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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): February 2, 1996
NOBEL EDUCATION DYNAMICS, INC.
(Exact name of registrant as specified in its charter)
Delaware 0-1003 22-2465204
(State or other jurisdiction (Commission (IRS Employer
of incorporation File Number) Identification No.)
Rose Tree Corporate Center II
1400 N. Providence Road, Suite 3055
Media, PA 19063
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (610) 891-8200
Not Applicable
(Former name or former address, if changed since last report)
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Item 2. Acquisition or Disposition of Assets.
On February 2, 1996, the Company acquired all the assets of Stony Point
Learning Center, Inc. ("Stony Point"), School's Out, Inc. ("School's Out"),
Cascades Childcare, Inc. ("Cascades"), Pump Road Child Care, Inc. ("Pump Road")
and Loudoun Children's Center, Inc. ("Loudoun").
The assets of Stony Point, School's Out, Cascades and Pump Road were acquired
pursuant to an Asset Purchase Agreement ("Asset Purchase Agreement") among such
companies, Linda and Stephen Nash (the principal shareholders of such companies)
and the Company. Pursuant to the Asset Purchase Agreement, the Company paid to
such companies, in aggregate, $3,200,000 in cash and a 7% promissory note in the
principal amount of $336,680 payable over five years in 60 equal monthly
installments. The Asset Purchase Agreement also obligates the Company to pay
(a) to Linda and Stephen Nash an aggregate of $100,000 over five years in 60
equal monthly installments in consideration of their covenant not to compete
with the Company and (b) to the selling companies an earn-out payable after one
year equal to 2.2 multiplied by the excess of Adjusted EBITDA (as defined in the
Asset Purchase Agreement) of the purchased businesses for the twelve months
following closing over $580,425.
The assets of Loudoun were acquired pursuant to an Asset Acquisition Agreement
and Plan of Reorganization ("Acquisition Agreement") among Loudoun, Linda and
Stephen Nash (the sole shareholders of such companies) and the Company.
Pursuant to the Acquisition Agreement, the Company issued and delivered to
Loudoun 96,192 shares of the Company's Common Stock, par value $.001 per share.
The Acquisition Agreement also obligates the Company to pay to Loudoun an earn-
out payable after one year equal to 2.2 multiplied by the excess of Adjusted
EBITDA (as defined in the Acquisition Agreement) of Loudoun's businesses for the
twelve months following closing over $272,075. Such earn-out is payable in
cash, except to the extent that such earn-out exceeds $100,000, in which case
the excess will be paid in additional shares of Common Stock valued at the fair
market value of such stock at the time of issuance. Immediately following
closing, Loudoun liquidated and distributed such shares of Common Stock to Linda
and Stephen Nash.
In connection with the Asset Purchase Agreement, the Company entered into a
Consulting Agreement with Linda Nash, pursuant to which the Company engages Ms.
Nash as a consultant for a term of one year.
The Company utilized $1,200,000 of its availability under its line of credit
with First Valley Bank and excess cash resulting from its financing transactions
completed in August 1995 in order to pay the cash portion of the purchase price
under the Asset Purchase Agreement.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial Statements of Businesses Acquired.
It is impracticable at the time of filing of this Current Report for the
Registrant to provide the required financial statements for the acquired
companies. Accordingly, the Registrant will file
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the required financial statements of the acquired companies under cover of a
Form 8 Amendment to this Current Report of Form 8-K as soon as practicable, but
not later than 60 days after the date on which this Report must be filed with
the Commission.
(b) Pro Forma Financial Information.
It is impracticable at the time of filing of this Current Report for the
Registrant to provide the required pro forma financial information. Accordingly,
the Registrant will file the required pro forma financial information under
cover of a Form 8 Amendment to this Current Report on Form 8-K as soon as
practicable, but not later than 60 days after the date on which this Report must
be filed with the Commission.
(c) Exhibits.
Exhibit Number Description of Exhibit
- -------------- ----------------------
2.1 Asset Purchase Agreement dated as of February 2, 1996 by and
among Stony Point Learning Center, Inc., School's Out, Inc.,
Cascades Childcare, Inc. and Pump Road Child Care, Inc. and
Linda Nash and Stephen Nash and the Registrant.
2.2 Asset Purchase Agreement dated as of February 2, 1996 by and
among Loudoun Children's Center, Inc. and Linda Nash and
Stephen Nash and the Registrant.
4.1 Subordinated Note dated as of February 2, 1996 in the
principal amount of $336,680 payable to the order of Cascades
Childcare, Inc.
Certain schedules to Exhibits 2.1 and 2.2 are not being filed. The Registrant
will furnish supplementally a copy of any omitted schedules or attachments to
the Commission upon request.
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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.
Date: February 16, 1996 By: /s/ Yvonne DeAngelo
--------------------------
Yvonne DeAngelo
Vice President Administration and Finance;
Secretary
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EXHIBIT INDEX
Exhibit No. Title Page No.
- ----------- ----- --------
2.1 Asset Purchase Agreement dated as of
February 2, 1996 by and among Stony Point
Learning Center, Inc., School's Out, Inc.,
Cascades Childcare, Inc. and Pump Road Child
Care, Inc. and Linda Nash and Stephen Nash
and the Registrant.
2.2 Asset Purchase Agreement dated as of
February 2, 1996 by and among Loudoun
Children's Center, Inc. and Linda Nash and
Stephen Nash and the Registrant.
4.1 Subordinated Note dated as of February 2, 1996
in the principal amount of $336,680 payable to
the order of Cascades Childcare, Inc.
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ASSET PURCHASE AGREEMENT
by and among
Stony Point Learning Center, Inc.
School's Out, Inc.,
Cascades Childcare, Inc., and
Pump Road Child Care, Inc.
as sellers,
and
Linda Nash and Stephen Nash,
as shareholders of sellers,
and
Nobel Education Dynamics, Inc.,
as Buyer
dated as of
February 2, 1996
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TABLE OF CONTENTS
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Page
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1. THE TRANSACTION......................................................... 1
1.1 Sale and Purchase of Purchased Assets.......................... 1
1.2 Responsibility for Liabilities................................. 3
1.3 Proration...................................................... 4
1.4 Allocation..................................................... 4
2. TIME AND PLACE OF CLOSING............................................... 5
3. DELIVERIES AT CLOSING................................................... 5
3.1 Seller Deliveries.............................................. 5
3.2 Buyer Deliveries............................................... 6
3.3 Other Actions at Closing....................................... 7
4. EARN-OUT................................................................ 7
4.1 Earn-Out Payment............................................... 7
4.2 Calculation of Adjusted EBITDA................................. 7
4.3 Audit Rights; Arbitration...................................... 8
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANIES......................... 9
5.1 Organization; Authority........................................ 9
5.2 Power and Authority............................................ 9
5.3 Due Authorization; Binding Agreement........................... 9
5.4 Capitalization................................................. 9
5.5 Absence of Conflicting Agreements............................. 10
5.6 Consents and Approvals........................................ 10
5.7 Investments and Subsidiaries.................................. 10
5.8 Compliance with Laws.......................................... 10
5.9 Permits....................................................... 10
5.10 Encumbrances Created by this Agreement........................ 11
5.11 Judgments and Litigation...................................... 11
5.12 Financial Statements.......................................... 11
5.13 Tax Matters................................................... 12
5.14 Absence of Certain Changes.................................... 13
5.15 Title to and Condition of Assets, Properties, etc............. 14
5.16 Real Property................................................. 14
5.17 List of Properties, Contracts, etc............................ 14
5.18 Contract Validity, Defaults, Notice/Consent................... 15
5.19 Employees..................................................... 16
5.20 Labor Matters................................................. 16
5.21 Relationships................................................. 16
5.22 Transactions with Related Parties............................. 16
</TABLE>
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5.23 Non-Foreign Persons........................................... 17
5.24 Employee Benefit Plans........................................ 17
5.25 Environmental Protection...................................... 17
5.26 Books and Records............................................. 18
5.27 Intellectual Property......................................... 19
5.28 No Child Abuse or Sexual Abuse................................ 19
5.29 No Other Agreements........................................... 19
5.30 Operation of Other Centers and Schools........................ 19
5.31 Special Arrangements.......................................... 19
5.32 Brokers....................................................... 19
5.33 Disclosure.................................................... 20
6. REPRESENTATIONS AND WARRANTIES OF ALL SHAREHOLDERS..................... 20
6.1 Power and Authority........................................... 20
6.2 Due Authorization; Binding Agreement.......................... 20
6.3 Absence of Conflicting Agreements............................. 20
6.4 Consents and Approvals........................................ 21
7. REPRESENTATIONS AND WARRANTIES OF BUYER................................ 21
7.1 Organization and Standing..................................... 21
7.2 Power and Authority........................................... 21
7.3 Due Authorization; Binding Agreement.......................... 21
7.4 Absence of Conflicting Agreements............................. 21
7.5 Consents...................................................... 22
7.6 Capitalization................................................ 22
7.7 Financial Condition........................................... 22
7.8 Absence of Change............................................. 22
7.9 Brokers....................................................... 22
7.10 Disclosure.................................................... 23
8. EMPLOYEES OF THE BUSINESS; EMPLOYEE BENEFITS........................... 23
8.1 Employees of the Companies.................................... 23
8.2 Employee Benefit and Bonus Claims............................. 23
9. CERTAIN OBLIGATIONS AND AGREEMENTS OF PARTIES AFTER CLOSING............ 24
9.1 Remittance of Payments........................................ 24
9.2 Collection of Receivables..................................... 24
9.3 Discharge of Liabilities...................................... 24
9.4 Nondisclosure; Covenant Not To Compete........................ 24
9.5 Access to Records............................................. 26
9.6 Representation Letters........................................ 26
9.7 Post-Closing Covenants of Buyer............................... 26
</TABLE>
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9.8 Permits and Licenses.......................................... 27
10. INDEMNIFICATION........................................................ 27
10.1 Survival of Representations and Warranties.................... 27
10.2 Indemnification by the Companies and Shareholders............. 27
10.3 Indemnification by Buyer...................................... 28
10.4 Procedures Relating to Indemnification........................ 28
10.5 Limitation.................................................... 29
10.6 Remedies Not Exclusive........................................ 30
10.7 Costs and Expenses............................................ 30
10.8 Right of Offset............................................... 30
11. INVESTMENT REPRESENTATIONS AND COVENANTS OF SHAREHOLDERS............... 31
12. REPRESENTATION OF SHAREHOLDERS BY COMPANIES' AGENT..................... 32
12.1 Appointment of Companies' Agent............................... 32
12.2 Successor Agent............................................... 33
12.3 Shareholders' Actions......................................... 33
13. MISCELLANEOUS.......................................................... 33
13.1 Costs and Expenses............................................ 33
13.2 Litigation.................................................... 33
13.3. Assignment and Benefit........................................ 33
13.4 Schedules and Exhibits........................................ 34
13.5 Effect and Construction of this Agreement..................... 34
13.6 Counterparts.................................................. 34
13.7 Cooperation................................................... 34
13.8 Notices....................................................... 34
13.9 Amendment, Waiver, Discharge, etc............................. 35
13.10 Severability.................................................. 36
13.11 Number of Days................................................ 36
13.12 No Third Party Beneficiaries.................................. 36
13.13 Governing Law................................................. 36
13.14 Forum Selection Clause........................................ 36
13.15 Definition of "Companies' Knowledge".......................... 36
</TABLE>
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ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement (this "AGREEMENT") is dated as of February 2,
1996 by and among Stony Point Learning Center, Inc. ("STONY POINT"), School's
Out, Inc. (trading as Treetops Children's Center) ("TREETOPS"), Cascades
Childcare, Inc. ("CASCADES") and Pump Road Child Care, Inc. (trading as
Children's Castle Learning Center) ("PUMP ROAD"), each a Virginia corporation
(Stony Point, Treetops, Cascades and Pump Road being collectively referred to
herein as the "COMPANIES"), as sellers; Linda Nash and Stephen Nash
(collectively, the "SHAREHOLDERS"), the principal shareholders of each of the
Companies, and Nobel Education Dynamics, Inc., a Delaware corporation ("BUYER"),
as buyer.
Background
----------
A. Each of the Companies owns and is engaged in the business of
operating a child care center in Eastern Virginia, all as more particularly
described on SCHEDULE A (each such child care center, a "PURCHASED CENTER" and,
collectively, the "PURCHASED CENTERS"). The businesses of the Purchased Centers
are collectively referred to herein as the "BUSINESSES".
B. The parties hereto desire to provide for the acquisition by Buyer of
substantially all of the assets and certain of the liabilities of the Companies,
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:
1. THE TRANSACTION.
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 (as defined in Section 2):
1.1 SALE AND PURCHASE OF PURCHASED ASSETS.
(a) PURCHASED ASSETS. Each Company shall sell, transfer and deliver
to Buyer all of its right, title and interest in and to all of the tangible and
intangible properties and assets owned or held by such Company on the Closing
Date other than the Excluded Assets (as defined in Section 1.1(b))
(collectively, the "PURCHASED ASSETS"). The Purchased Assets shall include,
without limiting the generality of the foregoing (hereafter "WITHOUT
LIMITATION"), the following:
(i) all of each Company's furniture, fixtures, equipment,
machinery, teaching and educational supplies, inventories, supplies, and other
tangible personal property used or held at any of the Purchased Centers, as well
as any business forms used or held exclusively at the Purchased Centers,
including those items described on SCHEDULE 1.1(a)(i);
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(ii) all intellectual property relating to the Businesses or
any Purchased Centers, including, without limitation, all rights of the
Companies to all registered and unregistered trade names and fictitious names
(including, without limitation, the names "Treetops Children's Center", "Stony
Point Learning Center", "Children's Castle Learning Center" and "Cascades
Children's Center"), trademarks, service marks, copyrights, patents and know-how
used or useful in the Businesses and all related applications and agreements
with respect to the foregoing (the "INTELLECTUAL PROPERTY"); and all telephone
numbers; and
(iii) the leasehold interests of the Companies pursuant to the
lease agreements of the Companies referenced on SCHEDULE 1.1(a)(iii) (such
leases being collectively referred to herein as the "LEASES"; and all the
leasehold interests subject to the Leases being collectively referred to herein
as the "LEASEHOLD INTERESTS") ;
(iv) the Companies' rights, to the extent assignable, under
maintenance contracts, service contracts, equipment and other leases (including,
if leased, the telephone system), vehicle leases, computer software and other
rights, to the extent assignable, under contracts relating to the Businesses or
any Purchased Centers that Buyer has elected to assume, each of which is
described on SCHEDULE 1.1(a)(iv) (collectively, the "ASSUMED CONTRACTS";
provided that, if consent of the other party to any contract is required, such
contract shall not be included within the definition of Assumed Contracts (even
if described on SCHEDULE 1.1(a)(iv)) unless such other party either consents to
such assignment or provides services to Buyer thereunder);
(v) to the extent assignable, all permits, registrations,
franchises, licenses, approvals and other authorizations relating to the
Businesses or any Purchased Center of the Companies (collectively, the
"PERMITS"), including those described on SCHEDULE 1.1(a)(v);
(vi) all goodwill of the Businesses as a going concern,
including all rights to deal with clients and customers;
(vii) all client and customer lists and records, enrollments and
other documents, correspondence and files of the Companies relating to the
Businesses or any Purchased Center of the Companies, including, to the extent
assignable, all software and computer files;
(viii) the motor vehicles identified on SCHEDULE 1.1(a)(viii);
(ix) all secrecy and non-disclosure agreements with current or
former employees, consultants or contractors relating to the Businesses or any
Purchased Center, including, without limitation, those described and identified
on SCHEDULE 1.1(a)(ix); and
(x) all other tangible and intangible assets which are used in
or necessary to the operation of the Businesses or any Purchased Center, other
than those described below in Section 1.1(b).
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(b) EXCLUDED ASSETS. Notwithstanding anything to the contrary in
Section 1.1(a), the following rights, properties and assets of the Companies
(the "EXCLUDED ASSETS") shall not be included in the Purchased Assets:
(i) the corporate seal, articles of incorporation, minute
books and stock books of each Company
(ii) all tax records, tax returns, payroll records, insurance
records and other corporate documents (collectively, the "RETAINED RECORDS");
(iii) Rod Kennedy's Macintosh Powerbook 170; and
(iv) all cash of each Company, all registration fees paid to
each Company prior to Closing in the ordinary course of business consistent with
past practices, and all right, title and interest of each Company in and to all
accounts receivable.
(c) PURCHASE PRICE. In consideration of the delivery of the
Purchased Assets, Buyer shall deliver to the Companies (i) at the Closing, the
amount of Three Million Two Hundred Thousand Dollars ($3,200,000) (the "CLOSING
CASH PAYMENT"), (ii) a promissory note payable to Cascades in the aggregate
principal amount of $336,680 and bearing interest at 7.0% per annum payable in
60 equal monthly payments of $6,666.67, in the form of EXHIBIT A (the
"PROMISSORY NOTE"), and (iii) within 45 days of the date of delivery to Buyer by
Coopers & Lybrand of audited financial statements of Buyer for 1996 (the "EARN-
OUT PAYMENT DATE"), the Earn-Out Payment (as defined in Section 4); provided,
however, that the Earn-Out Payment Date shall be extended by one day for each
day that Closing occurs past December 31, 1995.
1.2 RESPONSIBILITY FOR LIABILITIES.
(a) EXCLUDED LIABILITIES. Except as otherwise provided specifically
in Section 1.2, Buyer shall not assume, nor in any way be liable or responsible
for, any liabilities, obligations or debts of any Company or any Shareholder of
any type or nature ("EXCLUDED LIABILITIES"), including, without limitation, tort
claims asserted against any Company or the Businesses (including, without
limitation, claims of child abuse or sexual abuse asserted against any Company,
the Businesses or the employees and agents of the foregoing related to matters
occurring prior to Closing); claims asserted against any Company or the
Businesses for breach of contract; tax liabilities; liabilities relating to
claims for damages based upon the breach or violation by any Company of, or
strict liability arising under, any environmental or occupational health and
safety laws or regulations or any other Federal, state or local laws or
regulations; liabilities incurred for the costs and expenses of negotiating and
consummating the transactions contemplated by this Agreement; and liabilities
incurred in connection with any employee benefit plan of any Company.
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(b) LIABILITIES TO BE ASSUMED BY BUYER. Subject to the terms and
conditions of this Agreement, at the Closing, Buyer will enter into an
Assignment and Assumption Agreement, in form and substance satisfactory to the
parties (the "ASSIGNMENT AND ASSUMPTION AGREEMENT"), with the Companies,
pursuant to which each such Company will assign to Buyer all of its right, title
and interest under the Lease and the Assumed Contracts to which it is a party,
and Buyer will accept such assignment and assume all of the Companies'
obligations accruing from and after the Closing Date under the written terms and
provisions of the Leases and Assumed Contracts (collectively, together with up
to $4,800 to the Company's accountant for fees relating to this transaction, the
"ASSUMED LIABILITIES"); provided that liabilities and obligations under the
Leases and Assumed Contracts which have accrued, or the performance of which is
due, on or prior to the Closing Date shall be the sole responsibility of the
Companies.
1.3 PRORATION. At the Closing (defined below), or as soon as practicable
thereafter, the parties will prorate the following items, effective as of the
Closing, with appropriate payments being made between and among the parties:
(a) rent and real estate taxes under the Lease;
(b) common area maintenance fees under the Lease;
(c) personal property taxes with respect to the Purchased Assets;
(d) tuition payments and deposits;
(e) employee vacation pay and sick days earned but not paid as of
Closing;
(f) utility deposits; and
(g) maintenance and service contracts, yellow page advertisements
and other normal operating expenses covering the period before and after Closing
(which item does not include, without limitation, any item relating to tangible
property).
1.4 ALLOCATION. The parties agree that the fair market value of each
tangible Purchased Asset equals its current book value, that no value is
properly allocable to any Lease entered into not more than a year ago, and that
the remainder of the consideration for the Purchased Assets is allocable to
cash, section 197 intangibles (other than covenants not to compete or similar
arrangements), and Leases entered into more than a year ago. Within 60 days
after the Closing, the parties will agree on the amounts, if any, properly
allocable to Leases entered in to more than a year ago. Each party hereto shall,
to the extent permitted by applicable law, report the federal, state, local and
other tax consequences of the purchase and sale hereunder in a manner consistent
with such price allocation and shall not take any position inconsistent
therewith in connection with any return, refund, claim, litigation or otherwise.
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2. TIME AND PLACE OF CLOSING.
The closing (the "CLOSING") of the purchase and sale of the Purchased
Assets pursuant to this Agreement is taking place simultaneously with the
execution hereof (the "CLOSING DATE") at the offices of Buyer, Rose Tree
Corporate Center II, 1400 North Providence Road, Suite 3055, Media,
Pennsylvania.
3. DELIVERIES AT CLOSING.
At the Closing, the parties shall make deliveries as follows:
3.1 SELLER DELIVERIES.
(a) Each Company shall deliver to Buyer:
(i) a bill of sale, in form and substance satisfactory to the
parties, transferring to Buyer title to all of the Purchased Assets of such
Company;
(ii) a counterpart of the Assignment and Assumption Agreement;
(iii) title documents, transferring title to all the vehicles
owned by such Company to Buyer, free and clear of any and all liens, charges,
claims, security interests, mortgages, deeds of trust, pledges, restrictions and
encumbrances of any nature whatsoever (collectively, "LIENS");
(iv) such other instruments of transfer as shall be reasonably
necessary or appropriate to vest in Buyer good title to the Businesses and the
Purchased Assets;
(v) a receipt executed by such Company, acknowledging receipt
by such Company of its allocable share of the Closing Cash Payment as reflected
on SCHEDULE B;
(vi) copies of the resolutions of the board of directors and
shareholders of such Company authorizing the execution, delivery and performance
by such Company of this Agreement and the other agreements and instruments
referred to herein, certified as of the Closing Date by the secretary or an
assistant secretary of such Company; and
(vii) an incumbency certificate relating to the officers of such
Company executing this Agreement and other documents or instruments delivered
pursuant hereto.
