus a balloon payment at the end of the eight-year
period.
Mr. Clegg stated, "The acquisition of this quality operation in one of Nobel's
core, geographic growth areas is a key component in Nobel's re-growth strategy.
Carefree, in combination with Nobel's schools and centers in Pennsylvania,
provides a preschool cluster which can begin to feed Nobel's grammar school
grades under its Chesterbrook Academy private school entity."
<PAGE>
In addition, Nobel entered into an agreement to purchase certain real estate
owned by a subsidiary of Pennsylvania Blue Shield which houses a portion of
Carefree's operations. Closing of this transaction is anticipated within 60
days. Mr. Clegg stated that this real estate is being funded through a bridge
loan with First Valley Bank, and Nobel anticipates spinning off the real estate
as a package to real estate investors. The purpose of acquiring the real estate
was to avoid any delay in the timing of the Carefree acquisition.
Nobel's stated mission is to be the leader in providing safe, quality, private
education and development of children which is affordable to middle income,
working families in the United States.
# # #