(viii) a copy of such Company's articles of incorporation and
all amendments thereof to date, certified as of a recent date by the Clerk of
the State Corporation
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Commission of Virginia, and a copy of such Company's bylaws and all amendments
thereof to date, certified as of the Closing Date by the secretary or an
assistant secretary of the Company;
(ix) certificates of good standing of a recent date for such
Company, certified by the Clerk of the State Corporation Commission of Virginia;
and
(x) to the extent obtainable by such Company, an estoppel
certificate from the landlord with respect to any Lease to which such Company is
a party, in form and substance satisfactory to Buyer;
(b) The Companies and Shareholders shall together deliver to Buyer:
(i) the opinion of Cantor Arkema & Edmonds, counsel to the
Companies and Shareholders, dated the Closing Date, in form and substance
satisfactory to Buyer;
3.2 BUYER DELIVERIES. Buyer shall deliver, or cause to be delivered the
items described below:
(a) to the Companies:
(i) the Closing Cash Payment, by wire transfer in immediately
available funds or by certified or bank cashiers' check payable to the order of
the Companies in the respective amounts set forth opposite the names of the
Companies on SCHEDULE B; and
(ii) for each Company, a duly executed counterpart of the
Assignment and Assumption Assignment.
(b) to Cascades, the Promissory Note, duly executed by Buyer.
(c) to the Companies' Agent (for the benefit of the Companies):
(i) a copy of Buyer's certificate of incorporation and all
amendments thereof to date, certified as of a recent date by the Secretary of
State of Delaware, and a copy of Buyer's bylaws and all amendments thereof to
date, certified as of the Closing Date by the secretary or an assistant
secretary of Buyer, and accompanied by a certificate of good standing as of a
recent date for Buyer, certified as of a recent date by the Secretary of State
of Delaware;
(ii) a copy of the resolutions of the board of directors of
Buyer authorizing the execution, delivery and performance by Buyer of this
Agreement and the other agreements and instruments referred to herein, certified
as of the Closing Date by the secretary or an assistant secretary of Buyer;
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(iii) an incumbency certificate relating to the officers of
Buyer executing this Agreement and other documents or instruments delivered
pursuant hereto; and
(iv) letters of credits required under each of the Leases in
form satisfactory to each of the landlords under the Leases;
(v) a letter of credit to replace the letter of credit given
to Virginia Power as to Cascades; and
(vi) the opinion of Drinker Biddle & Reath, special counsel to
Buyer, dated the Closing Date, in form and substance satisfactory to the
Companies and the Shareholders.
3.3 OTHER ACTIONS AT CLOSING. At the Closing, the following actions
will also take place:
(a) Buyer and Linda Nash will enter into a Consulting Agreement in
the form attached hereto as EXHIBIT B (the "CONSULTING AGREEMENT").
4. EARN-OUT.
4.1 EARN-OUT PAYMENT. On the Earn-Out Payment Date, Buyer will pay to
the Companies, in the same proportion as payment is made of the Cash Closing
Payment, an amount (the "EARN-OUT PAYMENT") equal to 2.22 multiplied by the
amount, if any, by which Adjusted EBITDA (defined below) of the four Purchased
Centers during the period commencing on the Closing Date and ending on the day
preceding the first anniversary of the Closing Date (the "EARN-OUT PERIOD")
exceeds Five Hundred Eighty Thousand Four Hundred Twenty-Five Dollars
($580,425). Buyer shall deliver to the Companies' Agent, together with the Earn-
Out payment, a report indicating the basis for the calculation of the payment
made, which report shall be executed by the president or chief financial officer
of Buyer.
4.2 CALCULATION OF ADJUSTED EBITDA.
(a) The "ADJUSTED EBITDA" of the Purchased Centers shall equal (i)
all revenues attributable to the Purchased Centers for the Earn-Out Period minus
(ii) all expenses of the Purchased Centers for the Earn-Out Period. In
calculating such expenses, no allocation shall be made of general corporate
expenses of Buyer (except for expenses which are directly attributable to the
businesses relating to a Purchased Center) and, specifically, no charges will be
made for:
(i) administrative support from Buyer's corporate headquarters
for (i) payroll functions, (ii) accounts payable functions, (iii) banking and
financing functions, (iv) in-house legal support, (v) revenue recording, (vi)
analysis of accounts receivable (provided, however, that each Purchased Center
will be responsible for collections), (vii) preparation of
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monthly profit and loss statements; (viii) petty cash management, (ix)
preparation of weekly operating reports compiled on the basis of input from the
Purchased Centers, (x) tracking of capital expenditures or (xi) any allocation
of expenses not directly associated with the operation of the Purchased Centers;
or
(ii) the consulting fees payable to Linda Nash pursuant to the
Consulting Agreement; or
(iii) charges for depreciation, amortization of good will,
interest expense and federal or state income taxes; or
(iv) travel expense related to trips to and from Buyer's
corporate headquarters or otherwise requested by Buyer.
(b) Salary and consulting fees paid to all persons in connection
with the operation of the Purchased Centers other than Linda Nash will be
charged as expenses in calculating the Earn-Out Amount; provided that if Buyer
determines to hire a person ("NEW MANAGER") to replace Linda Nash after the
Earn-Out Period (which decision shall be made in cooperation with Linda Nash
and, unless Buyer and Linda Nash both consent, would not be implemented prior to
the date eight months following the date hereof), the costs associated with such
hiring and retaining will not be charged as expenses in calculating the Earn-
Out, except for compensation paid to the New Manager in the last three months of
the Earn-Out Period. The proviso in the previous sentence does not apply if Rod
Kennedy or Robin Smith is promoted to such position. If a New Manager other than
Rod Kennedy or Robin Smith is hired, Buyer and Linda Nash shall jointly
determine whether also to continue their employment; and if a decision is made
to terminate the employment of either Rod Kennedy or Robin Smith, the
incremental cost, if any, of the New Manager over the cost of Rod Kennedy and/or
Robin Smith (whomsoever employment is terminated) will not be charged as
expenses in calculating the Earn-Out.
(c) All calculations shall be made in accordance with generally
accepted accounting principles consistently applied (except as specifically
provided in this Section 4); provided that Buyer shall be entitled to allocate
expenses in such manner as it desires in its sole and unfettered discretion.
(The proviso in the previous sentence relates only to the allocation of expenses
under Sections 4.1 and 4.2 and not to the calculation of the aggregate amount of
such expenses.)
4.3 AUDIT RIGHTS; ARBITRATION. The Companies' Agent shall have the
right to audit all of Buyer's books and records related to the calculation of
the Earn-Out Payment, which right may be exercised upon reasonable notice to
Buyer. Any dispute regarding the Earn-Out payment that cannot be resolved shall
be submitted to formal arbitration by a mutually agreeable arbitrator upon such
terms as the arbitrator may decide. If no arbitrator can be selected by the
parties, then such arbitrator shall be selected by the American Arbitration
Association and such arbitration shall be pursuant to the rules for commercial
arbitration as promulgated by such Association. The
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arbitrator, regardless of how selected, shall promptly obtain such information
regarding the Earn-Out payment he or she deems advisable and shall decide with
dispatch the amount of the Earn-Out payment and render a written decision which
shall be delivered to all parties. Any such decision will be a conclusive
determination of the matter and shall be binding upon each party, and shall not
be contested by any party. At the time of rendering the decision, the arbitrator
shall establish his or her fees and expenses in connection therewith. Such fees
and expenses shall be allocable by the arbitrator in his or her decision.
Judgment upon any arbitration decision may be entered and enforced in any court
of competent jurisdiction.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANIES.
The Companies, jointly and severally, represent and warrant to Buyer as
follows:
5.1 ORGANIZATION; AUTHORITY. Each Company is a corporation duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Virginia 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. Neither the nature of the Companies' properties
nor the conduct of the businesses of the Companies require any Company to be
qualified and licensed to do business as a foreign corporation in any other
jurisdiction.
5.2 POWER AND AUTHORITY. Each Company has the full power, authority and
capacity to execute, deliver and perform this Agreement and the other
agreements, documents and instruments required to be delivered by it to Buyer at
the Closing (collectively, the "SELLERS' TRANSACTION DOCUMENTS") and to perform
its obligations hereunder and thereunder.
5.3 DUE AUTHORIZATION; BINDING AGREEMENT. The execution and delivery by
each Company of this Agreement and each of the Sellers' Transaction Documents to
which it is a party, and the performance by each Company of its obligations
hereunder and thereunder, have been duly and validly authorized by all necessary
action of the Board of Directors and shareholders of each Company. This
Agreement has been duly executed and delivered by each Company. This Agreement
constitutes, and, when executed and delivered, each of the Sellers' Transaction
Documents will constitute, the legal, valid and binding obligation of each
Company, enforceable against it 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.
5.4 CAPITALIZATION. All of the shares of capital stock of each Company
are owned, both beneficially and of record, by the shareholders of the
Companies, in the amounts set forth on SCHEDULE 5.4. All of the issued and
outstanding shares of capital stock of each Company have been duly authorized
and are validly issued and outstanding.
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5.5 ABSENCE OF CONFLICTING AGREEMENTS. The execution and delivery of
this Agreement and the Sellers' Transaction Documents by the Companies, and the
performance by all of them of the transactions contemplated hereby and thereby,
will not, with or without the giving of notice, lapse of time or both, conflict
with, or constitute a breach of or a default under, or violate or give to any
third party any rights under:
(a) any 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 any
properties of any Company is bound;
(b) the articles of incorporation or by-laws of any Company; or
(c) any Assumed Contract or any other material agreement, indenture,
instrument or contract to which any Company is now a party or by which any
Company or any properties of any Company is bound.
5.6 CONSENTS AND APPROVALS. Except for the consents and approvals listed
on SCHEDULE 5.6, 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 in connection with the execution, delivery and performance by any
Company of this Agreement or any of the Sellers' Transaction Documents.
5.7 INVESTMENTS AND SUBSIDIARIES. Except as disclosed on SCHEDULE 5.7,
the Businesses (including the Purchased Centers) are and have been conducted
solely by and through the Companies and no other person or entity, and the
Companies have 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 or
relating to the Businesses. Except as disclosed on SCHEDULE 5.7, the Purchased
Assets, the Leases and the Contracts (defined below) are all of the material
assets used in or necessary for the conduct of the Businesses as currently
conducted. No Purchased Asset is owned or held by any person or entity
(including any Shareholder) other than a Company. No Company has any
subsidiaries.
5.8 COMPLIANCE WITH LAWS. The Companies have operated the Business in
compliance in all material respects with all Laws, and the Companies have not
received any claim or notice that the Businesses are not in compliance with any
Law, except as shown on SCHEDULE 5.8.
5.9 PERMITS. Except as set forth on SCHEDULE 5.9, SCHEDULE 1.1(a)(i) is
a true, correct and complete list of all Permits which are necessary for the
Company to conduct the Business as now conducted. The Companies own, possess or
have the legal right to use all of the Permits, free of any and all Liens. No
Company is in 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.
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5.10 ENCUMBRANCES CREATED BY THIS AGREEMENT. The execution and delivery
of this Agreement and the Sellers' Transaction Documents by each Company and
each Shareholder do not, and the performance of their respective terms will not,
create any Liens on any of the Purchased Assets in favor of third parties or
give rights to third parties other than Buyer.
5.11 JUDGMENTS AND LITIGATION.
(a) Except as described in SCHEDULE 5.11, there are no, and during
the last three years there have not been any, claims, actions, suits,
proceedings (arbitration or otherwise) or, to the Companies' knowledge,
inquiries or investigations, pending or, to the Companies' knowledge,
threatened, involving or affecting any Company or any of their respective
properties or the Businesses, or the Company's directors, officers or
shareholders in their capacities as such, before or by any court or governmental
agency or instrumentality, or before an arbitrator of any kind which, in the
case of claims, inquires or investigations not yet resulting in any action, suit
or proceeding, if decided adversely against a Company or its directors, officers
or shareholders could have a material adverse affect on the Company's financial
condition or results of operations. To the Companies' knowledge, there is no
state of facts or occurrence of any event that could reasonably serve as a basis
for any claim, action, suit or proceeding against any Company, the Purchased
Assets or the Businesses which, if decided adversely against a Company or its
directors, officers or shareholders, could have a material adverse affect on the
Company's financial condition or results of operations. Except as described in
SCHEDULE 5.11, to the Companies' knowledge, there is no claim, action, suit,
proceeding, inquiry or investigation presently threatened or contemplated that
questions the validity of this Agreement or any of Sellers' Transaction
Documents or the transactions contemplated hereby or thereby.
(b) Except as described in SCHEDULE 5.11, there are no outstanding
orders, writs, injunctions, fines, citations, penalties, decrees or unsatisfied
judgments of any court, governmental agency or instrumentality or arbitrator
against any Company, the Purchased Assets or the Businesses.
5.12 FINANCIAL STATEMENTS.
(a) SCHEDULE 5.12 contains true, correct and complete copies for each
Company of (i) such Company's balance sheet (collectively for all the Companies,
the "BALANCE SHEETS") as of December 31, 1995 (the "BALANCE SHEET DATE") and
such Company's related statements of income prepared on a cash basis for the
fiscal period then ended and (ii) such Company's balance sheets as of December
31, 1993 and 1994 and such Company's statements of income for each of the fiscal
years then ended (collectively, the "FINANCIAL STATEMENTS").
(b) The Financial Statements have been prepared on a cash basis and
present fairly the financial position of each Company and the results of their
respective operations and cash flows at the dates and for the periods covered
thereby.
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(c) Except as identified in SCHEDULE 5.12, no Company has any
material liabilities or obligations of any nature (absolute or contingent) that
are not reflected on the Balance Sheets (including, without limitation,
reasonably anticipated liabilities, losses and expenses of the Companies,
including, without limitation, those with respect to 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 such Company's employees), except for current liabilities which have
been incurred since the Balance Sheet Date in the ordinary course of business
consistent in nature and amount with past practice and which are not
inconsistent with any of the representations and warranties contained herein
(such current liabilities are herein referred to as "CURRENT LIABILITIES"). To
Seller's knowledge, there is no basis for the assertion against such Company of
any liability or obligation of any nature or in any amount (other than Current
Liabilities as aforesaid) not fully reflected or reserved against in the Balance
Sheet or identified on SCHEDULE 5.12.
(b) No Company is insolvent or will be rendered insolvent by the
transactions contemplated by this Agreement.
5.13 TAX MATTERS.
(a) SCHEDULE 5.13 contains true, correct and complete copies of the
federal income tax returns of each Company for each Company's fiscal years ended
December 31, 1991, 1992, 1993 and 1994.
(b) Except as disclosed on SCHEDULE 5.13:
(i) Each Company has been qualified as an S Corporation, as
defined in Section 1361 of the Internal Revenue Code of 1986, as amended (the
"CODE"), for income federal tax purposes and for state income tax purposes in
the Commonwealth of Virginia in each fiscal year since its inception, except
Treetops, which has been qualified as an S Corporation since 1990.
(ii) Each Company has timely and properly filed all federal,
state, county and local returns and reports relating to Taxes (defined below)
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 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 the books of account of each Company. There
are no levies, Liens or other encumbrances (except any Lien for Taxes not yet
due and payable) relating to Taxes existing, pending or, to the Companies'
knowledge, threatened with respect to any asset of any Company.
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5.14 ABSENCE OF CERTAIN CHANGES. Since December 31, 1995, the Businesses
have been conducted only in the usual and ordinary course consistent with past
practice, there has not been any material adverse change in the condition
(financial or otherwise), assets, liabilities, properties, operations or
prospects of the Businesses or any Company or any event, condition or
contingency that is likely to result in any such material adverse change, and,
except as disclosed in SCHEDULE 5.14, each Company has not:
(a) sold, assigned, leased, transferred, mortgaged, pledged or
imposed any Lien on any of its assets or properties material to the operation of
the Businesses, except in the ordinary course of business consistent with past
practice;
(b) suffered any 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 used in or
required to conduct the Businesses, or suffered any material 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, properties or
prospects of the Businesses;
(c) 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;
(d) changed any of the accounting principles followed by it or the
methods of applying such principles;
(e) entered into any amendment or termination of any Lease, Assumed
Contract or any other material agreement or other document or commitment
affecting or relating to the Businesses (or received any notice thereof), or
entered into any material transaction (whether or not in writing), other than
this Agreement;
(f) accelerated the collection of tuition or registration fees or
otherwise collected such fees in a manner not consistent with such Company's
normal business practice;
(g) issued any capital stock or other securities of such Company, or
repurchased or redeemed any such shares of capital stock or other securities;
(h) declared or paid any dividend or other distribution or payment in
respect of the shares of capital stock of such Company other than cash dividends
paid with cash other than proceeds of assets sold other than in the ordinary
course of business; or
(i) agreed to do any of the foregoing.
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5.15 TITLE TO AND CONDITION OF ASSETS, PROPERTIES, ETC. Except as
described on SCHEDULE 5.15,
(a) each Company has good title to all of its tangible and intangible
properties and assets (including those reflected on the Balance Sheets (except
to the extent the same have since been sold or otherwise disposed of in the
ordinary course of business consistent with past practice) and including, all of
the Purchased Assets), free and clear of any and all Liens and, upon Closing,
such title will be transferred to Buyer;
(b) all of the Purchased Assets are in the possession or under the
control of the Companies and are located at a Purchased Center and, to the
Companies' knowledge, are in good condition and repair, ordinary wear and tear
excepted and are of a condition, nature and quantity sufficient for the conduct
of the Businesses as conducted during the past two years; and
(c) to the Companies' knowledge, there is no material structural,
mechanical or other significant defect or deficiency in any of the Purchased
Centers, the Purchased Assets or the real property at which the Purchased
Centers are located.
5.16 REAL PROPERTY. The Leasehold Interests are the only real properties
owned (beneficially or of record) or leased by any Company. SCHEDULE 5.16
contains true, correct and complete copies of each of Lease, including all
amendments or modifications to date. No Company or Shareholder has received any
written or oral notice for assessments for public improvements against any of
such real properties which remains unpaid and, to the Companies' knowledge, no
such assessment has been proposed. Except as shown on SCHEDULE 5.16, no Company
or Shareholder has received any written or oral notice or order by any
governmental or other public authority, any insurance company which has issued a
policy with respect to any of such properties or any board of fire underwriters
or other body exercising similar functions which (i) relates to violations of
building, safety, fire or other ordinances or regulations, (ii) claims any
defect or deficiency with respect to any of such properties or (iii) requests
the performance of any repairs, alterations or other work to or in any of such
properties or in the streets bounding the same. To the Companies' knowledge,
there is no pending condemnation, expropriation, eminent domain or similar
proceeding affecting all or any portion of any of such properties and, to the
Companies' knowledge, no such proceeding is contemplated.
5.17 LIST OF PROPERTIES, CONTRACTS, ETC.
(a) SCHEDULES 1.1(a)(i) AND 1.1(a)(viii) contain true, correct and
complete lists, as of the date hereof, of each vehicle, item of machinery,
equipment and other tangible assets owned by the Companies; and all items
identified on the list are located at the Purchased Center specified in such
Schedule.
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(b) SCHEDULE 5.17(b) contains a true, correct and complete list, as
of the date hereof, of all machinery, vehicles and equipment under lease to a
Company, together with the identity of the lessor, the annual rental and
unexpired lease term.
(c) SCHEDULE 5.17(c) contains a true, correct and complete list, as
of the date hereof, of each contract, agreement, purchase order or other
commitment (whether or not in writing) relating to the Businesses or to which
any Company is a party or by which any Company or any Purchased Asset is bound
(collectively, the "CONTRACTS").
(d) SCHEDULES 1.1(a)(ii) AND 5.17(d) contain, respectively, a true,
correct and complete list, as of the date of this Agreement, of all Intellectual
Property which are owned, possessed or used in the operation of the Businesses
by the Companies.
(e) SCHEDULE 5.17(e) contains a true, correct and complete list, as
of the date of this Agreement, each form of contract, agreement or commitment
used by any Company as a standard form in the Businesses.
(f) SCHEDULE 5.17(f) contains a true, correct and complete summary,
as of the date of this Agreement, of each policy and binder of insurance owned
by or maintained for the benefit of each Company, or respecting which any
premiums are paid directly or indirectly by Shareholders relating to the
Businesses, and each insurance claim made or loss incurred by each Company in
the preceding three years pursuant to any liability, workers' compensation or
other insurance policy.
5.18 CONTRACT VALIDITY, DEFAULTS, NOTICE/CONSENT. Except as described on
SCHEDULE 5.18:
(a) each Contract was made in the ordinary course of business, is in
full force and effect and is valid, binding and enforceable against the Company
which is a party thereto and, to the Companies' knowledge, 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;
(b) all parties to the Contracts have complied with the provisions
thereof, no party is in default thereunder, and to the 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
(c) none of the Contracts requires notice to or the consent of any
party thereto in connection with the consummation of the transactions
contemplated hereby (including, assignment to Buyer of the same).
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5.19 EMPLOYEES.
(a) SCHEDULE 5.19(a) sets forth a true, correct and complete list of
the names of all center directors of the Businesses and all other persons with
managerial level responsibilities in the Businesses.
(b) SCHEDULE 5.19(b) sets forth a true, correct and complete lists of
the name and current annual rate of compensation (including bonuses) paid or
payable by each Company to each of its center directors and employees. Except as
disclosed on SCHEDULE 5.19(c), there are no contracts, commitments or policies,
written or oral, relating to the employment or severance of any such center
directors or employee.
(c) No amount is owing to any employee of any Company with respect to
bonus or incentive awards, if any, for services rendered on or before the
Closing Date in accordance with the terms of applicable plans or policies of the
Company or otherwise. SCHEDULE 5.19(c) sets forth a tabulation showing the
amount of accrued but unused vacation and sick days for each employee of the
Company as of December 31, 1995.
5.20 LABOR MATTERS. None of any Company's employees is represented by any
union or other collective bargaining representative nor, to the Companies'
knowledge, are there currently any attempts by any union or other collective
bargaining representative to organize employees and, to the Companies'
knowledge, there have been no such attempts within the last one year. Since the
commencement of operations of each Company, there has not been, nor, to the
Companies' knowledge, is there threatened or contemplated, any strike, slowdown,
picketing or work stoppage by any employees against any Company, its assets or
properties wherever located, any lockout by any Company of any of its employees
or any labor trouble or 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, properties or prospects of any Company, the
Businesses or the Purchased Assets.
5.21 RELATIONSHIPS. Except as disclosed in SCHEDULE 5.21, there is no
dispute or controversy existing between any Company and any of its clients or
customers with respect to any services or product sold or furnished by any
Company; and there is no dispute or controversy existing between any Company and
any supplier or other contractor with respect to any product or service
purchased by any Company from such person or entity.
5.22 TRANSACTIONS WITH RELATED PARTIES. Except as disclosed on SCHEDULE
5.22, since January 1, 1993, no Related Party has engaged in any material
transaction with any Company (other than providing services as an employee of a
Company as disclosed pursuant to Section 5.19(b)). As used herein, a "RELATED
PARTY" means (i) any officer, director or shareholder of any Company, (ii) any
relative of any such officer, director or shareholder, or (iii) any business or
entity, or any officer, director or shareholder of any business or entity, in
which any of the persons referred to in clause (i) or (ii) has any direct or
material indirect interest.
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5.23 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 Code, and the payment of the Purchase Price will not be subject to the
withholding requirements of Section 1445 of the Code.
5.24 EMPLOYEE BENEFIT PLANS. Except as set forth on SCHEDULE 5.24, no
Company maintains, or contributes to, any employee benefit plans. No Company has
ever maintained any employee pension benefit plans qualified for federal income
tax purposes under the Code. Each Company has made all required contributions
under each employee benefit plan listed on SCHEDULE 5.24 for all periods through
the Closing Date. No Company has ever been obligated to contribute to a
multiemployer plan. No Company maintains any employee benefit plan(s) providing
for continued life or health benefits or coverage for any employee (or
beneficiary thereof) after the employee's termination of employment, other than
as required by Section 601 et. seq. of Employee Retirement Income Security Act
of 1974, as amended ("ERISA"). As used in this Section 5.24, the terms "employee
benefit plan," "employee pension benefit plan" and "multiemployer plan" shall
have the respective meanings assigned to such terms in Section 3 of ERISA.
"Company" as used in this Section 5.24 shall include any other entity required
to be aggregated with each Company under Section 414(b), 414(c), 414(m), or
414(o) of the Code.
5.24 ENVIRONMENTAL PROTECTION. Except as disclosed in SCHEDULE 5.25,
(a) The Businesses are now and always have been conducted and
operated in compliance with all federal, state, and local statutes, ordinances,
regulations and rules concerning or relating to industrial hygiene or the
protection of health and the environment (collectively, the "ENVIRONMENTAL
LAWS");
(b) To the Companies' knowledge, there are no conditions on, about,
beneath, adjacent to or arising from any of the Purchased Centers which might
give rise to liability, result in the imposition of a statutory lien or require
any "Response," "Removal" or "Remedial Action", 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);
(c) 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 any of the Purchased
Centers by any Company or any person acting on behalf or at the direction of any
Company or, to the Companies' knowledge, by any other persons, except in
compliance with all Environmental Laws. To the Companies' knowledge, there are
no transformers or other equipment containing or contaminated with
polychlorinated biphenyls ("PCBS") or any above or underground storage tanks on,
about or beneath any Purchased Center .
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To the Companies' knowledge, there is no asbestos or asbestos containing
material at any of the Purchased Centers and no lead-based paint or lead-based
paint hazards are present at any Purchased Centers. As used in this Agreement,
the term "HAZARDOUS SUBSTANCE" means a hazardous substance, material or waste
including, without limitation, any substance which: (i) is or contains
petroleum, asbestos, lead-based paint or PCBs; (ii) is 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; (iii) is listed in the United
States Department of Transportation Hazardous Material Table, 49 C.F.R. (S)
172.101; or (iv) is 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
(d) No Company (or Shareholder, with respect to matters affecting the
Company) has received notice or had any actual knowledge of: (i) any claim,
demand, investigation, enforcement, Response, Removal, Remedial Action or other
governmental or regulatory action instituted or threatened against any Company
or any Purchased Center pursuant to any of the Environmental Laws; (ii) any
claim, demand, suit or action made or threatened by any person or entity against
any Company or any Purchased Center 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 any Purchased Center or any alleged 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 any Purchased Center,
including, without limitation, any notice of violation, citation, complaint,
order, directive, request for information or response thereto, notice letter,
demand letter or compliance schedule.
5.26 BOOKS AND RECORDS.
(a) The copies of the articles of incorporation of each Company, as
certified by the Clerk of the State Corporation Commission of the Commonwealth
of Virginia, and of its bylaws, as certified by its secretary or assistant
secretary, which have been delivered to Buyer are true, complete and correct and
are in full force and effect as of the date hereof.
(b) The stock records of each Company fairly and accurately reflect
the record ownership of all of its outstanding shares of capital stock. The
minute books of each Company contain complete and accurate records of all
meetings held of, and corporate action taken by, the shareholders, the board of
directors and each committee of the board of directors of each Company. The
other books and records of each Company, including financial records and books
of account, are complete and accurate in all material respects and have been
maintained in accordance with sound business practices. Complete and accurate
copies, as of the date hereof, of all such minute books and stock records have
been made available to Buyer.
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5.27 INTELLECTUAL PROPERTY. The Company has not granted or licensed to
any person or entity any rights with respect to any of the Intellectual
Property. No Company has received any notice of any claim that any of the
Intellectual Property infringes any trademark, trade name, service mark,
copyright, patent or other proprietary right of any person. No Company has been
in breach of, or is now in breach of, any agreement concerning third party
intellectual property rights or confidential information.
5.28 NO CHILD ABUSE OR SEXUAL ABUSE. Except as disclosed in SCHEDULE
52.8, no acts or events have occurred or been committed by any present or former
officer, director, employee or agent of any Company that have resulted in or
which constitute, child (including physical or sexual) abuse or assault of any
type or nature, against any child or other person within the previous five
years. Except as disclosed in SCHEDULE 5.28, within the previous five years,
there has not been, nor, to the Companies' knowledge, has there been threatened
or contemplated, any event, allegation, report or publicity, or any charge,
suit, action or other proceeding, regarding any acts of alleged child abuse or
sexual abuse, of any nature whatsoever, involving any Company or the Businesses
or any of any Company's present or former officers, directors, employees or
agents.
5.29 NO OTHER AGREEMENTS. Other than this Agreement, no Company or
Shareholder 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 any Company; (ii) the sale,
issuance or other disposition of the Purchased Assets or the Businesses (or any
portion thereof); or (iii) the sale, issuance or other disposition of any shares
of capital stock or other securities of any Company.
5.30 OPERATION OF OTHER CENTERS AND SCHOOLS. Except as disclosed on
SCHEDULE 5.30, as of the date of this Agreement, other than the Purchased
Centers, no Company or Shareholder either directly or indirectly, operates,
manages, owns, controls, provides consulting services to, or is in any way
connected with or concerned with or interested in any day care or child care
facility or private school of any type.
5.31 SPECIAL ARRANGEMENTS. No Company has any unusual or cash payment
arrangements with any of its employees. All employees are paid through the
payroll systems of the Companies and receive only the payments disclosed by such
systems, except for the Shareholders who receive distributions from time to
time. Except as set forth in SCHEDULE 5.31, no Company has any arrangements or
obligations with any of its customers or children whereby such Company offers
(i) care or custody services at any location other than the locations of the
Purchased Centers, (ii) any pickup or delivery services and (iii) any discounts
from such Company's published tuition rates.
5.32 BROKERS. No person or entity acting on behalf of any Company or
Shareholder 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
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or indirectly, from any of such parties in connection with any of the
transactions contemplated by this Agreement, other than fees payable to Dick
Richards and Childcare Center Brokerage and Development, Inc. (which fee is
being satisfied in full by the Companies and Shareholders and with respect to
which Buyer shall have no responsibility).
5.33 DISCLOSURE. No representation or warranty by the Companies in this
Agreement and no information in any statement, certificate, schedule or other
document furnished or to be furnished to Buyer pursuant hereto, or in connection
with the transactions contemplated hereby, and no information in any Schedule
attached to this Agreement, contains any untrue statement of a material fact or
omits to state a material fact necessary to make the statements contained herein
or therein not misleading. Except as disclosed in this Agreement and the
Schedules attached hereto (and excluding economic, business and regulatory
factors affecting the child care industry generally and such facts as are public
knowledge), there is no fact which the Companies have not disclosed to Buyer in
writing which materially adversely affects nor, so far as the Sellers can now
reasonably foresee, may materially adversely affect the business, operations,
prospects, properties, assets, profits, condition (financial or otherwise) or
prospects of the Businesses. Disclosure of a matter on one schedule to this
Agreement shall be deemed to be disclosure of the matter on all relevant
schedules whether cross-referenced or not.
6. REPRESENTATIONS AND WARRANTIES OF ALL SHAREHOLDERS.
The Shareholders, jointly and severally, represent and warrant to Buyer as
follows:
6.1 POWER AND AUTHORITY. Each Shareholder has the full power, authority
and capacity to execute, deliver and perform this Agreement and the Sellers'
Transaction Documents to be executed by a Shareholder and to perform his or her
obligations hereunder and thereunder.
6.2 DUE AUTHORIZATION; BINDING AGREEMENT. This Agreement has been duly
executed and delivered by each Shareholder. This Agreement constitutes, and,
when executed and delivered, each of the Sellers' Transaction Documents to be
executed by a Shareholder will constitute, the legal, valid and binding
obligation of each Shareholder, enforceable against him or her 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.
6.3 ABSENCE OF CONFLICTING AGREEMENTS. The execution and delivery of
this Agreement and the Sellers' Transaction Documents by the Shareholders, and
the performance by all of them of the transactions contemplated hereby and
thereby, will not, with or without the giving of notice, lapse of time or both,
conflict with, or constitute a breach of or a default under, or violate or give
to any third party any rights under:
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(a) any Law applicable to any Shareholder or by which any Shareholder
or any properties of any Shareholder is bound; or
(b) any material agreement, indenture, instrument or contract to
which any Shareholder is now a party or by which any Shareholder or any
properties of any Shareholder is bound.
6.4 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 in connection with the execution, delivery and performance
by any Shareholder of this Agreement or any of the Sellers' Transaction
Documents.
7. REPRESENTATIONS AND WARRANTIES OF BUYER.
Buyer hereby represents and warrants to the Companies as follows:
7.1 ORGANIZATION AND STANDING. Buyer is a corporation duly organized,
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
and Virginia 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.
7.2 POWER AND AUTHORITY. Buyer has the full corporate power and
authority to execute, deliver and perform this Agreement and the other
agreements, documents and instruments required to be delivered by Buyer to the
Companies at Closing (collectively, the "BUYER'S TRANSACTION DOCUMENTS") and to
perform its obligations hereunder and thereunder.
7.3 DUE AUTHORIZATION; BINDING AGREEMENT. The execution and delivery by
Buyer of this Agreement and each of the Buyer's Transaction Documents, and the
performance by Buyer of its obligations hereunder and thereunder, have been duly
and validly authorized by all necessary action of the Board of Directors and
stockholders of Buyer. This Agreement has been duly authorized, executed and
delivered by Buyer. This Agreement constitutes, and when executed and delivered
by Buyer at the Closing each of the Buyer's Transaction Documents will
constitute, the legal, valid and binding obligations of Buyer, enforceable
against Buyer in accordance with its 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.
7.4 ABSENCE OF CONFLICTING AGREEMENTS. The execution and delivery of
this Agreement and the Buyer's Transaction Documents by Buyer, and the
performance by Buyer of
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the transactions contemplated hereby and thereby, will not, with or without the
giving of notice, lapse of time or both, conflict with, or constitute a breach
of or a default under or violates or give to any third party any rights under
(i) any law applicable to Buyer or by which Buyer or any of its properties is
bound, (ii) the certificate of incorporation or by-laws of Buyer or (iii) any
agreement, indenture, instrument or contract to which Buyer is a party or by
which Buyer or any of its properties is bound.
7.5 CONSENTS. Except for any required filings under applicable Federal
and state securities laws, and except for such consents of lenders as have been
obtained as of the date hereof, and assuming the accuracy of each Shareholders'
representations set forth in Section 1.1, no consent, waiver, approval or
license of any person is required to be given or made by in connection with the
execution and delivery by Buyer of this Agreement and the Buyer Transaction
Documents and the issuance and sale of the Promissory Note by Buyer.
7.6 CAPITALIZATION. The authorized capital stock of Buyer consists of
60,000,000 shares, including 50,000,000 shares of common stock, par value $.001
per share, and 10,000,000 shares of preferred stock, par value $.001 per share.
As of December 31, 1995, the outstanding capital stock of the Company consisted
of 4,070,908 shares of common stock (plus 312,500 shares the Company was
obligated to, and did, issue in January 1996), 1,971,320 shares of Series A
Preferred Stock, 2,500,000 shares of Series C Preferred Stock and 1,063,830
shares of Series D Preferred Stock. The Company also has outstanding various
options and warrants to purchase its common stock.
7.7 FINANCIAL CONDITION. The financial statements included in the SEC
Reports (defined below) have been prepared in accordance with generally accepted
accounting principles consistently applied (except as may be indicated in the
notes thereto) and present fairly the consolidated financial position of Buyer
and its consolidated subsidiaries as of the respective dates thereof and the
consolidated results of their operations and their changes in cash flows for the
periods then ended, subject, in the case of the unaudited interim financial
statements, to normal year-end adjustments and any other adjustments described
therein.
7.8 ABSENCE OF CHANGE. Since September 30, 1995, the business of Buyer
has been operated in the ordinary course consistent with past practice and there
has not been (a) any material adverse change in the operations, properties or
condition (financial or otherwise) of Buyer or (b) any other change in the
nature of, or the manner of conducting, the business of Buyer, other than
changes which neither have had, nor reasonably may be expected to have, a
material adverse effect on Buyer.
7.9 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.
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7.10 DISCLOSURE. No representation or warranty by Buyer in this Agreement
or any statements, information or disclosures contained in Buyer's Annual Report
on Form 10-K for the fiscal year ended December 31, 1994 or Buyer's Quarterly
Reports on Form 10-Q for the fiscal quarters ended March 31, 1995, June 30, 1995
and September 30, 1995 filed with the Securities and Exchange Commission (the
"COMMISSION") (collectively, the "SEC REPORTS") or any other document furnished
to the Companies on the Closing Date pursuant hereto contains any untrue
statement of a material fact or omits to state a material fact necessary to make
the statements contained herein or therein not misleading.
8. EMPLOYEES OF THE BUSINESS; EMPLOYEE BENEFITS.
8.1 EMPLOYEES OF THE COMPANIES. Following Closing, Buyer will offer
employment to all employees of the Purchased Centers, provided that Buyer shall
not be under any contractual restriction from subsequently terminating the
employment of any such employees. Notwithstanding the foregoing, with respect to
the directors of the Purchased Centers, such employment shall continue for the
remainder of the 1995-1996 school year, at such compensation levels as are
currently in effect, provided that any such director may be terminated by Buyer
at any time for cause as determined in good faith by Buyer and this Section
shall in no way obligate Buyer to continue the employment of any such person
past the end of such school year. During the Earn-Out Period, unless Linda Nash
otherwise consents, the benefits afforded employees of Buyer located at the
Purchased Centers shall be the same as the benefits afforded to employees of the
Purchased Center by the Companies prior to the Closing Date.
8.2 EMPLOYEE BENEFIT AND BONUS CLAIMS.
(a) Buyer's employee benefit plans shall be responsible for all
benefit claims of those employees of the Companies who accept employment with
Buyer (or their eligible dependents) with respect to claims incurred after the
Closing Date;
(b) The Companies' employee benefit plans shall be responsible for
all benefit claims of (i) those employees of the Companies who accept employment
with Buyer (or their eligible dependents) with respect to claims incurred on or
before the Closing Date, (ii) those employees of the Companies who do not accept
employment with Buyer (or their eligible dependents) (including any claims from
such employees or their dependents for "continuation coverage" under Part 6 of
Subtitle B of Title I of ERISA (sometimes referred to as 'COBRA')) and (iii) all
retired employees (if any) (which obligations in (i), (ii) and (iii) shall be
included within the definition of "Excluded Liabilities");
(c) The Companies shall deliver to the Buyer, on or before the
Closing Date, complete and correct copies of all current plan documents,
associated insurance contracts, summary plan description, and the most recently
filed Internal Revenue Service Form 5500 series form (if any) for the Companies'
health insurance, dental insurance, and life insurance plans; and
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(d) The Companies will be responsible for preparing and filing the
Form 5500 series form for all plan years ended before the Closing Date (if
required and if not already filed).
9. CERTAIN OBLIGATIONS AND AGREEMENTS OF PARTIES AFTER CLOSING.
9.1 REMITTANCE OF PAYMENTS. From and after the Closing, the Companies and
Shareholders shall immediately remit to Buyer, in the form received, any
payments which they or any affiliate may receive (such as payments of tuition or
other fees) which properly belong to Buyer.
9.2 COLLECTION OF RECEIVABLES. From and for a period of six months after
the Closing, Buyer shall use its commercially reasonable efforts to assist the
Companies in the Companies' collection of the accounts receivable described in
SECTION 1.1(b)(iv); provided, however that nothing herein shall be construed as
creating any duty or obligation of Buyer to perform any collection duties
whatsoever on behalf of the Companies. If proceedings to collect such accounts
receivable are instituted, they shall be brought at the Companies' election, in
the Companies' own name and at their sole expense. Any amounts received after
Closing by Buyer or its subsidiaries shall be applied to accounts receivable
owed to Buyer or its subsidiaries, unless the payor specifies that such amounts
shall be payable in respect of accounts receivable owed to a Company.
9.3 DISCHARGE OF LIABILITIES. The Companies shall pay all the Excluded
Liabilities as and when the same shall become due and payable. Buyer shall pay
all the Assumed Liabilities as and when the same shall become due and payable.
Notwithstanding the foregoing, no party shall be obligated to pay to a third
party an Excluded Liability (in the case of the Company) or an Assumed Liability
(in the case of Buyer) which such party disputes in good faith.
9.4 NONDISCLOSURE; COVENANT NOT TO COMPETE.
(a) For a period of five (5) years from and after the Closing Date,
no Company or any Shareholder shall, directly or indirectly, operate, manage,
own, control, be employed by or provide consulting, advisory or similar services
to, any school, pre-school, day care or child care business of any type which is
now or hereafter located within Loudoun, Fairfax or Prince Williams Counties of
Virginia or within seven and one-half (7 1/2) miles of the outer boundaries of
the City of Richmond, Virginia as they exist on the date hereof (collectively,
the "TERRITORY"); provided however, that nothing contained in this Section 9.4
shall prohibit such parties from owning in the aggregate less than 2% of the
publicly traded stock of any Company.
(b) After the first anniversary of the date hereof, it shall not be a
violation of Section 9.4(a) for Linda Nash to perform consulting services for
companies concerning the day-to-day operation of childcare businesses within the
Territory; provided that (i) no company for which Linda Nash performs such
services has a childcare center within five (5) miles of any of the Purchased
Centers or any of Buyer's four existing locations listed on SCHEDULE C, (ii)
Linda Nash does not have any ownership interest in any such company or
compensation which depends on
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performance of any such company and (iii) Linda Nash maintains the
confidentiality of Buyer's proprietary information. In addition, it shall not be
a violation of Section 9.4(a) for Linda Nash to provide day-to-day consulting
services for a single center to Barry R. Miel and his firm, National Resource,
Inc. (of Potomac, Maryland) during the first year after closing, so long as her
services are limited in scope and territory to those which she would be
permitted to do generally after the first year under this Section 9.4(b). The
consulting services contemplated by this Section 9.4(b) do not include real
estate or real estate development activities in the Territory. Nothing in
Section 9.4(a) or this Section 9.4(b) shall be deemed to prohibit Linda Nash
from engaging in any activity outside the Territory.
(c) From and after the date hereof, no Company or Shareholder shall
disclose, directly or indirectly, to any person or entity, other than an
employee of Buyer, without the express authorization of Buyer in each such
instance, any customer or client lists, pricing strategies, customer, client or
employee files or records, proprietary data or trade secrets of Buyer not in the
public domain.
(d) From and after the date hereof until the fifth (5th) anniversary
of the Closing Date, no Company or Shareholder shall, directly or indirectly,
engage or participate in any effort or action to induce any of the customers,
clients, suppliers, associates, employees or independent contractors of Buyer or
its subsidiaries relating to operations of Buyer within the Territory (including
those of any Purchased Center or the Businesses) to cease doing business or to
discontinue their association or employment with Buyer or its subsidiaries.
Prohibited actions shall include, without limitation, the solicitation of
Buyer's or any such subsidiary's customers, clients, suppliers, associates,
employees or independent contractors to cease doing business, or to discontinue
their association or employment, with Buyer or any such subsidiary.
(e) Each Company and each Shareholder expressly acknowledges that
damages alone will be an inadequate remedy for any breach or violation of any of
the provisions of this Section 9.4 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. If Buyer must
resort to the courts to enforce any of the covenants set forth in this Section
9.4, the term of such covenants will be extended for a period of time equal to
the period of such breach (such extended period to commence on the later of (i)
the date on which the original (unextended) term of such covenants would have
terminated or (ii) the date of the final court order (without further right of
appeal) enforcing such covenants).
(f) Each Company and each Shareholder acknowledges and agrees that
the covenants contained in this Section 9.4 are fair and reasonable in light of
the consideration paid hereunder and in order to protect Buyer's investment in
the Purchased Centers and the Businesses, and the invalidity or unenforceability
of this provision, or any other or part of any other provision, of this
Agreement shall not affect the other provisions or parts hereof. If any
provision in this Section 9.4 is determined to be invalid or unenforceable by a
court of competent jurisdiction,
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(i) the Companies and Shareholders shall negotiate in good faith to provide
Buyer with protection as nearly equivalent to that found to be invalid or
unenforceable and (ii) the court making such determination shall have the power,
and is directed by the parties, to reduce the area covered, the duration thereof
or the scope thereof, so that the provision shall then be enforceable in its
reduced form.
(g) The Cash Closing Payment and Earn-Out shall serve as good and
sufficient consideration for the obligations of the Companies for its
obligations pursuant to this Section 9.4. In consideration of the covenants of
the Shareholders under this Section 9.4, Buyer shall pay to the Shareholders an
aggregate amount equal to $100,000, to be payable in equal monthly installments
over the period of their obligations under Section 9.4(a) (i.e., in 60 monthly
payments of $1,666.67).
9.5 ACCESS TO RECORDS. Buyer shall give the Shareholders reasonable
access to the historical financial records of the Companies included in the
Purchased Assets for five years following the Closing Date for the purpose of
preparing the tax returns of the Companies and such Shareholders during normal
business hours and shall permit the Shareholders to make copies of such records
at the expense of the requesting Shareholder. The Companies and the Shareholders
shall give Buyer reasonable access to the Retained Records for five years
following the Closing Date for all valid corporate purposes during normal
business hours and shall permit Buyer to make copies of such records at Buyer's
expense. No party shall destroy any of such records without the consent of the
other party.
9.6 REPRESENTATION LETTERS. The Companies and Shareholders acknowledges
that Buyer is a publicly-held company, subject to the reporting provisions of
Section 13 of the Securities Exchange Act of 1934, as amended (the "1934 ACT"),
and that Buyer may be required by the Act and the rules and regulations of the
Securities and Exchange Commission ("SEC") to include audited financial
statements of the Business for certain periods in reports filed by Buyer with
the SEC under the Act and in registration statements filed with the SEC under
the Securities Act of 1933, as amended (the "1933 ACT"). The Companies and
Shareholders will use their best efforts, at Buyer's request, to assist Buyer
after Closing to obtain audited financial statements for those periods, such
efforts to include but not be limited to, cooperating by signing customary
representation letters required by Buyer's independent auditors. The cost of
obtaining audited financial statements shall be paid by Buyer.
9.7 POST-CLOSING COVENANTS OF BUYER. Subsequent to the Closing and until
the end of the Earn-Out Period, (a) Buyer will cooperate with Linda Nash (i) to
develop the business of the Purchased Centers and (ii) to operate all of the
Purchased Centers in a good and businesslike manner consistent with past
business practices and (b) Buyer will not change the name or curriculum of any
of the Purchased Centers without the approval of Linda Nash. If Buyer exercises
renewal rights under any of the Leases, it will make a good faith request of the
landlord to release the Companies of their liability under such Lease.
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9.8 PERMITS AND LICENSES. From and after Closing and continuing for a
period of three months thereafter, the Companies will allow, to the extent
allowable under applicable law, Buyer to operate the Purchased Centers under
existing child care licenses and permits of the Companies. Buyer will indemnify
and hold harmless the Companies and their respective officers, directors and
shareholders against and in respect of any and all Damages which any of them may
suffer, incur or become subject to under such licenses and permits of the
Companies as a result of Buyer's operation of the Purchased Centers after the
Closing, except to the extent that any such Damages are due to (i) wrongful
actions of Linda Nash personally (i.e., not actions imputed from employee
actions) or (ii) any condition or state of events the existence of which
constitutes a breach of the Companies' representations and warranties hereunder.
10. INDEMNIFICATION.
10.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations,
warranties, covenants and agreements made by a party in this Agreement or in any
schedule, certificate, document or list delivered by any such party pursuant
hereto shall survive the Closing, and each party hereto shall be entitled to
rely upon the representations and warranties of the other parties
notwithstanding any investigation conducted before or after the Closing Date or
the decision of any party to complete the Closing.
10.2 INDEMNIFICATION BY THE COMPANIES AND SHAREHOLDERS. The Companies and
the Shareholders shall, jointly and severally, indemnify and hold harmless Buyer
and its officers, directors and shareholders against and in respect of any and
all losses, costs, expenses, claims, damages, obligations or liabilities
(including interest, penalties, reasonable legal and paralegal fees and
expenses, and all other costs and expenses incurred in investigating any of the
foregoing or preparing for or defending any proceeding, commenced or threatened,
incident to the foregoing or to the enforcement of this Agreement)
(collectively, "DAMAGES") which Buyer or any such person may suffer, incur or
become subject to arising out of, based upon or otherwise in respect of:
(a) any inaccuracy in or breach of any representation or warranty of
any Company or any Shareholder made in or pursuant to this Agreement or any
Sellers' Transaction Document;
(b) any material breach or nonfulfillment of any covenant or
obligation of any Company or any Shareholder contained in this Agreement or any
Sellers' Transaction Document;
(c) all liabilities of the Companies for or with respect to any
Taxes for which returns are filed (whether or not reserved against or contested)
for taxable periods up to and including the Closing Date; and
(d) the Companies' failure timely to pay the Excluded Liabilities.
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10.4 INDEMNIFICATION BY BUYER. Buyer shall indemnify and hold harmless the
Companies and their respective officers, directors and shareholders against and
in respect of any and all Damages which the Companies or their respective
officers, directors and shareholders may suffer, incur or become subject to
arising out of, based upon or otherwise in respect of :
(a) any inaccuracy in or breach of any representation or warranty of
Buyer made in or pursuant to this Agreement or any Buyer's Transaction Document;
(b) any material breach or nonfulfillment of any covenant or
obligation of Buyer contained in this Agreement or any Buyer's Transaction
Document;
(c) Buyer's failure timely to pay the Assumed Liabilities.
10.4 PROCEDURES RELATING TO INDEMNIFICATION.
(a) In order for a party (the "INDEMNIFIED PARTY") to be entitled to
any indemnification provided for under this Agreement in respect of, arising out
of or involving a claim or demand made by any individual, entity or governmental
authority against the indemnified party (a "THIRD PARTY CLAIM"), such
indemnified party must notify the other party (the "INDEMNIFYING PARTY") in
writing of the Third Party Claim within 45 days after receipt by such
indemnified party of written notice of the Third Party Claim; provided, however,
that failure to give such notification shall not affect the indemnification
provided hereunder except to the extent (and only to the extent) the
indemnifying party shall have been actually prejudiced as a result of such
failure. Thereafter, the indemnified party shall deliver to the indemnifying
party, within five business days after the indemnified party's receipt thereof,
copies of all notices and documents (including court papers) received by the
indemnified party relating to the Third Party Claim. (For purposes of this
Section 10.4, the Companies jointly and severally shall be considered to be one
party (represented by Companies' Agent, as provided below) and Buyer being the
other party.)
(b) The indemnifying party will be entitled to participate in the
defense of a Third Party Claim made against an indemnified party and, if it so
chooses, to assume the defense thereof with counsel selected by the indemnifying
party; provided that, with respect to such assumption, (i) such counsel is not
reasonably objected to by the indemnified party and (ii) the indemnifying party
first admits in writing its obligation hereunder to the indemnified party to
indemnify the indemnified party with respect to the claim and notifies the
indemnified party of its intention to assume such defense within 30 days of
receipt of notice of a Third Party Claim. If the indemnifying party does not
timely give written notice of its intention to assume control in the defense of
any Third Party Claim, or, after giving such notice, fails to do so, the
indemnifying party shall be bound by the results obtained by the indemnified
party with respect to such claim. If the indemnifying party does timely give
such notice, the indemnified party (x) will cooperate in all reasonable respects
with the indemnifying party in connection with such defense, (y) will not admit
any liability with respect to, or settle, compromise or discharge any Third
Party Claim without the indemnifying party's prior written consent and (z) will
agree to any settlement,
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compromise or discharge of a Third Party Claim which the indemnifying party may
recommend and which by its terms obligates the indemnifying party to pay the
full amount of the liability in connection with such Third Party Claim, which
releases the indemnified party completely in connection with such Third Party
Claim, which does not obligate the indemnified party to take or forbear to take
any action, and which would not, in the case Buyer is the indemnified party,
adversely affect the business, operations or properties of Buyer or its
subsidiaries. If the indemnifying party assumes the defense of any Third Party
Claim as provided above, the indemnified party shall be entitled to participate
in (but not control) such defense with its own counsel and at its own expense.
An indemnifying party who does not assume the defense of a claim will not be
obligated to pay the fees and expenses of more than one counsel for all parties
indemnified by such indemnifying party with respect to such claim.
(c) Anything contained in this Agreement to the contrary
notwithstanding, no Company shall be entitled to assume the defense of any Third
Party Claim (and shall be liable for counsel's fees and expenses incurred by
Buyer in defending such Third Party Claim) if the Third Party Claim seeks an
order, injunction or other equitable relief or relief for other than money
damages against Buyer which Buyer reasonably determines would, if successful,
adversely affect the business, operations or properties of Buyer and its
subsidiaries; provided, however, that if such equitable relief portion of the
Third Party Claim can be separated from any related claim for money damages
(such determination to be made solely by Buyer, after conferring with its
outside counsel), the Companies shall be entitled to assume the defense of the
portion relating to money damages.
10.5 LIMITATION.
(a) All claims for breach of any representation or warranty made by
any party must be asserted prior to the second anniversary of the Closing Date,
and no party shall be entitled to indemnity hereunder or other relief for any
such claims asserted after that date; provided, however, that in the case of
income or other tax claims and claims relating to environmental matters, notice
may be given within the period of the applicable statute of limitations. This
Section 10.5 shall not impose any time limitation on the assertion of claims for
indemnification (x) otherwise than under Sections 10.2(a) and 10.3(a) or (y)
with respect to the breach of any of representation and warranty if such
representation or warranty was made with actual knowledge that it contained an
untrue statement of a material fact or omitted to state a material fact
necessary to make the statements or facts contained therein not misleading.
(b) No claims under Section 10.2(a) or in respect of Excluded
Liabilities which are alleged by third parties but not valid shall be made until
and unless there are aggregate Damages in respect thereof equal to at least
$27,500.
(c) The liability of the Companies and Shareholders for breaches of
the Companies' representations and warranties under Section 5.28 and for
Excluded Liabilities
29
<PAGE>
relating to child or sexual abuse, in each case of which the Companies do not
have knowledge, shall be limited as follows:
(i) The Companies shall only be responsible for Third Party
Claims (and related expenses, including reasonable legal and paralegal fees and
expenses, and all other costs and expenses incurred in investigating any of the
foregoing or preparing for or defending any proceeding, commenced or threatened,
incident to the foregoing or to the enforcement of this indemnification
obligation) and not for consequential damages (such as loss of enrolled children
or the increased cost of raising capital due to a reduction in Buyer's stock
price);
(ii) Buyer shall be responsible for the payment of Buyer's
legal and paralegal fees and expenses relating to the assertion of any defenses
which are applicable to Buyer but not to the Companies or the Shareholders (such
as the assertion of the defense that a third party cannot proceed against Buyer
because Buyer is not a transferee of the liabilities of the Companies);
(iii) Such liability shall terminate if and when all Companies
assign to Buyer the benefits under the insurance policies described on SCHEDULE
10.5 if such insurance policy will afford to Buyer the same protection for
events occurring prior to the Closing Date as such insurance policy afforded to
the Companies prior to such assignment; and
(iv) The Companies and Shareholders shall not be obligated to
indemnify for any Damages relating to acts occurring after the Closing Date even
if committed by a person who was employed by the Companies.
(d) Buyer's right to recover Damages under this Section 10 shall be
limited to the amounts set forth on Schedule D opposite the name of the
Purchased Center or Centers to which such Damages relate.
10.6 REMEDIES NOT EXCLUSIVE. The indemnification obligations contained in
this Section 10 are not intended to waive or preclude any other claims, rights
or remedies which may exist at law (whether statutory or otherwise) or in equity
with respect to the matters covered hereby.
10.7 COSTS AND EXPENSES. Any and all costs and expenses (including,
without limitation, all legal, accounting and financial advisory fees) incurred
by the Shareholders or any Company in connection with the negotiations leading
up to and performance under this Agreement shall be borne by the Shareholders
and the Companies and shall be paid by them on or before the Closing Date. If
any cost or expense is not so paid and is paid by Buyer, the Companies and the
Shareholders shall promptly reimburse Buyer for any such expenses so paid.
10.8 RIGHT OF OFFSET. Buyer shall have the option of offsetting against
its obligations to deliver the Earn-Out or payments under Section 9.4 all or any
part of damages Buyer may
30
<PAGE>
suffer upon ten days prior written notice to the Companies' Agent (which such
offset amount shall be credited against any indemnification to which Buyer is
entitled under Section 10.3). If, upon Buyer's exercise of this right of offset,
the Companies' Agent disputes the amount being offset in a notice delivered to
Buyer by the Companies' Agent, Buyer shall immediately deposit the disputed
amount into escrow pending resolution of the dispute.
11. INVESTMENT REPRESENTATIONS AND COVENANTS OF SHAREHOLDERS.
11.1 Each Company understands that the issuance of the Promissory Notes
will not be registered under the 1933 Act, or qualified under any state
securities laws on the basis that the issuance of the Promissory Notes is exempt
from registration pursuant to Section 4(2) of the 1933 Act and/or Regulation D
promulgated under the 1933 Act ("REGULATION D") and from qualification pursuant
to Section 13.1-514B(13) of the Virginia Securities Act and Rule 503 thereunder,
and that the reliance of Buyer on such exemptions is predicated in part on the
Companies' representations, warranties, covenants and acknowledgments set forth
in this Section.
11.2 Each Company hereby represents and warrants to Buyer that:
(a) the Promissory Notes will be acquired by such Company for its own
account, not as a nominee or agent, for investment and without a view to resale
or other distribution within the meaning of the 1933 Act and the rules and
regulations thereunder, and such Company will not distribute any portion of the
Promissory Notes in violation of the 1933 Act or any state securities laws;
(b) it understands that:
(i) the Promissory Notes are not registered under the 1933 Act
and must be held indefinitely by such Company unless the Promissory Notes are
subsequently registered under the 1933 Act (in accordance with the provisions of
Section ? or otherwise) or an exemption from registration is available;
(ii) Rule 144 promulgated under the 1933 Act will not be
available for use by such Company for resale of the Promissory Notes, and Buyer
is not obligated to register any sale, transfer or other disposition of the
Promissory Notes; and
(iii) the Promissory Notes issuable to such Company will contain
a restrictive legend noting the restrictions on transfer described herein and
under federal and applicable state securities laws; and
(c) such Company acknowledges receipt of the SEC Reports and confirms
and acknowledges that: (i) Buyer has afforded such Company the opportunity to
ask questions of and receive answers from Buyers' officers and directors
concerning the business and financial condition of Buyer and such Company's
investment in Promissory Notes and to obtain such
31
<PAGE>
additional information as such Company has desired, and (ii) such Company has
availed itself of such opportunity to the extent it deems necessary and has
received the information requested;
(d) each of the holders of capital stock of such Company has a net
worth (or joint net worth with such person's spouse) equal to at least
$1,000,000 and, accordingly, such Company is an "accredited investors" as such
term is defined in Rule 501 of Regulation D promulgated under the 1933 Act.
(e) such Company's knowledge and experience in financial and business
matters are such that such Company is capable of evaluating the merits and risks
of its acquisition of the Promissory Note to be delivered to such Company as
contemplated by this Agreement.
11.3 In order to ensure compliance with the foregoing provisions, each
Company agrees that, after the Closing, he or she will not sell, transfer or
otherwise dispose of any of the Promissory Notes or any interest therein without
there first having been compliance with either of the following conditions:
(a) Buyer shall have received a written opinion of counsel in form
and substance reasonably satisfactory to Buyer, or a copy of a "no-action" or
interpretive letter of the Commission, specifying the nature and circumstances
of the proposed transfer and indicating that the proposed transfer will not be
in violation of any of the provisions of the 1933 Act and the rules and
regulations promulgated thereunder and any applicable state securities laws; or
(b) Buyer shall have received an opinion from its own counsel to the
effect that the proposed transfer will not be in violation of any of the
provisions of the 1933 Act and the rules and regulations promulgated thereunder
and any applicable state securities laws.
12. REPRESENTATION OF SHAREHOLDERS BY COMPANIES' AGENT.
12.1 APPOINTMENT OF COMPANIES' AGENT.
(a) Each of the Shareholders (herein called the "REPRESENTED
SHAREHOLDERS") hereby irrevocably appoints Linda Nash (herein called the
"COMPANIES' AGENT") as such Represented Shareholders' agent and attorney-in-fact
to take any action required or permitted to be taken by such Represented
Shareholder under the terms of this Agreement, including, without limitation,
the execution, delivery and receipt of any notices, certificates or other
documents to be executed, delivered or received by or on behalf of any or all of
the Represented Shareholders, the payment of expenses relating to the
transactions contemplated by this Agreement, the representation of the
Represented Shareholders in the resolution of any disputed matters hereunder and
in indemnification proceedings hereunder, and the right to waive, modify or
amend any of the terms of this Agreement. Each Represented Shareholder agrees to
be bound by any and all actions taken by the Companies' Agent on such
Represented Shareholder's behalf.
32
<PAGE>
(b) Buyer shall be entitled to rely exclusively upon any
communications given by the Companies' Agent on behalf of any Represented
Shareholder and shall not be liable in any manner whatsoever for any action
taken or not taken in reliance upon actions taken or not taken or communications
made by the Companies' Agent. Buyer shall be entitled to disregard any notices
or communications given or made by Represented Shareholders unless given or made
through the Companies' Agent, except as provided in Section 12.2.
12.2 SUCCESSOR AGENT. In the event of the death or resignation of the
Companies' Agent or her inability to perform her functions hereunder, the
Represented Shareholders shall promptly appoint a new agent or agents as
attorney-in-fact or attorneys-in-fact, and such appointment or appointments
shall be deemed to have been made when communicated to the Buyer in writing
signed by the former holders (or the personal representatives thereof) of at
least 51% of the Nobel Shares owned by Represented Shareholders immediately
prior to the Closing Date. If the Represented Shareholders do not within fifteen
days appoint a new agent or agents, then the Represented Seller then living who
previously owned the greatest number of Nobel Shares outstanding immediately
prior to the Closing Date shall serve as Companies' Agent if he or she is able
and willing to do so, until a successor agent or agents shall have been
appointed in accordance with the provisions hereof.
12.3 SHAREHOLDERS' ACTIONS. The manner and form by which the Represented
Shareholders shall decide upon any new agent and attorney-in-fact shall be
decided solely by the former holders (or the personal representatives thereof)
of at least 51% of the Nobel Shares owned by Represented Shareholders
outstanding immediately prior to the Closing Date. The Represented Shareholders
recognize, and hereby acknowledge, that the Companies' Agent has an interest in
the subject matter of this Agreement and that the appointment of such Agent
(which shall include any person who becomes the Companies' Agent pursuant to the
provisions of Section 12.2) as the Companies' Agent constitutes an irrevocable
power-of-attorney coupled with an interest.
13. MISCELLANEOUS.
13.1 COSTS AND EXPENSES. Except as expressly otherwise provided in this
Agreement, Buyer shall bear its own costs and expenses and the Companies and
Shareholders shall bear all of the costs and expenses of the Companies and
Shareholders in connection with this Agreement and the transactions contemplated
hereby.
13.2 LITIGATION. 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.
13.3 ASSIGNMENT AND BENEFIT. No party shall assign this Agreement or any
rights hereunder, or delegate any obligations hereunder, without the prior
written consent of the other
33
<PAGE>
parties. Subject to the foregoing, this Agreement shall be binding upon the
parties and the respective heirs, legal representatives, successors and
permitted assigns of the parties hereto.
13.4 SCHEDULES AND EXHIBITS. Any and all schedules and exhibits 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 or on an exhibit shall constitute a representation by
the party providing such schedule or exhibit of the truth, correctness and
completeness of all information set forth therein. 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.
13.5 EFFECT AND CONSTRUCTION OF THIS AGREEMENT. This Agreement and the
exhibits and schedules hereto 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 or affect the meaning or construction of
the provisions of this Agreement. Wherever the context may require, any pronouns
used herein shall be deemed also to refer to the corresponding singular, plural,
masculine, feminine or neuter form.
13.6 COUNTERPARTS. 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.
13.7 COOPERATION. Subject to the terms and conditions herein provided,
each of the parties hereto shall use its best 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.
13.8 NOTICES. All notices and other communications required or permitted
hereunder shall be in writing and shall be deemed to be properly given if
transmitted by messenger, overnight courier service, first class certified mail
(return receipt requested) or telecopy (which is confirmed), in each case
postage or other charges prepaid, addressed to the other party at the address
shown below. Any party may change such address by notice given in such manner.
All notices shall be effective (i) if sent by messenger or overnight courier
service, when delivered, (ii) if sent by mail, three days after posting, and
(iii) if sent by telecopy, when sent (provided that, if sent by telecopy, a
duplicate copy thereof is sent by mail by the following day).
34
<PAGE>
If to Buyer:
Nobel Education Dynamics, Inc.
Rose Tree Corporate Center II
1400 North Providence Road
Suite 3055
Media, PA 19063
Attn: Chief Executive Officer
Telecopier: (610) 891-8200
with a copy to:
Nobel Education Dynamics, Inc.
Rose Tree Corporate Center II
1400 North Providence Road
Suite 3055
Media, PA 19063
Attn: General Counsel
Telecopier: (610) 891-8200
If to any Company or Shareholder:
Ms. Linda Nash
10006 Stonemill Road
Richmond, VA
With a copy to:
Cantor, Arkema & Edmonds
The First National Bank Building
823 East Main Street
Richmond, VA 23204-0561
Attn: Steven Edmonds, Esq.
Telecopier: (804) 225-8706
13.9 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 (which, in the case
of each Company and each Shareholder, shall include Companies' Agent). The
failure of any party hereto to enforce at any time any of the provisions
35
<PAGE>
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.
13.10 SEVERABILITY. The invalidity or unenforceability of any particular
provision, or part of any provision, of this Agreement shall not affect the
other provisions or parts hereof, and this Agreement shall be construed in all
respects as if such invalid or unenforceable provisions or parts were omitted.
13.11 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.
13.12 NO THIRD PARTY BENEFICIARIES. The agreements included herein, and
otherwise made between the parties hereto as part of this transaction, are
solely the obligation of, and for the benefit of, the parties hereto, and there
shall be no third party beneficiary of any of the warranties, representations or
covenants made in this Agreement or any of the other agreements between the
parties hereto as part of this transaction.
13.13 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Virginia without reference to
that Commonwealth's conflict of laws provision.
13.14 FORUM SELECTION CLAUSE. The exclusive venue of the resolution of any
dispute arising from the provisions of this Agreement shall lie with any court
of competent jurisdiction in the city of Richmond, Virginia.
13.15 DEFINITION OF "COMPANIES' KNOWLEDGE". As used herein, the phrase "to
the Companies' knowledge" (or similar phrases) shall mean the actual knowledge
of Linda Nash, Stephen Nash, Rod Kennedy or Robin Smith.
36
<PAGE>
In Witness Whereof, and intending to be legally bound hereby, the parties
hereto have executed this Agreement as of the date first above written.
COMPANIES:
Stony Point Learning Center, Inc.
By:_____________________________
Linda Nash, President
School's Out, Inc.
By:_____________________________
Linda Nash, President
Cascades Childcare, Inc.
By:_____________________________
Linda Nash, President
Pump Road Child Care, Inc.
By:_____________________________
Linda Nash, President
37
<PAGE>
SHAREHOLDERS:
________________________________
Linda Nash
________________________________
Stephen Nash
BUYER:
Nobel Education Dynamics, Inc.
By:_____________________________
John R. Frock
Executive Vice President
38
<PAGE>
SCHEDULE A
PURCHASED CENTERS
-----------------
Treetops Children's Center
8006 Discovery Drive, Richmond, VA (owned and operated by Treetops)
Stony Point Learning Center
3039 Stony Point Rd., Richmond, VA (owned and operated by Stony Point)
Cascades Children's Center
Logan Way, Loudoun, VA (owned and operated by Cascades)
Children's Castle Learning Center
2920 Pump Road, Richmond, VA (owned and operating by Pump Road)
<PAGE>
SCHEDULE B
ALLOCATION OF CLOSING CASH PAYMENT
----------------------------------
<TABLE>
<CAPTION>
Company Allocable Portion of Closing Cash Payment
<S> <C>
Stony Point Learning Center, Inc. $ 836,146
School's Out, Inc. $ 577,104
Cascades Childcare, Inc. $1,247,899
Pump Road Child Care, Inc. $ 538,850
Total $3,200,000
</TABLE>
<PAGE>
SCHEDULE C
EXISTING LOCATIONS OF BUYER IN NORTHERN VIRGINIA
------------------------------------------------
The Town & Country School of Vienna
9525 Leesburg Pike
Vienna, VA 22182
Rocking Horse Child Care Center
4401 Roger Stover Drive
Fairfax, VA 22033
Rocking Horse Child Care Center
13501 Braddock Road
Clifton, VA 22024
Rocking Horse Child Care Center
6210 Multiplex Drive
Centreville, VA 22020
<PAGE>
SCHEDULE D
LIMITATIONS ON INDEMNIFICATION UNDER SECTION 10
-----------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
Purchased Center Allocable Portion of Closing Cash Payment
- --------------------------------------------------------------------------------------
<S> <C>
Stony Point Learning Center $874,510 plus 27.33% of the Earn-Out Payment
plus the Remainder Amount
- --------------------------------------------------------------------------------------
Treetops Children's Center $784,112 plus 24.50% of the Earn-Out Payment
plus the Remainder Amount
- --------------------------------------------------------------------------------------
Cascades Children's Center $670,470 plus 20.95% of the Earn-Out Payment
plus the Remainder Amount
- --------------------------------------------------------------------------------------
Children's Castle Learning Center $870,908 plus 27.22% of the Earn-Out Payment
plus the Remainder Amount
- --------------------------------------------------------------------------------------
</TABLE>
For the purposes hereof, the "REMAINDER AMOUNT" shall equal that portion of the
Promissory Note and Buyer's payment under Section 9.4 which, as of the date of
Buyer's making a claim, remains unpaid and has not previously been made the
subject of a claim by Buyer. Notwithstanding the foregoing, if a claim ("NEW
CLAIM") is not allowed because the limitations on indemnification under Section
10 as set forth above has been reached based on the amount of previously made
claims ("PRIOR CLAIMS"), but one or more of such Prior Claims are ultimately
determined not to be payable by the Companies and Shareholders ("DISALLOWED
CLAIMS"), then the New Claim will be allowed to the extent that it would have
been allowed on the date notice was made of the New Claim had the Disallowed
Claims never been made.
<PAGE>
EXHIBIT A
See Exhibit 4.1 to this Form 8-K.
<PAGE>
[EXHIBIT B]
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT is dated as of February 2, 1996 by and between
Linda Nash, an individual residing in Richmond, Virginia ("Consultant") and
Nobel Education Dynamics, Inc. (the "Company"), a Delaware corporation.
BACKGROUND
----------
Consultant is a substantial shareholder of, and chief executive officer and
chief operating officer of the businesses conducted by, Stony Point Learning
Center, Inc., School's Out, Inc., Cascades Childcare, Inc., Pump Road Child
Care, Inc. and Loudoun Children's Center, Inc. Pursuant to certain agreements
dated the date hereof (the "Agreements"), the Company is today acquiring the
businesses run by such corporations (the "Centers"). Consultant has intimate
knowledge of the business affairs, policies, methods and personnel of such
businesses. Because of such knowledge of Consultant, and the decreased value of
the businesses being purchased that would result if Consultant were not to be
retained by the Company, as a condition to the closing of the Agreements, the
Company is requiring that Consultant enter into this Consulting Agreement to
assure the Company of Consultant's continued availability in a consulting
capacity for the Company after the closing of the Agreements. Also, pursuant to
the Agreements, Earn-Outs (as defined in the Agreements), the amounts of which
depend on the results of operations of the Centers during the term of this
Agreement, are payable as additional consideration under the Agreements.
Accordingly, Consultant desires to assure that she will have sufficient
authority and involvement in respect of the conduct of the operations of the
Centers during the term of this Agreement to enable her to maximize the amount
of the Earn-Outs.
Now, Therefore, in consideration of the covenants set forth herein, and
intending to be legally bound hereby, the parties agree as follows:
AGREEMENT
---------
1. Retention. Subject to the terms and conditions hereinafter set forth,
---------
the Company hereby retains Consultant, who hereby accepts such retention, to
serve as a business consultant, for the term and at the compensation and
benefits hereinafter stated.
2. Term. The initial term of this Agreement shall commence on the date
----
hereof and shall continue for a period of one year.
3. Duties; Authority.
-----------------
3.1 As a consultant to the Company, Consultant will provide
"consulting services" to the Company for the term above set forth. For purposes
of this Agreement, the term "consulting services" shall mean the rendering of
consulting and advisory services, from time to time, on behalf of the Company
with respect to the Centers regarding such matters as are from time to time
agreed upon by the Company and Consultant; provided that Consultant will spend
such time as is necessary to continue operating the Centers as they have been
operated in the past.
<PAGE>
Consultant will render such consulting services within the state of Virginia,
except that, at the Company's request, Consultant will travel to or near the
Company's corporate headquarters in Media, Pennsylvania up to two days per
month.
3.2 During the term of this Agreement, in connection with Consultant's
performance of her duties hereunder, Consultant will have the primary authority
to conduct the operations of the Centers, with the mutual goal of maximizing the
earnings attributable to the Centers; provided that, except as provided below,
the Company shall have overall authority with respect to such matters. The
scope of Consultant's authority will include, without limitation, the authority
to hire personnel and to dismiss personnel (subject to obtaining approval of
dismissals by the Company's corporate counsel). Notwithstanding the foregoing,
without the approval of the Company, Consultant will not, and will instruct
employees at the Centers not to:
(a) make any purchase or any other expenditure that is not expensed
during 1996, except for expenditures none of which individually equals more than
$2,000 and which do not in the aggregate equal more than $25,000;
(b) enter into any contract which by its terms continues or which may
be renewed by any party for a period extending beyond December 31, 1996, unless
such contract is terminable by the Company at will upon not more than 30 days'
notice to the other party;
(c) sell any asset;
(d) borrow any monies on behalf of or for the benefit of the Company;
(e) adjust the compensation of any person in an amount of adjustment
exceeding 5% of such person's compensation as of the date hereof or hire any new
employee unless such employee replaces a departed employee and the compensation
of the new employee does not exceed the departed employee's compensation by more
than 5%; provided that Consultant may effect a greater increase if (i)
Consultant notifies one of the officers designated by the Company for such
purpose (who shall initially be A. J. Clegg and John Frock and must always
consist of at least two persons) and (ii) prior to the end of the second
business day following such notice from Consultant, the Company has not notified
Consultant that it objects to such increase.
(f) enter into any contract, lease or other commitment or transaction
involving or affecting Consultant, any affiliate or relative of Consultant or
any entity in which Consultant or any such affiliate or relative has a direct or
indirect interest;
(g) speak or contact any persons regarding investment in the Company;
or
(h) change the name of any of the Centers.
2
<PAGE>
Notices under paragraph (e) above may be oral and shall not be subject to
Section 11.2.
4. Compensation. As compensation and consideration for Consultant's
------------
services and responsibilities under this Agreement, the Company will pay
Consultant, and Consultant will accept, compensation at the annual rate of
$60,000. Such compensation shall be payable bi-weekly. The Company shall not be
required to provide Consultant with any other payments or benefits for her
services hereunder, except that, if Adjusted EBITDA (as defined in the
Agreements) of the Centers during the Earn-Out Period (as defined in the
Agreements) under both Agreements equals an aggregate of at least $1,228,232,
the Company will grant to Consultant on the Earn-Out Payment Date (as defined in
the Agreements) an option to purchase 10,000 shares of common stock of the
Company (such number of shares being subject to adjustment to reflect any stock
dividend, stock split, share combination or similar change in the capitalization
of the Company) at an exercise price equal to the price of such stock on the
date of grant, which option shall be exercisable for a period of five years from
the date of grant and shall be in the form of EXHIBIT A hereto.
5. Reimbursement of Expenses. During the period that Consultant is
-------------------------
retained hereunder, Consultant will be allowed reasonable business expenses
in connection with the performance of her duties hereunder (including
travel expenses to and from the Company's headquarters or at the Company's
request) upon submission by Consultant of vouchers or itemized statements
thereof prepared in compliance with such rules relating thereto as the
Company may from time to time adopt (which rules shall include the
requirement that Consultant submit all expenses to the Company's Controller
for processing) and as may be required in order to permit such payments as
proper deductions to the Company under the Internal Revenue Code and the
rules and regulations adopted pursuant thereto now or hereafter in effect.
6. Additional Activities on Behalf of the Company. The Company and
----------------------------------------------
Consultant believes that it would be in their mutual best interest for the
Company to engage Consultant to locate potential sites for additional
centers and to negotiate leases for sites selected. Accordingly, the
Company and Consultant will negotiate in good faith terms of engagement
pursuant to which the Company engages Consultant to perform such consulting
services, which services would be in addition to those which Consultant is
committed to perform hereunder and for additional consideration. The
parties contemplate that such consulting relationship will continue beyond
the termination of this Agreement. Notwithstanding the above, the Company
shall pay to Consultant an amount equal to 3% of the purchase price of (i)
the Centreville property, (ii) the Ashburne property or (iii) any other
child care or school development sites located by Consultant, if the
Company acquires any such site. Such payment shall be made at the closing
of such acquisitions.
7. Termination by the Company.
--------------------------
7.1 Notwithstanding Section 2, upon written notice to Consultant, the
Company may terminate Consultant's retention at any time, upon the occurrence of
any of the following events:
3
<PAGE>
(a) Consultant becomes, in the Company's reasonable judgment,
"disabled," which term shall mean Consultant's becoming disabled or
incapacitated, due to illness, accident or any other physical or mental
incapacity, to the extent that she cannot perform adequately her duties
hereunder.
(b) The Company determines in its reasonable judgement that
there is "cause," which shall mean Consultant's (i) dishonesty detrimental to
the best interest of the Company or any of its affiliates, (ii) continuing
inattention to, neglect of, or refusal to perform the duties to be performed by
Consultant described in this Agreement, which inattention is not the result of
illness or accident, (iii) participation in any fraud, (iv) commission of any
misdemeanor involving moral turpitude or any felony, (v) habitual intoxication
or drug addiction or (vi) any other material violation of this Agreement.
The Company shall specify the effective date of termination in its notice to
Consultant. Notwithstanding the foregoing, if the Company desires to invoke its
right to terminate for cause under clause (ii), (iv) or (vii) of this Section
7.1(b), it must first give Consultant written notice specifying in reasonable
detail the circumstances on which the Company is relying for such termination
and Consultant must have failed to remedy the same with 15 days after the date
of such notice.
7.2 In the event of termination of Consultant's retention by the
Company (including by reason of Consultant's death), Consultant shall be
entitled to receive the compensation set forth in Section 2 accrued but unpaid
as of the date of termination. Under no circumstances shall Consultant
thereafter be entitled to any compensation for her services hereunder, except as
set forth in this Section 7.2, including without limitation any severance pay or
termination indemnity.
8. Representations and Warranties. Consultant represents and warrants to
------------------------------
the Company that her execution and performance of this Agreement will not
conflict with, or result in a breach of, any other agreements to which she is a
party or any employment relationships or other fiduciary duties she may have.
Consultant will indemnify and hold harmless the Company from any claims,
liabilities, damages, costs or expenses (including legal fees) resulting from
third-party claims of any such conflict or breach.
9. Nondisclosure of Confidential Information.
-----------------------------------------
9.1 Consultant shall not, during the term of this Agreement or at any
time for a period of five years following termination of this Agreement,
disclose, directly or indirectly, to any person or entity, other than an
employee of Consultant, without the express authorization of the Company in each
such instance, any customer or client list, pricing strategies, customer, client
or employee files or records, properties data or trade secrets or any financial
or other information of the Company or any of its subsidiaries or affiliates not
in the public domain.
4
<PAGE>
9.2 All confidential information described in Section 9.1 shall be
the exclusive property of the Company, and Consultant shall use her best efforts
to prevent any publication or disclosure thereof. Upon termination of
Consultant's employment with the Company, Consultant shall return to the Company
all documents, records, reports, writings and other similar documents containing
confidential information, including copies thereof, then in her possession or
control.
9.3 The provisions of this Section 9 shall survive the termination,
for any reason, of this Agreement and shall continue for the period contemplated
by this Section 9 and Section 10.
9.4 Consultant expressly acknowledges that damages alone will be an
inadequate remedy for any breach or violation of any of the provisions of this
Section 9 and that the Company, 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. If Consultant must resort to the courts to
enforce any of the covenants set forth in this Section 9, the term of such
covenants will be extended for a period of time equal to the period of such
breach (such extended period to commence on the later of (a) the date on which
the original (unextended) term of such covenants would have terminated or (b)
the date of the final court order (without further right of appeal) enforcing
such covenants).
10 No Employee Relationship. Consultant and the Company agree that
------------------------
Consultant shall be treated for all purposes as an independent contractor and
nothing hereunder shall be considered to create an employment relationship
between Consultant and the Company. Consultant shall not be entitled to receive
any employee benefits. The Company shall not control the day-to-day activities
of Consultant or provide her with detailed instructions as to when, where and
how she is to perform her work. The Company shall provide no training to
Consultant. No set hours or work shall be established for Consultant, and it is
not contemplated that she will be required to devote substantially full-time to
her work hereunder. Consultant shall not be required to work on the premises of
the Company or the Centers except as necessary to accomplish the purposes of
Consultant's services hereunder. Consultant may perform her services hereunder
in whatever order and sequence she deem appropriate. The Company shall not be
required to furnish Consultant with any tools and materials. Except as
prohibited by Section 9 hereof or other agreements with the Company, Consultant
shall be permitted to work for any other persons and the parties hereto
contemplate that Consultant will make her services available to the general
public.
11 Miscellaneous.
-------------
11.1 Waiver of Breach. The waiver by the Company of a breach of any
----------------
provision of this Agreement by Consultant shall not operate or be construed as a
waiver of any other or subsequent breach by Consultant of such or any other
provision.
5
<PAGE>
11.2 Notices. All notices and other communications required or
-------
permitted hereunder shall be in writing and shall be deemed to be properly given
if transmitted by messenger, overnight courier service, first class certified
mail (return receipt requested) or telecopy (which is confirmed), in each case
postage or other charges prepaid, addressed to the other party at the address
shown below. Any party may change such address by notice given in such manner.
All notices shall be effective (i) if sent by messenger or overnight courier
service, when delivered, (ii) if sent by mail, three days after posting, and
(iii) if sent by telecopy, when sent (provided that, if sent by telecopy, a
duplicate copy thereof is sent by mail by the following day).
If to Buyer:
Nobel Education Dynamics, Inc.
Rose Tree Corporate Center II
1400 North Providence Road
Suite 3055
Attn: Chief Executive Officer
Telecopier: (610) 891-8200
with a copy to:
Nobel Education Dynamics, Inc.
Rose Tree Corporate Center II
1400 North Providence Road
Suite 3055
Attn: General Counsel
Telecopier: (610) 891-8200
If to any Consultant:
Ms. Linda Nash
10006 Stonemill Road
Richmond, VA 23233
6
<PAGE>
With a copy to:
Cantor, Arkema & Edmonds
The First National Bank Building
823 East Main Street
Richmond, VA 23204-0561
Attn: Steven Edmonds, Esq.
Telecopier: (804) 225-8706
11.3 Severability. If any term or provision of this Agreement or the
------------
application thereof to any person or circumstance shall, to any extent, be held
invalid or unenforceable by a court of competent jurisdiction, the remainder of
this Agreement or the application of any such term or provision to persons or
circumstances other than those as to which it is held invalid or unenforceable,
shall not be affected thereby, and each term and provision of this Agreement
shall be valid and enforceable to the fullest extent permitted by law. If any of
the provisions contained in this Agreement shall for any reason be held to be
excessively broad, it shall be construed by limiting and reducing it, so as to
be valid and enforceable to the extent compatible with the applicable law or the
determination by a court of competent jurisdiction.
11.4 Governing Law. The implementation and interpretation of this
-------------
Agreement shall be governed by and enforced in accordance with the laws of the
Commonwealth of Virginia.
11.5 Binding Effect and Assignability. The rights and obligations of
--------------------------------
both parties under this Agreement shall inure to the benefit of and shall be
binding upon their heirs, successors and assigns, but shall not be assigned
without the written consent of both parties.
11.6 Entire Agreement. This instrument constitutes the entire
----------------
agreement with respect to the subject matter hereof between the parties hereto
and replaces and supersedes as of the date hereof any and all prior oral or
written agreements and understandings between the parties hereto. This Agreement
may only be modified by an agreement in writing executed by both Consultant and
the Company.
11.7 Enforcement. In the event that it is necessary for either party
-----------
to incur any costs and expenses in the enforcement of any of the terms and
provisions of this Agreement in a court of law or equity, the non-prevailing
party shall forthwith pay to the prevailing party any and all costs and expenses
thereby incurred including, but not limited to, reasonable attorney's fees and
court costs.
7
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Consulting Agreement
the date and year written above.
Nobel Education Dynamics, Inc.
By:___________________________
______________________________
Linda Nash
8
<PAGE>
EXHIBIT A
NOBEL EDUCATION DYNAMICS, INC.
Non-qualified Stock Option Agreement
------------------------------------
Non-qualified Stock Option Agreement dated as of _______, 199_
("Agreement") between Nobel Education Dynamics, Inc., a Delaware corporation
(the "Company"), and Linda Nash ("Consultant").
1. Definitions
-----------
1.1 "Code" means the Internal Revenue Code of 1986, as amended from time
to time.
1.2 "Common Stock" means the Company's Common Stock, par value $0.001 per
share.
1.3 "Date of Exercise" means the date on which the notice required by
Section 4.1 hereof is received by the Company.
1.4 "Date of Grant" means ______________, 199_.
1.5 "Option" means the option granted hereunder. The Option hereby granted
is a non-qualified stock option (i.e., not an "incentive stock option" within
the meaning of section 422(b) of the Code).
1.6 "Optioned Stock" means the shares of Common Stock that are subject to
the Option.
1.7 "Termination Date" means the fifth (5th) anniversary of the Date of
Grant.
2. Grant of Option.
---------------
Subject to the terms and conditions of this Agreement, the Company hereby
grants to Consultant the option to purchase _______ shares of Common Stock. The
exercise price of the Option in respect of each share of Optioned Stock shall be
$_______, subject to adjustment pursuant Section 9 hereof. Notwithstanding the
foregoing, only full shares shall be issued hereunder, and any fractional share
which might otherwise be issuable upon the exercise of the Option shall be
forfeited.
<PAGE>
3 Time of Exercise.
----------------
The Option shall be exercisable from time to time following the Date of
Grant through the Termination Date with respect to all or any portion of the
Optioned Stock. The Option shall terminate absolutely at 5:00 p.m. New York
City Time on the Termination Date.
4. Manner of Exercise; Payment.
---------------------------
4.1 Exercise of the Option shall be effected by giving written notice of
exercise to the Company, in care of the Secretary of the Company. Any such
notice shall state the number of shares of Optioned Stock for which the Option
is being exercised and shall be accompanied by (a) payment in full of the
exercise price for such shares of Optioned Stock and (b) a representation letter
in the form of Attachment I hereto. Such notice shall be irrevocable once given.
4.2 Consultant shall have the right to exercise the Option with respect to
all or part of the Optioned Stock. Exercise of the Option with respect to part
of the Optioned Stock does not waive or limit Consultant's rights with respect
to the balance of the Optioned Stock.
4.3 The exercise price for the Optioned Stock upon exercise shall be
payable in cash or its equivalent.
5. Nontransferability.
------------------
The Option shall not be assignable or transferable by Consultant, otherwise
than by will or by the laws of descent and distribution, and the Option shall be
exercisable only by the Grantee; provided that in the event of Consultant's
legal disability, the Option may be so exercised by Consultant's guardian or
legal representative and in the event of Consultant's death, the Option may be
so exercised by Consultant's estate, personal representative or beneficiary who
acquired the right to exercise such Option by bequest or inheritance or by
reason of the death of Consultant. If Consultant is married at the time of
exercise of the Option and if Consultant so requests at the time of exercise,
the certificate or certificates issued shall be registered in the name of
Consultant and Consultant's spouse, jointly, with right of survivorship.
6. Securities Laws
---------------
The Company may from time to time impose any conditions on the exercise of
the Option as it deems necessary or advisable to ensure that the Option granted
hereunder, and the exercise thereof, satisfy the applicable requirements of
federal and state securities laws. Such conditions to satisfy applicable
federal and state securities laws may include, without limitation, the partial
or complete suspension of the right to exercise the Option or the printing of
legends on certificates issued pursuant hereto representing the Optioned Stock.
2
<PAGE>
7. Issuance of Certificates for Shares
-----------------------------------
Subject to the provisions of this Agreement, the certificates for the
shares of Common Stock issuable upon exercise of the Option shall be delivered
to Consultant (or to such person entitled thereto in accordance with Section 5)
as promptly after the Date of Exercise as is feasible, provided that the
exercise shall not be complete, and the Company shall not be obligated to make
such deliveries, until Consultant and the Company have arranged for the payment
by Consultant to the Company, or the withholding from Consultant's other
compensation, of an amount in cash equal to the amount of any tax required to be
withheld by the Company by any applicable federal or state laws or regulations
on account of such exercise. The Company may also condition delivery of shares
of Common Stock upon the prior receipt from Consultant of any undertakings that
it may determine are required to ensure that the certificates are being issued
in compliance with federal and state securities laws.
8. Rights Prior to Issuance of Certificates
----------------------------------------
Neither Consultant nor the person to whom the rights of Consultant shall
have passed by will or the laws of descent and distribution shall have any of
the rights of a stockholder with respect to any shares of Optioned Stock until
the date of the issuance to such person of certificates for such shares of
Optioned Stock pursuant thereto.
9. Certain Events
--------------
9.1 The number of shares of Common Stock subject to the Option (as well as
the Option exercise price per share), shall be adjusted to reflect any stock
dividend, stock split, share combination, or similar change in the
capitalization of the Company.
9.2 In the event of a corporate transaction (as that term is described in
section 424(a) of the Code and the Treasury Regulations issued thereunder as,
for example, a merger, consolidation, acquisition of property or stock,
separation, reorganization, or liquidation), the Option shall be assumed by the
surviving or successor corporation; provided, however, that upon the closing of
such a corporate transaction, the Board of Directors of the Company may
terminate all or a portion of the Option if (x) pursuant to the terms of such
corporate transaction the holders of common stock of the Company receive cash in
exchange for their shares of common stock of the Company and (y) Consultant is
paid in cash an amount equal to the amount she would have received upon closing
of such corporate transaction in exchange for all the shares of Optioned Stock
less the exercise price which would have been payable by her in respect of such
shares.
10 Miscellaneous
-------------
10.1 All notices and other communications hereunder shall be in writing
and shall be transmitted by messenger, delivery service or certified first-class
mail (in each case postage or cost of delivery prepaid) and shall be effective
when delivered. The address for notices and
3
<PAGE>
other communications of (i) Employer is Rose Tree Corporate Center II, 1400
North Providence Road, Media, PA 19063, Attn: Corporate Secretary, and (ii)
Consultant is 10006 Stonemill Road, Richmond, VA 23233. Either party may change
its address for notice given notice to the other pursuant to this Section 11.1.
10.2 This Agreement may be executed in two or more counterparts all of
which taken together will constitute one and the same instrument.
10.3 This Agreement shall be governed by the applicable Code provisions to
the maximum extent possible; otherwise, the operation of, and the rights of
Consultant under this Agreement shall be governed by applicable federal law and
otherwise by the laws of the State of Delaware.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
and year first above written.
Nobel Education Dynamics, Inc.
By:____________________________________
_______________________________________
Linda Nash
4
<PAGE>
ATTACHMENT I
Nobel Education Dynamics, Inc.
1400 North Providence Road
Suite 3055
Media, PA 19063
Gentlemen:
In connection with my proposed purchase of ___________ shares of Common
Stock (the "Shares") of Nobel Education Dynamics, Inc., a Delaware corporation
(the "Company"), by the undersigned Optionee ("Optionee") pursuant to the
exercise of an option to purchase the Shares granted under a Non-Qualified Stock
Option Agreement dated _____________, 1997, Optionee hereby agrees, represents
and warrants as follows:
(a) Optionee has received from the Company and has read to her
satisfaction the current filings of the Company with the Securities and Exchange
Commission.
(b) Optionee understand that the issuance of the Shares will not be
registered under the Securities Act of 1933, as amended (the "1933 Act"), or
qualified under any state securities laws on the basis that the issuance of the
Shares is exempt from registration pursuant to Section 4(2) of the 1933 Act
and/or Regulation D promulgated under the 1933 Act ("Regulation D") and from
qualification pursuant to applicable state securities laws, and that the
reliance of the Company on such exemptions is predicated in part on Optionee's
representations, warranties, covenants and acknowledgments set forth in this
letter.
(c) the Shares will be acquired by Optionee for her own account, not
as a nominee or agent, for investment and without a view to resale or other
distribution within the meaning of the 1933 Act and the rules and regulations
thereunder, and Optionee will not distribute any of the Shares in violation of
the 1933 Act or any state securities laws;
(d) Optionee understands that:
(i) the Shares are not registered under the 1933 Act and must be
held indefinitely by Optionee unless the Shares are subsequently registered
under the 1933 Act or an exemption from registration is available;
(ii) any routine sales of the Shares made under Rule 144
promulgated under the 1933 Act may be made only in accordance with the terms and
conditions of that Rule (which may include limits as to the amount which may be
sold in specified periods) and that in such cases where Rule 144 is not
applicable, registration or compliance with some other registration exemption
will be required;
<PAGE>
(iii) Rule 144 is not presently, and for a period of at least
two years following the purchase of the Shares probably will not be, available
for use by Optionee for resale of the Shares;
(iv) The Company is not obligated to register any sale, transfer
or other disposition of the Shares; and
(v) the certificates representing the Shares issuable to
Optionee will contain a restrictive legend noting the restrictions on transfer
described herein and under federal and applicable state securities laws, and
appropriate "stop-transfer" instructions will be given to the Company's stock
transfer agent; and
(e) Optionee's financial situation is such that she can afford to
bear the economic risk of holding the Shares for an indefinite period of time
and suffer a loss of her investment in the Shares; and
(f) Optionee's knowledge and experience in financial and business
matters are such that she is capable of evaluating the merits and risks of its
acquisition of the Shares as contemplated by this Agreement.
(g) In order to ensure compliance with the foregoing provisions,
after the issuance, Optionee will not sell, transfer or otherwise dispose of any
of the Shares or any interest therein (unless such sale, transfer or disposition
has been registered under the 1933 Act) without there first having been
compliance with either of the following conditions:
(i) the Company shall have received a written opinion of counsel
in form and substance reasonably satisfactory to the Company, or a copy of a
"no-action" or interpretive letter of the Commission, specifying the nature and
circumstances of the proposed transfer and indicating that the proposed transfer
will not be in violation of any of the provisions of the 1933 Act and the rules
and regulations promulgated thereunder and any applicable state securities laws;
or
(ii) the Company shall have received an opinion from its own
counsel to the effect that the proposed transfer will not be in violation of any
of the provisions of the 1933 Act and the rules and regulations promulgated
thereunder and any applicable state securities laws.
Very truly yours,
Optionee:
___________________________________
Signature
2
<PAGE>
Name and address (type or print):
___________________________________
___________________________________
___________________________________
___________________________________
Social Security number:
___________________________________
3
<PAGE>
ASSET ACQUISITION AGREEMENT
AND
PLAN OF REORGANIZATION
by and among
Loudoun Children's Center, Inc.,
and
Linda Nash and Stephen Nash,
and
Nobel Education Dynamics, Inc.,
dated as of
February 2, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<C> <S> <C>
1. THE TRANSACTION.......................................................... 1
1.1 Transfer of Acquired Assets..................................... 1
1.2 Responsibility for Liabilities.................................. 3
1.3 Proration....................................................... 4
1.4 Liquidation of the Company...................................... 4
2. TIME AND PLACE OF CLOSING................................................ 4
3. DELIVERIES AT CLOSING.................................................... 5
3.1 Company Deliveries.............................................. 5
3.2 Nobel Deliveries................................................ 6
4. EARN-OUT................................................................. 6
4.1 Earn-Out Payment................................................ 6
4.2 Calculation of Adjusted EBITDA.................................. 7
4.3 Audit Rights; Arbitration....................................... 8
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY............................ 8
5.1 Organization; Authority......................................... 8
5.2 Power and Authority............................................. 8
5.3 Due Authorization; Binding Agreement............................ 9
5.4 Capitalization.................................................. 9
5.5 Absence of Conflicting Agreements............................... 9
5.6 Consents and Approvals.......................................... 9
5.7 Investments and Subsidiaries................................... 10
5.8 Compliance with Laws........................................... 10
5.9 Permits........................................................ 10
5.10 Encumbrances Created by this Agreement......................... 10
5.11 Judgments and Litigation....................................... 10
5.12 Financial Statements........................................... 11
5.13 Tax Matters.................................................... 11
5.14 Absence of Certain Changes..................................... 12
5.15 Title to and Condition of Assets, Properties, etc.............. 14
5.16 Real Property.................................................. 14
5.17 List of Properties, Contracts, etc............................. 14
5.18 Contract Validity, Defaults, Notice/Consent.................... 15
5.19 Employees...................................................... 16
5.20 Labor Matters.................................................. 16
5.21 Relationships.................................................. 16
5.22 Transactions with Related Parties.............................. 16
5.23 Non-Foreign Persons............................................ 17
</TABLE>
<PAGE>
<TABLE>
<C> <S> <C>
5.24 Employee Benefit Plans......................................... 17
5.25 Environmental Protection....................................... 17
5.26 Books and Records.............................................. 18
5.27 Intellectual Property.......................................... 19
5.28 No Child Abuse or Sexual Abuse................................. 19
5.29 No Other Agreements............................................ 19
5.30 Operation of Other Centers and Schools......................... 19
5.31 Special Arrangements........................................... 19
5.32 Brokers........................................................ 19
5.33 Disclosure..................................................... 20
6. REPRESENTATIONS AND WARRANTIES OF ALL SHAREHOLDERS...................... 20
6.1 Power and Authority............................................ 20
6.2 Due Authorization; Binding Agreement........................... 20
6.3 Absence of Conflicting Agreements.............................. 20
7. REPRESENTATIONS AND WARRANTIES OF BUYER................................. 21
7.1 Organization and Standing...................................... 21
7.2 POWER AND AUTHORITY............................................ 21
7.3 Due Authorization; Binding Agreement........................... 21
7.4 Absence of Conflicting Agreements.............................. 21
7.5 Consents....................................................... 22
7.6 Capitalization................................................. 22
7.7 Financial Condition............................................ 22
7.8 Absence of Change.............................................. 22
7.9 Brokers........................................................ 22
7.10 Disclosure..................................................... 23
8. EMPLOYEES OF THE BUSINESS; EMPLOYEE BENEFITS............................ 23
8.1 Employees of the Company....................................... 23
8.2 Employee Benefit and Bonus Claims.............................. 23
9. CERTAIN OBLIGATIONS AND AGREEMENTS OF PARTIES AFTER CLOSING............. 24
9.1 Remittance of Payments......................................... 24
9.2 Collection of Receivables...................................... 24
9.3 Discharge of Liabilities....................................... 24
9.4 Nondisclosure; Covenant Not To Compete......................... 24
9.5 Access to Records.............................................. 25
9.6 Representation Letters......................................... 25
9.7 Post-Closing Covenants of Nobel................................ 26
9.8 Permits and Licenses........................................... 26
9.9 INCOME TAX STATUS OF TRANSACTION............................... 26
</TABLE>
ii
<PAGE>
<TABLE>
<C> <S> <C>
10. INDEMNIFICATION......................................................... 27
10.1 Survival of Representations and Warranties..................... 27
10.2 Indemnification by the Company and Shareholders................ 27
10.3 Indemnification by Nobel....................................... 28
10.4 Procedures Relating to Indemnification......................... 28
10.5 Limitation..................................................... 29
10.6 Remedies Not Exclusive......................................... 30
10.7 Costs and Expenses............................................. 30
10.8 Right of Offset................................................ 31
11. SECURITIES MATTERS...................................................... 31
11.1 Investment Representations and Covenants....................... 31
11.2 Registration of Nobel Shares................................... 33
11.3 Put Rights..................................................... 40
12. REPRESENTATION OF SHAREHOLDERS BY COMPANY'S AGENT....................... 41
12.1 Appointment of Company's Agent................................. 41
12.2 Successor Agent................................................ 41
12.3 Shareholders' Actions.......................................... 42
13. MISCELLANEOUS........................................................... 42
13.1 Costs and Expenses............................................. 42
13.2 Litigation..................................................... 42
13.3 Assignment and Benefit......................................... 42
13.4 Schedules...................................................... 42
13.5 Effect and Construction of this Agreement...................... 42
13.6 Counterparts................................................... 43
13.7 Cooperation.................................................... 43
13.8 Notices........................................................ 43
13.9 Amendment, Waiver, Discharge, etc.............................. 44
13.10 SEVERABILITY................................................... 44
13.11 NUMBER OF DAYS................................................. 44
13.12 No Third Party Beneficiaries................................... 44
13.13 Governing Law.................................................. 45
13.14 Forum Selection Clause......................................... 45
13.15 Definition of "Company's Knowledge"............................ 45
</TABLE>
iii
<PAGE>
ASSET ACQUISITION AGREEMENT AND
PLAN OF REORGANIZATION
THIS ASSET ACQUISITION AGREEMENT AND PLAN OF REORGANIZATION (this
"AGREEMENT") is dated as of February 2, 1996 by and among LOUDOUN CHILDREN'S
CENTER, Inc., a Virginia corporation (the "COMPANY"); LINDA NASH AND STEPHEN
NASH (collectively, the "SHAREHOLDERS"), the sole shareholders of the Company,
and nOBEL EDUCATION DYNAMICS, Inc., a Delaware corporation ("NOBEL").
Background
----------
A. The Company owns and is engaged in the business of operating a child
care center located at 46120 Benedict Dr., Sterling, VA (the "ACQUIRED CENTER").
The business of the Acquired Center is referred to herein as the "BUSINESS".
B. The parties hereto desire to provide for the acquisition by Nobel of
substantially all of the assets and certain of the future obligations of the
Company, 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:
1. THE TRANSACTION.
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 (as defined in Section 2):
1.1 TRANSFER OF ACQUIRED ASSETS.
(a) ACQUIRED ASSETS. The Company shall transfer and deliver to Nobel
all of its right, title and interest in and to all of the tangible and
intangible properties and assets owned or held by the Company on the Closing
Date other than the Excluded Assets (as defined in Section 1.1(b))
(collectively, the "ACQUIRED ASSETS"). The Acquired Assets shall include,
without limiting the generality of the foregoing (hereafter "WITHOUT
LIMITATION"), the following:
(i) all of the Company's furniture, fixtures, equipment,
machinery, teaching and educational supplies, inventories, supplies, and other
tangible personal property used or held at the Acquired Center, as well as any
business forms used or held exclusively at the Acquired Center, including those
items described on SCHEDULE 1.1(a)(i);
(ii) all intellectual property relating to the Business or the
Acquired Center, including, without limitation, all rights of the Company to all
registered and unregistered
<PAGE>
trade names and fictitious names (including, without limitation, the name
"Loudoun Children's Center"), trademarks, service marks, copyrights, patents and
know-how used or useful in the Business and all related applications and
agreements with respect to the foregoing (the "INTELLECTUAL PROPERTY"); and all
telephone numbers; and
(iii) the leasehold interest of the Company pursuant to the
lease agreement of the Company referenced on SCHEDULE 1.1(A)(III) (such lease
being referred to herein as the "LEASE"; and all the leasehold interest subject
to the Lease being referred to herein as the "LEASEHOLD INTEREST");
(iv) the Company's rights, to the extent assignable, under
maintenance contracts, service contracts, equipment and other leases (including,
if leased, the telephone system), vehicle leases, computer software and other
rights, to the extent assignable, under contracts relating to the Business or
the Acquired Center that Nobel has elected to assume, each of which is described
on SCHEDULE 1.1(A)(IV) (collectively, the "ASSUMED CONTRACTS"; provided that, if
consent of the other party to any contract is required, such contract shall not
be included within the definition of Assumed Contracts (even if described on
SCHEDULE 1.1(A)(IV)) unless such other party either consents to such assignment
or provides services to Nobel thereunder);
(v) to the extent assignable, all permits, registrations,
franchises, licenses, approvals and other authorizations relating to the
Business or the Acquired Center (collectively, the "PERMITS"), including those
described on SCHEDULE 1.1(A)(V);
(vi) all goodwill of the Business as a going concern, including
all rights to deal with clients and customers;
(vii) all client and customer lists and records, enrollments and
other documents, correspondence and files of the Company relating to the
Business or the Acquired Center, including, to the extent assignable, all
software and computer files;
(viii) the motor vehicles identified on SCHEDULE 1.1(A)(VIII);
(ix) all secrecy and non-disclosure agreements with current or
former employees, consultants or contractors relating to the Business or the
Acquired Center, including, without limitation, those described and identified
on SCHEDULE 1.1(A)(IX); and
(x) all other tangible and intangible assets which are used in
or necessary to the operation of the Business or the Acquired Center, other than
those described below in Section 1.1(b).
(b) EXCLUDED ASSETS. Notwithstanding anything to the contrary in
Section 1.1(a), the following rights, properties and assets of the Company (the
"EXCLUDED ASSETS") shall not be included in the Acquired Assets:
2
<PAGE>
(i) the corporate seal, articles of incorporation, minute
books and stock books of the Company;
(ii) all tax records, tax returns, payroll records, insurance
records and other corporate documents (collectively, the "RETAINED RECORDS");
and
(iii) all cash of the Company, all registration fees paid to the
Company prior to Closing in the ordinary course of business consistent with past
practices, and all right, title and interest of the Company in and to all
accounts receivable.
(c) ACQUISITION PRICE. In consideration of the delivery of the
Acquired Assets, Nobel shall (i) at the Closing, issue to the Shareholders (as
successor of the Company), but deliver to the Company, a number of shares of
common stock, par value $.001 per share, of Nobel ("NOBEL COMMON STOCK") equal
to $1,500,000 divided by the average closing price of Nobel Common Stock as
reported on the NASDAQ Small Cap Market for the 20 trading days preceding the
Closing Date (such number of shares of Nobel Common Stock being referred to as
the "NOBEL SHARES") and (ii) within 45 days of the date of delivery to Nobel by
Coopers & Lybrand of audited financial statements of Nobel for 1996 (the "EARN-
OUT PAYMENT DATE"), deliver to the Shareholders (as successor to the Company)
the Earn-Out Payment (as defined in Section 4); provided, however, that the
Earn-Out Payment Date shall be extended by one day for each day that Closing
occurs past December 31, 1995.
1.2 RESPONSIBILITY FOR LIABILITIES.
(a) EXCLUDED LIABILITIES. Except as otherwise provided specifically
in Section 1.2(b), Nobel shall not assume, nor in any way be liable or
responsible for, any liabilities, obligations or debts of the Company or any
Shareholder of any type or nature ("EXCLUDED LIABILITIES"), including, without
limitation, tort claims asserted against the Company or the Business (including,
without limitation, claims of child abuse or sexual abuse asserted against the
Company, the Business or the employees and agents of the foregoing related to
matters occurring prior to Closing); claims asserted against the Company or the
Business for breach of contract; tax liabilities; liabilities relating to claims
for damages based upon the breach or violation by the Company of, or strict
liability arising under, any environmental or occupational health and safety
laws or regulations or any other Federal, state or local laws or regulations;
liabilities incurred for the costs and expenses of negotiating and consummating
the transactions contemplated by this Agreement; and liabilities incurred in
connection with any employee benefit plan of the Company.
(b) LIABILITIES TO BE ASSUMED BY NOBEL. Subject to the terms and
conditions of this Agreement, at the Closing, Nobel will enter into an
Assignment and Assumption Agreement, in form and substance satisfactory to the
parties (the "ASSIGNMENT AND ASSUMPTION AGREEMENT"), with the Company, pursuant
to which the Company will assign to Nobel all of its right, title and interest
under the Lease and the Assumed Contracts, and Nobel will accept such assignment
and assume all of the Company's obligations accruing from and after the Closing
Date
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under the written terms and provisions of the Lease and Assumed Contracts
(collectively, together with up to $1,200 to the Company's accountant for fees
relating to this transaction, the "ASSUMED LIABILITIES"); provided that
liabilities and obligations under the Lease and Assumed Contracts which have
accrued, or the performance of which is due, on or prior to the Closing Date
shall be the sole responsibility of the Company.
1.3 PRORATION. At the Closing (defined below), or as soon as practicable
thereafter, the parties will prorate the following items, effective as of the
Closing, with appropriate payments being made between and among the parties:
(a) rent and real estate taxes under the Lease;
(b) common area maintenance fees under the Lease;
(c) personal property taxes with respect to the Purchased Assets;
(d) tuition payments and deposits;
(e) employee vacation pay and sick days earned but not paid as of
Closing;
(f) utility deposits; and
(g) maintenance and service contracts, yellow page advertisements and
other normal operating expenses covering the period before and after Closing
(which item does not include, without limitation, any item relating to tangible
property).
1.4 LIQUIDATION OF THE COMPANY. As promptly as practicable following
Closing, and in any event no later than December 31, 1996, the Company shall
liquidate, dissolve and terminate its corporate existence in accordance with
applicable law, paying or providing for the Excluded Liabilities and
distributing the Nobel Shares and any remaining assets of the Company to the
Shareholders.
2. TIME AND PLACE OF CLOSING.
The closing (the "CLOSING") of the purchase and sale of the Acquired Assets
pursuant to this Agreement is taking place simultaneously with the execution
hereof (the "CLOSING DATE") at the offices of Nobel, Rose Tree Corporate Center
II, 1400 North Providence Road, Suite 3055, Media, Pennsylvania.
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3. DELIVERIES AT CLOSING.
At the Closing, the parties shall make deliveries as follows:
3.1 COMPANY DELIVERIES.
(a) The Company shall deliver to Nobel:
(i) a bill of sale, in form and substance satisfactory to the
parties, transferring to Nobel title to all of the Acquired Assets of the
Company;
(ii) a counterpart of the Assignment and Assumption Agreement;
(iii) title documents, transferring title to all the vehicles
owned by the Company to Nobel, free and clear of any and all liens, charges,
claims, security interests, mortgages, deeds of trust, pledges, restrictions and
encumbrances of any nature whatsoever (collectively, "LIENS");
(iv) such other instruments of transfer as shall be reasonably
necessary or appropriate to vest in Nobel good title to the Business and the
Acquired Assets;
(v) a receipt executed by the Company, acknowledging receipt
by the Company of the Nobel Shares;
(vi) copies of the resolutions of the board of directors and
shareholders of the Company authorizing the execution, delivery and performance
by the Company of this Agreement and the other agreements and instruments
referred to herein, certified as of the Closing Date by the secretary or an
assistant secretary of the Company; and
(vii) an incumbency certificate relating to the officers of the
Company executing this Agreement and other documents or instruments delivered
pursuant hereto.
(viii) a copy of the Company's articles of incorporation and all
amendments thereof to date, certified as of a recent date by the Clerk of the
State Corporation Commission of Virginia, and a copy of the Company's bylaws and
all amendments thereof to date, certified as of the Closing Date by the
secretary or an assistant secretary of the Company;
(ix) certificates of good standing of a recent date for the
Company, certified by the Clerk of the State Corporation Commission of Virginia;
and
(x) to the extent obtainable by the Company, an estoppel
certificate from the landlord with respect to the Lease, in form and substance
satisfactory to Nobel;
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(xi) the opinion of Cantor Arkema & Edmonds, counsel to the
Company and Shareholders, dated the Closing Date, in form and substance
satisfactory to Nobel;
3.2 NOBEL DELIVERIES. Nobel shall deliver, or cause to be delivered the
items described below:
(a) to the Company:
(i) a certificate or certificates (for distribution to the
Shareholders) representing the Nobel Shares issued in the name of the
Shareholders; and
(ii) a duly executed counterpart of the Assignment and
Assumption Assignment;
(iii) a copy of Nobel's certificate of incorporation and all
amendments thereof to date, certified as of a recent date by the Secretary of
State of Delaware, and a copy of Nobel's bylaws and all amendments thereof to
date, certified as of the Closing Date by the secretary or an assistant
secretary of Nobel, and accompanied by a certificate of good standing as of a
recent date for Nobel, certified as of a recent date by the Secretary of State
of Delaware;
(iv) a copy of the resolutions of the board of directors of
Nobel authorizing the execution, delivery and performance by Nobel of this
Agreement and the other agreements and instruments referred to herein, certified
as of the Closing Date by the secretary or an assistant secretary of Nobel;
(v) an incumbency certificate relating to the officers of
Nobel executing this Agreement and other documents or instruments delivered
pursuant hereto; and
(vi) the opinion of Drinker Biddle & Reath, special counsel to
Nobel, dated the Closing Date, in form and substance satisfactory to the Company
and the Shareholders.
4. EARN-OUT.
4.1 EARN-OUT PAYMENT. On the Earn-Out Payment Date, Nobel will pay to the
Shareholders (as successor to Company) an amount (the "EARN-OUT PAYMENT") equal
to 2.22 multiplied by the amount, if any, by which Adjusted EBITDA (defined
below) of the Acquired Center during the period commencing on the Closing Date
and ending on the day preceding the first anniversary of the Closing Date (the
"EARN-OUT PERIOD") exceeds Two Hundred Seventy-Two Thousand Seventy-Five Dollars
($272,075). Nobel shall deliver to the Company's Agent, together with the Earn-
Out payment, a report indicating the basis for the calculation of the payment
made, which report shall be executed by the president or chief financial officer
of Nobel. The Earn-Out Payment will be made in cash (or check); provided that if
the Earn-Out Payment is greater than $_______, any excess over such amount shall
be paid by delivery of additional
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shares of shares of Nobel Common Stock (such shares to be valued for such
purpose at the average closing price of Nobel Common Stock as reported on the
NASDAQ Small Cap Market for the 20 trading days preceding the Earn-Out Payment
Date); provided further that in no event shall the Earn-Out Payment exceed
$1,000,000 (in cash and shares). Any such additional shares of Nobel Common
Stock shall be deemed to be included in the definition of "Nobel Shares" for the
purposes of this Agreement. Notwithstanding the foregoing, Nobel shall not be
obligated to deliver such additional Nobel Shares unless and until the
Shareholders shall have delivered a representation letter as to the matters set
forth in Section 11.1.
4.2 CALCULATION OF ADJUSTED EBITDA.
(a) The "ADJUSTED EBITDA" of the Acquired Center shall equal (i) all
revenues attributable to the Acquired Center for the Earn-Out Period minus (ii)
all expenses of the Acquired Center for the Earn-Out Period. In calculating such
expenses, no allocation shall be made of general corporate expenses of Nobel
(except for expenses which are directly attributable to the Business relating to
the Acquired Center) and, specifically, no charges will be made for:
(i) administrative support from Nobel's corporate headquarters
for (i) payroll functions, (ii) accounts payable functions, (iii) banking and
financing functions, (iv) in-house legal support, (v) revenue recording, (vi)
analysis of accounts receivable (provided, however, that each Acquired Center
will be responsible for collections), (vii) preparation of monthly profit and
loss statements; (viii) petty cash management, (ix) preparation of weekly
operating reports compiled on the basis of input from the Acquired Center, (x)
tracking of capital expenditures or (xi) any allocation of expenses not directly
associated with the operation of the Acquired Center; or
(ii) the consulting fees payable to Linda Nash pursuant to the
consulting agreement between her and Nobel; or
(iii) charges for depreciation, amortization of good will,
interest expense and federal or state income taxes; or
(iv) travel expense related to trips to and from Nobel's
corporate headquarters or otherwise requested by Nobel.
(b) Salary and consulting fees paid to all persons in connection with
the operation of the Acquired Center other than Linda Nash will be charged as
expenses in calculating the Earn-Out Amount; provided that if Nobel determines
to hire a person ("NEW MANAGER") to replace Linda Nash after the Earn-Out Period
(which decision shall be made in cooperation with Linda Nash and, unless Nobel
and Linda Nash both consent, would not be implemented prior to the date eight
months following the date hereof), the costs associated with such hiring and
retaining will not be charged as expenses in calculating the Earn-Out, except
for compensation paid to the New Manager in the last three months of the Earn-
Out Period. The proviso in the
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previous sentence does not apply if Rod Kennedy or Robin Smith is promoted to
such position. If a New Manager other than Rod Kennedy or Robin Smith is hired,
Nobel and Linda Nash shall jointly determine whether also to continue their
employment; and if a decision is made to terminate the employment of either Rod
Kennedy or Robin Smith, the incremental cost, if any, of the New Manager over
the cost of Rod Kennedy and/or Robin Smith (whomsoever employment is terminated)
will not be charged as expenses in calculating the Earn-Out.
(c) All calculations shall be made in accordance with generally
accepted accounting principles consistently applied (except as specifically
provided in this Section 4); provided that Nobel shall be entitled to allocate
expenses in such manner as it desires in its sole and unfettered discretion.
(The proviso in the previous sentence relates only to the allocation of expenses
under Sections 4.1 and 4.2 and not to the calculation of the aggregate amount of
such expenses.)
4.3 AUDIT RIGHTS; ARBITRATION. The Company's Agent shall have the right
to audit all of Nobel's books and records related to the calculation of the
Earn-Out Payment, which right may be exercised upon reasonable notice to Nobel.
Any dispute regarding the Earn-Out payment that cannot be resolved shall be
submitted to formal arbitration by a mutually agreeable arbitrator upon such
terms as the arbitrator may decide. If no arbitrator can be selected by the
parties, then such arbitrator shall be selected by the American Arbitration
Association and such arbitration shall be pursuant to the rules for commercial
arbitration as promulgated by such Association. The arbitrator, regardless of
how selected, shall promptly obtain such information regarding the Earn-Out
payment he or she deems advisable and shall decide with dispatch the amount of
the Earn-Out payment and render a written decision which shall be delivered to
all parties. Any such decision will be a conclusive determination of the matter
and shall be binding upon each party, and shall not be contested by any party.
At the time of rendering the decision, the arbitrator shall establish his or her
fees and expenses in connection therewith. Such fees and expenses shall be
allocable by the arbitrator in his or her decision. Judgment upon any
arbitration decision may be entered and enforced in any court of competent
jurisdiction.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to Nobel as follows:
5.1 ORGANIZATION; AUTHORITY. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the Commonwealth of
Virginia and has the corporate power and authority to own and lease the
properties now owned or leased by it and to conduct the businesses presently
being conducted by it. Neither the nature of the Company's properties nor the
conduct of the businesses of the Company require the Company to be qualified and
licensed to do business as a foreign corporation in any other jurisdiction.
5.2 POWER AND AUTHORITY. The Company has the full power, authority and
capacity to execute, deliver and perform this Agreement and the other
agreements, documents and
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instruments required to be delivered by it to Nobel at the Closing
(collectively, the "SELLERS' TRANSACTION DOCUMENTS") and to perform its
obligations hereunder and thereunder.
5.3 DUE AUTHORIZATION; BINDING AGREEMENT. The execution and delivery by
the Company of this Agreement and each of the Sellers' Transaction Documents to
which it is a party, and the performance by the Company of its obligations
hereunder and thereunder, have been duly and validly authorized by all necessary
action of the Board of Directors and shareholders of the Company. This Agreement
has been duly executed and delivered by the Company. This Agreement constitutes,
and, when executed and delivered, each of the Sellers' Transaction Documents
will constitute, the legal, valid and binding obligation of the Company,
enforceable against it 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.
5.4 CAPITALIZATION. All of the shares of capital stock of the Company are
owned, both beneficially and of record, by the Shareholders, in the amounts set
forth on SCHEDULE 5.4. All of the issued and outstanding shares of capital stock
of the Company have been duly authorized and are validly issued and outstanding.
5.5 ABSENCE OF CONFLICTING AGREEMENTS. The execution and delivery of this
Agreement and the Sellers' Transaction Documents by the Company, and the
performance by it of the transactions contemplated hereby and thereby, will not,
with or without the giving of notice, lapse of time or both, conflict with, or
constitute a breach of or a default under, or violate or give to any third party
any rights under:
(a) any law, statute, rule, regulation, judgment, order, writ,
injunction, decree or ruling of any court or governmental authority
(collectively, "LAWS") applicable to the Company or by which the Company or any
properties of the Company is bound;
(b) the articles of incorporation or by-laws of the Company; or
(c) any Assumed Contract or any other material agreement, indenture,
instrument or contract to which the Company is now a party or by which the
Company or any properties of the Company is bound.
5.6 CONSENTS AND APPROVALS. Except for the consents and approvals listed
on SCHEDULE 5.6, 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 in connection with the execution, delivery and performance by the
Company of this Agreement or any of the Sellers' Transaction Documents.
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5.7 INVESTMENTS AND SUBSIDIARIES. Except as disclosed on SCHEDULE 5.7,
the Business (including the Acquired Center) is and has been conducted solely by
and through the Company and no other person or entity, and the Company have 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 or relating to
the Business. Except as disclosed on SCHEDULE 5.7, the Acquired Assets, the
Lease and the Contracts (defined below) are all of the material assets used in
or necessary for the conduct of the Business as currently conducted. No Acquired
Asset is owned or held by any person or entity (including any Shareholder) other
than a Company. The Company does not have any subsidiaries.
5.8 COMPLIANCE WITH LAWS. The Company has operated the Business in
compliance in all material respects with all Laws, and the Company has not
received any claim or notice that the Business is not in compliance with any
Law, except as shown on SCHEDULE 5.8.
5.9 PERMITS. Except as set forth on SCHEDULE 5.9, SCHEDULE 1.1(A)(V) is a
true, correct and complete list of all Permits which are necessary for the
Company to conduct the Business as now conducted. The Company owns, possesses or
has the legal right to use all of the Permits, free of any and all Liens. The
Company is not in default under, nor has the Company received any notice of any
claim or default or any other claim or proceeding relating to, any such Permit.
5.10 ENCUMBRANCES CREATED BY THIS AGREEMENT. The execution and delivery of
this Agreement and the Sellers' Transaction Documents by the Company and each
Shareholder do not, and the performance of their respective terms will not,
create any Liens on any of the Acquired Assets in favor of third parties or give
rights to third parties other than Nobel.
5.11 JUDGMENTS AND LITIGATION.
(a) Except as described in SCHEDULE 5.11, there are no, and during
the last three years there have not been any, claims, actions, suits,
proceedings (arbitration or otherwise) or, to the Company's knowledge, inquiries
or investigations, pending or, to the Company's knowledge, threatened, involving
or affecting the Company or any of its properties or the Business, or the
Company's directors, officers or shareholders in their capacities as such,
before or by any court or governmental agency or instrumentality, or before an
arbitrator of any kind which, in the case of claims, inquires or investigations
not yet resulting in any action, suit or proceeding, if decided adversely
against the Company or its directors, officers or shareholders could have a
material adverse affect on the Company's financial condition or results of
operations. To the Company's knowledge, there is no state of facts or occurrence
of any event that could reasonably serve as a basis for any claim, action, suit
or proceeding against the Company, the Acquired Assets or the Business which, if
decided adversely against the Company or its directors, officers or
shareholders, could have a material adverse affect on the Company's financial
condition or results of operations. Except as described in SCHEDULE 5.11, to the
Company's knowledge, there is no claim, action, suit, proceeding, inquiry or
investigation presently
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threatened or contemplated that questions the validity of this Agreement or any
of Sellers' Transaction Documents or the transactions contemplated hereby or
thereby.
(b) Except as described in SCHEDULE 5.11, there are no outstanding
orders, writs, injunctions, fines, citations, penalties, decrees or unsatisfied
judgments of any court, governmental agency or instrumentality or arbitrator
against the Company, the Acquired Assets or the Business.
5.12 FINANCIAL STATEMENTS.
(a) SCHEDULE 5.12 contains true, correct and complete copies for the
Company of (i) the Company's balance sheet (the "BALANCE SHEET") as of December
31, 1995 (the "BALANCE SHEET DATE") and the Company's related statements of
income prepared on a cash basis for the fiscal period then ended and (ii) the
Company's balance sheets as of December 31, 1993 and 1994 and the Company's
statements of income for each of the fiscal years then ended (collectively, the
"FINANCIAL STATEMENTS").
(b) The Financial Statements have been prepared on a cash basis and
present fairly the financial position of the Company and the results of its
operations and cash flows at the dates and for the periods covered thereby.
(c) Except as identified in SCHEDULE 5.12, the Company has no
material liabilities or obligations of any nature (absolute or contingent) that
are not reflected on the Balance Sheets (including, without limitation,
reasonably anticipated liabilities, losses and expenses of the Company,
including, without limitation, those with respect to 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 the Company's employees), except for current liabilities which have
been incurred since the Balance Sheet Date in the ordinary course of business
consistent in nature and amount with past practice and which are not
inconsistent with any of the representations and warranties contained herein
(such current liabilities are herein referred to as "CURRENT LIABILITIES"). To
Seller's knowledge, there is no basis for the assertion against the Company of
any liability or obligation of any nature or in any amount (other than Current
Liabilities as aforesaid) not fully reflected or reserved against in the Balance
Sheet or identified on SCHEDULE 5.12.
(d) The Company is not insolvent and will not be rendered insolvent
by the transactions contemplated by this Agreement.
5.13 TAX MATTERS.
(a) SCHEDULE 5.13 contains true, correct and complete copies of the
federal income tax returns of the Company for the Company's fiscal years ended
December 31, 1991, 1992, 1993 and 1994.
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(b) Except as disclosed on SCHEDULE 5.13:
(i) The Company has been qualified as an S Corporation, as
defined in Section 1361 of the Internal Revenue Code of 1986, as amended (the
"CODE"), for income federal tax purposes and for state income tax purposes in
the Commonwealth of Virginia in each fiscal year since its inception.
(ii) The Company has timely and properly filed all federal,
state, county and local returns and reports relating to Taxes (defined below)
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 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 the books of account of the Company. There
are no levies, Liens or other encumbrances (except any Lien for Taxes not yet
due and payable) relating to Taxes existing, pending or, to the Company's
knowledge, threatened with respect to any asset of the Company.
(iii) No waivers of statutes of limitation have been given or
requested with respect to any tax returns and reports referred to subsection (a)
above or with respect to any Taxes. SCHEDULE 5.13 lists all federal, state,
local and foreign income and franchise tax returns of the Company which have
been examined or which are currently under examination by the Internal Revenue
Service or by other appropriate taxing authorities and, except as and to the
extent set forth in SCHEDULE 5.13 or provided for on the financial statements,
any and all deficiencies assessed or assessments made as a result of such
examinations have been fully paid, and there are no other unpaid deficiencies
asserted or assessments made by any taxing authority against the Company. No
issues have been raised and are currently pending by the Internal Revenue
Service or any other taxing authority in connection with such tax return. The
Company has not made an election under Section 341(f) of the Code. The Company
uses the cash method of accounting for federal income tax purposes. The Company
is not required to make any adjustments under Section 481(a) of the Code by
reason of a change in accounting method or otherwise. SCHEDULE 5.13 lists all
elections by or with respect to the Company for federal income tax purposes that
are currently applicable.
(iv) The books and records of the Company 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 the Company.
5.14 ABSENCE OF CERTAIN CHANGES. Since December 31, 1995, the Business has
been conducted only in the usual and ordinary course consistent with past
practice, there has not been any material adverse change in the condition
(financial or otherwise), assets, liabilities, properties,
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operations or prospects of the Business or the Company or any event, condition
or contingency that is likely to result in any such material adverse change,
and, except as disclosed in SCHEDULE 5.14, the Company has not:
(a) sold, assigned, leased, transferred, mortgaged, pledged or
imposed any Lien on any of its assets or properties material to the operation of
the Business, except in the ordinary course of business consistent with past
practice;
(b) suffered any 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 used in or
required to conduct the Business, or suffered any material 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, properties or
prospects of the Business;
(c) 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;
(d) changed any of the accounting principles followed by it or the
methods of applying such principles;
(e) entered into any amendment or termination of any Lease, Assumed
Contract or any other material agreement or other document or commitment
affecting or relating to the Business (or received any notice thereof), or
entered into any material transaction (whether or not in writing), other than
this Agreement;
(f) accelerated the collection of tuition or registration fees or
otherwise collected such fees in a manner not consistent with the Company's
normal business practice;
(g) issued any capital stock or other securities of the Company, or
repurchased or redeemed any such shares of capital stock or other securities
(other than with cash other than proceeds of assets sold other than in the
ordinary course of business);
(h) declared or paid any dividend or other distribution or payment in
respect of the shares of capital stock of the Company, other than cash dividends
paid with cash other than proceeds of assets sold other than in the ordinary
course of business; or
(i) agreed to do any of the foregoing.
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5.15 TITLE TO AND CONDITION OF ASSETS, PROPERTIES, ETC. Except as
described on SCHEDULE 5.15,
(a) the Company has good title to all of its tangible and intangible
properties and assets (including those reflected on the Balance Sheet (except to
the extent the same have since been sold or otherwise disposed of in the
ordinary course of business consistent with past practice) and including, all of
the Acquired Assets), free and clear of any and all Liens and, upon Closing,
such title will be transferred to Nobel;
(b) all of the Acquired Assets are in the possession or under the
control of the Company and are located at the Acquired Center and, to the
Company's knowledge, are in good condition and repair, ordinary wear and tear
excepted and are of a condition, nature and quantity sufficient for the conduct
of the Business as conducted during the past two years; and
(c) to the Company's knowledge, there is no material structural,
mechanical or other significant defect or deficiency in the Acquired Center, the
Acquired Assets or the real property at which the Acquired Center is located.
5.16 REAL PROPERTY. The Leasehold Interest is the only real property owned
(beneficially or of record) or leased by the Company. SCHEDULE 5.16 contains
true, correct and complete copy the Lease, including all amendments or
modifications to date. Neither the Company nor any Shareholder has received any
written or oral notice for assessments for public improvements against any of
such real properties which remains unpaid and, to the Company's knowledge, no
such assessment has been proposed. Except as shown on SCHEDULE 5.16, neither the
Company nor any Shareholder has received any written or oral notice or order by
any governmental or other public authority, any insurance company which has
issued a policy with respect to any of such properties or any board of fire
underwriters or other body exercising similar functions which (i) relates to
violations of building, safety, fire or other ordinances or regulations, (ii)
claims any defect or deficiency with respect to any of such properties or (iii)
requests the performance of any repairs, alterations or other work to or in any
of such properties or in the streets bounding the same. To the Company's
knowledge, there is no pending condemnation, expropriation, eminent domain or
similar proceeding affecting all or any portion of any of such properties and,
to the Company's knowledge, no such proceeding is contemplated.
5.17 LIST OF PROPERTIES, CONTRACTS, ETC.
(a) SCHEDULES 1.1(A)(I) AND 1.1(A)(VIII) contain true, correct and
complete lists, as of the date hereof, of each vehicle, item of machinery,
equipment and other tangible assets owned by the Company; and all items
identified on the lists are located at the Acquired Center specified in such
Schedule.
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(b) SCHEDULE 5.17(B) contains a true, correct and complete list, as
of the date hereof, of all machinery, vehicles and equipment under lease to the
Company, together with the identity of the lessor, the annual rental and
unexpired lease term.
(c) SCHEDULE 5.17(C) contains a true, correct and complete list, as
of the date hereof, of each contract, agreement, purchase order or other
commitment (whether or not in writing) relating to the Business or to which the
Company is a party or by which the Company or any Acquired Asset is bound
(collectively, the "CONTRACTS").
(d) SCHEDULES 1.1(A)(ii) AND 5.17(D) contain, respectively, a true,
correct and complete list, as of the date of this Agreement, of all Intellectual
Property which are owned, possessed or used in the operation of the Business by
the Company.
(e) SCHEDULE 5.17(E) contains a true, correct and complete list, as
of the date of this Agreement, of each form of contract, agreement or commitment
used by the Company as a standard form in the Business.
(f) SCHEDULE 5.17(F) contains a true, correct and complete summary,
as of the date of this Agreement, of each policy and binder of insurance owned
by or maintained for the benefit of the Company, or respecting which any
premiums are paid directly or indirectly by Shareholders relating to the
Business, and each insurance claim made or loss incurred by the Company in the
preceding three years pursuant to any liability, workers' compensation or other
insurance policy.
5.18 CONTRACT VALIDITY, DEFAULTS, NOTICE/CONSENT. Except as described on
SCHEDULE 5.18:
(a) each Contract was made in the ordinary course of business, is in
full force and effect and is valid, binding and enforceable against the Company
and, to the Company's knowledge, 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;
(b) all parties to the Contracts have complied with the provisions
thereof, no party is in default thereunder, and to the Company's 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
(c) none of the Contracts requires notice to or the consent of any
party thereto in connection with the consummation of the transactions
contemplated hereby (including, assignment to Nobel of the same).
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5.19 EMPLOYEES.
(a) SCHEDULE 5.19(A) sets forth a true, correct and complete list of
the names of the center director of the Acquired Center and all other persons
with managerial level responsibilities in the Business.
(b) SCHEDULE 5.19(B) sets forth a true, correct and complete lists of
the name and current annual rate of compensation (including bonuses) paid or
payable by the Company to each of its center directors and employees. Except as
disclosed on SCHEDULE 5.19(B), there are no contracts, commitments or policies,
written or oral, relating to the employment or severance of any such center
directors or employee.
(c) No amount is owing to any employee of the Company with respect to
bonus or incentive awards, if any, for services rendered on or before the
Closing Date in accordance with the terms of applicable plans or policies of the
Company or otherwise. SCHEDULE 5.19(C) sets forth a tabulation showing the
amount of accrued but unused vacation and sick days for each employee of the
Company as of December 31, 1995.
5.20 LABOR MATTERS. None of the Company's employees is represented by any
union or other collective bargaining representative nor, to the Company's
knowledge, are there currently any attempts by any union or other collective
bargaining representative to organize employees and, to the Company's knowledge,
there have been no such attempts within the last one year. Since the
commencement of operations of the Company, there has not been, nor, to the
Company's knowledge, is there threatened or contemplated, any strike, slowdown,
picketing or work stoppage by any employees against the Company, its assets or
properties wherever located, any lockout by the Company of any of its employees
or any labor trouble or 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, properties or prospects of the Company, the
Business or the Acquired Assets.
5.21 RELATIONSHIPS. Except as disclosed in SCHEDULE 5.21, there is no
dispute or controversy existing between the Company and any of its clients or
customers with respect to any services or product sold or furnished by the
Company; and there is no dispute or controversy existing between the Company and
any supplier or other contractor with respect to any product or service
purchased by the Company from such person or entity.
5.22 TRANSACTIONS WITH RELATED PARTIES. Except as disclosed on SCHEDULE
5.22, since January 1, 1993, no Related Party has engaged in any material
transaction with the Company (other than providing services as an employee of a
Company as disclosed pursuant to Section 5.19(b)). As used herein, a "RELATED
PARTY" means (i) any officer, director or shareholder of the Company, (ii) any
relative of any such officer, director or shareholder, or (iii) any business or
entity, or any officer, director or shareholder of any business or entity, in
which any of the persons referred to in clause (i) or (ii) has any direct or
material indirect interest.
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5.23 NON-FOREIGN PERSONS. The Company is not a foreign person, foreign
partnership, foreign trust or foreign estate as defined in Section 1445(f)(3) of
the Code, and the delivery of the Nobel Shares and payment of the Earn-Out
Payment will not be subject to the withholding requirements of Section 1445 of
the Code.
5.24 EMPLOYEE BENEFIT PLANS. Except as set forth on SCHEDULE 5.24, the
Company does not maintain, or contribute to, any employee benefit plans. The
Company has never maintained any employee pension benefit plans qualified for
federal income tax purposes under the Code. The Company has made all required
contributions under each employee benefit plan listed on SCHEDULE 5.24 for all
periods through the Closing Date. The Company has not ever been obligated to
contribute to a multiemployer plan. The Company does not maintain any employee
benefit plan(s) providing for continued life or health benefits or coverage for
any employee (or beneficiary thereof) after the employee's termination of
employment, other than as required by Section 601 et. seq. of Employee
Retirement Income Security Act of 1974, as amended ("ERISA"). As used in this
Section 5.24, the terms "employee benefit plan," "employee pension benefit plan"
and "multiemployer plan" shall have the respective meanings assigned to such
terms in Section 3 of ERISA. "Company" as used in this Section 5.24 shall
include any other entity required to be aggregated with the Company under
Section 414(b), 414(c), 414(m), or 414(o) of the Code.
5.25 ENVIRONMENTAL PROTECTION. Except as disclosed in SCHEDULE 5.25,
(a) The Business is now and always have been conducted and operated
in compliance with all federal, state, and local statutes, ordinances,
regulations and rules concerning or relating to industrial hygiene or the
protection of health and the environment (collectively, the "ENVIRONMENTAL
LAWS");
(b) To the Company's knowledge, there are no conditions on, about,
beneath, adjacent to or arising from the Acquired Center which might give rise
to liability, result in the imposition of a statutory lien or require any
"Response," "Removal" or "Remedial Action", 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);
(c) 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 Acquired Center by
the Company or any person acting on behalf or at the direction of the Company
or, to the Company's knowledge, by any other persons, except in compliance with
all Environmental Laws. To the Company's knowledge, there are no transformers or
other equipment containing or contaminated with polychlorinated biphenyls
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("PCBS") or any above or underground storage tanks on, about or beneath the
Acquired Center. To the Company's knowledge, there is no asbestos or asbestos
containing material at the Acquired Center and no lead-based paint or lead-based
paint hazards are present at the Acquired Center. As used in this Agreement, the
term "HAZARDOUS SUBSTANCE" means a hazardous substance, material or waste
including, without limitation, any substance which: (i) is or contains
petroleum, asbestos, lead-based paint or PCBs; (ii) is 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; (iii) is listed in the United
States Department of Transportation Hazardous Material Table, 49 C.F.R. (S)
172.101; or (iv) is 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
(d) Neither the Company (nor any Shareholder, with respect to matters
affecting the Company) has received notice or had any actual knowledge of: (i)
any claim, demand, investigation, enforcement, Response, Removal, Remedial
Action or other governmental or regulatory action instituted or threatened
against the Company or the Acquired Center pursuant to any of the Environmental
Laws; (ii) any claim, demand, suit or action made or threatened by any person or
entity against the Company or the Acquired Center 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 Acquired Center or any alleged
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 Acquired Center,
including, without limitation, any notice of violation, citation, complaint,
order, directive, request for information or response thereto, notice letter,
demand letter or compliance schedule.
5.26 BOOKS AND RECORDS.
(a) The copies of the articles of incorporation of the Company, as
certified by the Clerk of the State Corporation Commission of the Commonwealth
of Virginia, and of its bylaws, as certified by its secretary or assistant
secretary, which have been delivered to Nobel are true, complete and correct and
are in full force and effect as of the date hereof.
(b) The stock records of the Company fairly and accurately reflect
the record ownership of all of its outstanding shares of capital stock. The
minute books of the Company contain complete and accurate records of all
meetings held of, and corporate action taken by, the shareholders, the board of
directors and each committee of the board of directors of the Company. The other
books and records of the Company, including financial records and books of
account, are complete and accurate in all material respects and have been
maintained in accordance with sound business practices. Complete and accurate
copies, as of the date hereof, of all such minute books and stock records have
been made available to Nobel.
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5.27 INTELLECTUAL PROPERTY. The Company has not granted or licensed to any
person or entity any rights with respect to any of the Intellectual Property.
The Company has not received any notice of any claim that any of the
Intellectual Property infringes any trademark, trade name, service mark,
copyright, patent or other proprietary right of any person. The Company has not
been in breach of, or is now in breach of, any agreement concerning third party
intellectual property rights or confidential information.
5.28 NO CHILD ABUSE OR SEXUAL ABUSE. Except as disclosed in SCHEDULE 5.28,
no acts or events have occurred or been committed by any present or former
officer, director, employee or agent of the Company that have resulted in or
which constitute, child (including physical or sexual) abuse or assault of any
type or nature, against any child or other person within the previous five
years. Except as disclosed in SCHEDULE 5.28, within the previous five years,
there has not been, nor, to the Company's knowledge, has there been threatened
or contemplated, any event, allegation, report or publicity, or any charge,
suit, action or other proceeding, regarding any acts of alleged child abuse or
sexual abuse, of any nature whatsoever, involving the Company or the Business or
any of the Company's present or former officers, directors, employees or agents.
5.29 NO OTHER AGREEMENTS. Other than this Agreement, neither the Company
nor any Shareholder 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 the Company; (ii) the
sale, issuance or other disposition of the Acquired Assets or the Business (or
any portion thereof); or (iii) the sale, issuance or other disposition of any
shares of capital stock or other securities of the Company.
5.30 OPERATION OF OTHER CENTERS AND SCHOOLS. Except as disclosed on
SCHEDULE 5.30, as of the date of this Agreement, other than the Acquired Center,
neither the Company nor any Shareholder either directly or indirectly, operates,
manages, owns, controls, provides consulting services to, or is in any way
connected with or concerned with or interested in any day care or child care
facility or private school of any type.
5.31 SPECIAL ARRANGEMENTS. The Company does not have any unusual or cash
payment arrangements with any of its employees. All employees are paid through
the payroll systems of the Company and receive only the payments disclosed by
such systems, except for the shareholders of the Company who receive
distributions from time to time. Except as set forth in SCHEDULE 5.31, the
Company does not have any arrangements or obligations with any of its customers
or children whereby the Company offers (i) care or custody services at any
location other than the location of the Acquired Center, (ii) any pickup or
delivery services or (iii) any discounts from the Company's published tuition
rates.
5.32 BROKERS. No person or entity acting on behalf of the Company or any
Shareholder 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
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or indirectly, from any of such parties in connection with any of the
transactions contemplated by this Agreement, other than fees payable to Dick
Richards and Childcare Center Brokerage and Development, Inc. (which fee is
being satisfied in full by the Company and Shareholders and with respect to
which Nobel shall have no responsibility).
5.33 DISCLOSURE. No representation or warranty by the Company in this
Agreement and no information in any statement, certificate, schedule or other
document furnished or to be furnished to Nobel pursuant hereto, or in connection
with the transactions contemplated hereby, and no information in any Schedule
attached to this Agreement, contains any untrue statement of a material fact or
omits to state a material fact necessary to make the statements contained herein
or therein not misleading. Except as disclosed in this Agreement and the
Schedules attached hereto (and excluding economic, business and regulatory
factors affecting the child care industry generally and such facts as are public
knowledge), there is no fact which the Company has not disclosed to Nobel in
writing which materially adversely affects nor, so far as the Sellers can now
reasonably foresee, may materially adversely affect the business, operations,
prospects, properties, assets, profits, condition (financial or otherwise) or
prospects of the Business. Disclosure of a matter on one schedule to this
Agreement shall be deemed to be disclosure of the matter on all relevant
schedules whether cross-referenced or not.
6. REPRESENTATIONS AND WARRANTIES OF ALL SHAREHOLDERS.
The Shareholders, jointly and severally, represent and warrant to Nobel as
follows:
6.1 POWER AND AUTHORITY. Each Shareholder has the full power, authority
and capacity to execute, deliver and perform this Agreement and the Sellers'
Transaction Documents to be executed by a Shareholder and to perform his or her
obligations hereunder and thereunder.
6.2 DUE AUTHORIZATION; BINDING AGREEMENT. This Agreement has been duly
executed and delivered by each Shareholder. This Agreement constitutes, and,
when executed and delivered, each of the Sellers' Transaction Documents to be
executed by a Shareholder will constitute, the legal, valid and binding
obligation of each Shareholder, enforceable against him or her 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.
6.3 ABSENCE OF CONFLICTING AGREEMENTS. The execution and delivery of this
Agreement and the Sellers' Transaction Documents by the Shareholders, and the
performance by all of them of the transactions contemplated hereby and thereby,
will not, with or without the giving of notice, lapse of time or both, conflict
with, or constitute a breach of or a default under, or violate or give to any
third party any rights under:
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(a) any Law applicable to any Shareholder or by which any Shareholder
or any properties of any Shareholder is bound; or
(b) any material agreement, indenture, instrument or contract to
which any Shareholder is now a party or by which any Shareholder or any
properties of any Shareholder is bound.
6.4 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 in connection with the execution, delivery and performance
by any Shareholder of this Agreement or any of the Sellers' Transaction
Documents.
7. REPRESENTATIONS AND WARRANTIES OF BUYER.
Nobel hereby represents and warrants to the Company as follows:
7.1 ORGANIZATION AND STANDING. Nobel is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware.
Nobel is duly qualified to do business as a foreign corporation in Pennsylvania
and Virginia 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.
7.2 POWER AND AUTHORITY. Nobel has the full corporate power and authority
to execute, deliver and perform this Agreement and the other agreements,
documents and instruments required to be delivered by Nobel to the Company at
Closing (collectively, the "NOBEL'S TRANSACTION DOCUMENTS") and to perform its
obligations hereunder and thereunder.
7.3 DUE AUTHORIZATION; BINDING AGREEMENT. The execution and delivery by
Nobel of this Agreement and each of the Nobel's Transaction Documents, and the
performance by Nobel of its obligations hereunder and thereunder, have been duly
and validly authorized by all necessary action of the Board of Directors and
stockholders of Nobel. This Agreement has been duly authorized, executed and
delivered by Nobel. This Agreement constitutes, and when executed and delivered
by Nobel at the Closing each of the Nobel's Transaction Documents will
constitute, the legal, valid and binding obligations of Nobel, enforceable
against Nobel in accordance with its 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.
7.4 ABSENCE OF CONFLICTING AGREEMENTS. The execution and delivery of this
Agreement and the Nobel's Transaction Documents by Nobel, and the performance by
Nobel of
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the transactions contemplated hereby and thereby, will not, with or without the
giving of notice, lapse of time or both, conflict with, or constitute a breach
of or a default under or violates or give to any third party any rights under
(i) any law applicable to Nobel or by which Nobel or any of its properties is
bound, (ii) the certificate of incorporation or by-laws of Nobel or (iii) any
agreement, indenture, instrument or contract to which Nobel is a party or by
which Nobel or any of its properties is bound.
7.5 CONSENTS. Except for any required filings under applicable Federal
and state securities laws, and except for such consents of lenders as have been
obtained as of the date hereof, and assuming the accuracy of each Shareholders'
representations set forth in Section 11.1, no consent, waiver, approval or
license of any person is required to be given or made by in connection with the
execution and delivery by Nobel of this Agreement and the Nobel Transaction
Documents and the issuance and sale of the Nobel Shares by Nobel.
7.6 CAPITALIZATION. The authorized capital stock of Nobel consists of
60,000,000 shares, including 50,000,000 shares of common stock, par value $.001
per share, and 10,000,000 shares of preferred stock, par value $.001 per share.
As of December 31, 1995, the outstanding capital stock of the Company consisted
of 4,070,908 shares of common stock (plus 312,500 shares the Company was
obligated to, and did, issue in January 1996), 1,971,320 shares of Series A
Preferred Stock, 2,500,000 shares of Series C Preferred Stock and 1,063,830
shares of Series D Preferred Stock. The Company also has outstanding various
options and warrants to purchase its common stock. The Nobel Shares to be
issued and delivered at Closing pursuant to this Agreement will, upon
consummation of the Closing, be duly authorized, validly issued, fully paid and
nonassessable by Nobel.
7.7 FINANCIAL CONDITION. The financial statements included in the SEC
Reports (defined below) have been prepared in accordance with generally accepted
accounting principles consistently applied (except as may be indicated in the
notes thereto) and present fairly the consolidated financial position of Nobel
and its consolidated subsidiaries as of the respective dates thereof and the
consolidated results of their operations and their changes in cash flows for the
periods then ended, subject, in the case of the unaudited interim financial
statements, to normal year-end adjustments and any other adjustments described
therein.
7.8 ABSENCE OF CHANGE. Since September 30, 1995, the business of Nobel
has been operated in the ordinary course consistent with past practice and there
has not been (a) any material adverse change in the operations, properties or
condition (financial or otherwise) of Nobel or (b) any other change in the
nature of, or the manner of conducting, the business of Nobel, other than
changes which neither have had, nor reasonably may be expected to have, a
material adverse effect on Nobel.
7.9 BROKERS. No person or entity acting on behalf of Nobel 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
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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.
7.10 DISCLOSURE. No representation or warranty by Nobel in this Agreement
or any statements, information or disclosures contained in Nobel's Annual Report
on Form 10-K for the fiscal year ended December 31, 1994 or Nobel's Quarterly
Reports on Form 10-Q for the fiscal quarters ended March 31, 1995, June 30, 1995
and September 30, 1995 filed with the Securities and Exchange Commission (the
"COMMISSION") (collectively, the "SEC REPORTS") or any other document furnished
to the Company on the Closing Date pursuant hereto contains any untrue statement
of a material fact or omits to state a material fact necessary to make the
statements contained herein or therein not misleading.
8. EMPLOYEES OF THE BUSINESS; EMPLOYEE BENEFITS.
8.1 EMPLOYEES OF THE COMPANY. Following Closing, Nobel will offer
employment to all employees of the Acquired Center, provided that Nobel shall
not be under any contractual restriction from subsequently terminating the
employment of any such employees. Notwithstanding the foregoing, with respect
to the director of the Acquired Center, such employment shall continue for the
remainder of the 1995-1996 school year, at such compensation level as is
currently in effect, provided that such director may be terminated by Nobel at
any time for cause as determined in good faith by Nobel and this Section shall
in no way obligate Nobel to continue the employment of any such person past the
end of such school year. During the Earn-Out Period, unless Linda Nash
otherwise consents, the benefits afforded employees of Nobel located at the
Acquired Center shall be the same as the benefits afforded to employees of the
Acquired Center by the Company prior to the Closing Date.
8.2 EMPLOYEE BENEFIT AND BONUS CLAIMS.
(a) Nobel's employee benefit plans shall be responsible for all
benefit claims of those employees of the Company who accept employment with
Nobel (or their eligible dependents) with respect to claims incurred after the
Closing Date;
(b) The Company's employee benefit plans shall be responsible for all
benefit claims of (i) those employees of the Company who accept employment with
Nobel (or their eligible dependents) with respect to claims incurred on or
before the Closing Date, (ii) those employees of the Company who do not accept
employment with Nobel (or their eligible dependents) (including any claims from
such employees or their dependents for "continuation coverage" under Part 6 of
Subtitle B of Title I of ERISA (sometimes referred to as "COBRA")) and (iii) all
retired employees (if any) (which obligations in (i), (ii) and (iii) shall be
included within the definition of "Excluded Liabilities");
(c) The Company shall deliver to the Nobel, on or before the Closing
Date, complete and correct copies of all current plan documents, associated
insurance contracts,
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summary plan description, and the most recently filed Internal Revenue Service
Form 5500 series form (if any) for the Company's health insurance, dental
insurance, and life insurance plans; and
(d) The Company will be responsible for preparing and filing the Form
5500 series form for all plan years ended before the Closing Date (if required
and if not already filed).
9. CERTAIN OBLIGATIONS AND AGREEMENTS OF PARTIES AFTER CLOSING.
9.1 REMITTANCE OF PAYMENTS. From and after the Closing, the Company and
Shareholders shall immediately remit to Nobel, in the form received, any
payments which they or any affiliate may receive (such as payments of tuition or
other fees) which properly belong to Nobel.
9.2 COLLECTION OF RECEIVABLES. From and for a period of six months
after the Closing, Nobel shall cooperate with the Company in the Company's
collection of the accounts receivable described in SECTION 1.1(B)(III);
provided, however that nothing herein shall be construed as creating any duty or
obligation of Nobel to perform any collection duties whatsoever on behalf of the
Company. If proceedings to collect such accounts receivable are instituted, they
shall be brought at the Company's election, in the Company's own name and at its
sole expense. Any amounts received after Closing by Nobel or its subsidiaries
shall be applied to accounts receivable owed to Nobel or its subsidiaries,
unless the payor specifies that such amounts shall be payable in respect of
accounts receivable owed to a Company.
9.3 DISCHARGE OF LIABILITIES. The Company shall pay all the Excluded
Liabilities as and when the same shall become due and payable. Nobel shall pay
all the Assumed Liabilities as and when the same shall become due and payable.
Notwithstanding the foregoing, no party shall be obligated to pay to a third
party an Excluded Liability (in the case of the Company) or an Assumed Liability
(in the case of Nobel) which such party disputes in good faith.
9.4 NONDISCLOSURE; COVENANT NOT TO COMPETE.
(a) For a period of five (5) years from and after the Closing Date,
the Company shall not, directly or indirectly, operate, manage, own, control, be
employed by or provide consulting, advisory or similar services to, any school,
pre-school, day care or child care business of any type which is now or
hereafter located within Loudoun, Fairfax or Prince Williams Counties of
Virginia or within seven and one-half (7 1/2) miles of the outer boundaries of
the City of Richmond, Virginia as they exist on the date hereof (collectively,
the "TERRITORY").
(b) From and after the date hereof, the Company shall not disclose,
directly or indirectly, to any person or entity, other than an employee of
Nobel, without the express authorization of Nobel in each such instance, any
customer or client lists, pricing strategies, customer, client or employee files
or records, proprietary data or trade secrets of Nobel not in the public domain.
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(c) From and after the date hereof until the fifth (5th) anniversary
of the Closing Date, the Company shall not, directly or indirectly, engage or
participate in any effort or action to induce any of the customers, clients,
suppliers, associates, employees or independent contractors of Nobel or its
subsidiaries relating to operations of Nobel within the Territory (including
those of the Acquired Center or the Business) to cease doing business or to
discontinue their association or employment with Nobel or its subsidiaries.
Prohibited actions shall include, without limitation, the solicitation of
Nobel's or any such subsidiary's customers, clients, suppliers, associates,
employees or independent contractors to cease doing business, or to discontinue
their association or employment, with Nobel or any such subsidiary.
(d) The Company expressly acknowledges that damages alone will be an
inadequate remedy for any breach or violation of any of the provisions of this
Section 9.4 and that Nobel, 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. If Nobel must resort to the courts to
enforce any of the covenants set forth in this Section 9.4, the term of such
covenants will be extended for a period of time equal to the period of such
breach (such extended period to commence on the later of (i) the date on which
the original (unextended) term of such covenants would have terminated or (ii)
the date of the final court order (without further right of appeal) enforcing
such covenants).
(e) The Company acknowledges and agrees that the covenants contained
in this Section 9.4 are fair and reasonable in light of the consideration paid
hereunder and in order to protect Nobel's investment in the Acquired Center and
the Business, and the invalidity or unenforceability of this provision, or any
other or part of any other provision, of this Agreement shall not affect the
other provisions or parts hereof. If any provision in this Section 9.4 is
determined to be invalid or unenforceable by a court of competent jurisdiction,
(i) the Company shall negotiate in good faith to provide Nobel with protection
as nearly equivalent to that found to be invalid or unenforceable and (ii) the
court making such determination shall have the power, and is directed by the
parties, to reduce the area covered, the duration thereof or the scope thereof,
so that the provision shall then be enforceable in its reduced form.
9.5 ACCESS TO RECORDS. Nobel shall give the Shareholders reasonable
access to the historical financial records of the Company included in the
Acquired Assets for five years following the Closing Date for the purpose of
preparing the tax returns of the Company and such Shareholders during normal
business hours and shall permit the Shareholders to make copies of such records
at the expense of the requesting Shareholder. The Company and the Shareholders
shall give Nobel reasonable access to the Retained Records for five years
following the Closing Date for all valid corporate purposes during normal
business hours and shall permit Nobel to make copies of such records at Nobel's
expense. No party shall destroy any of such records without the consent of the
other party.
9.6 REPRESENTATION LETTERS. The Company and Shareholders acknowledges
that Nobel is a publicly-held company, subject to the reporting provisions of
Section 13 of the Securities
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Exchange Act of 1934, as amended (the "1934 ACT"), and that Nobel may be
required by the Act and the rules and regulations of the Securities and Exchange
Commission ("SEC") to include audited financial statements of the Business for
certain periods in reports filed by Nobel with the SEC under the Act and in
registration statements filed with the SEC under the Securities Act of 1933, as
amended (the "1933 ACT"). The Company and Shareholders will use their best
efforts, at Nobel's request, to assist Nobel after Closing to obtain audited
financial statements for those periods, such efforts to include but not be
limited to, cooperating by signing customary representation letters required by
Nobel's independent auditors. The cost of obtaining audited financial statements
shall be paid by Nobel.
9.7 POST-CLOSING COVENANTS OF NOBEL. Subsequent to the Closing and until
the end of the Earn-Out Period, (a) Nobel will cooperate with Linda Nash (i) to
develop the business of the Acquired Center and (ii) to operate the Acquired
Center in a good and businesslike manner consistent with past business practices
and (b) Nobel will not change the name or curriculum of the Acquired Center
without the approval of Linda Nash. If Nobel exercises renewal rights under the
Lease, it will make a good faith request of the landlord to release the Company
of its liability thereunder.
9.8 PERMITS AND LICENSES. From and after Closing and continuing for a
period of three months thereafter, the Company will allow, to the extent
allowable under applicable law, Nobel to operate the Acquired Center under
existing child care licenses and permits of the Company. Nobel will indemnify
and hold harmless the Company and its officers, directors and shareholders
against and in respect of any and all Damages which any of them may suffer,
incur or become subject to under such licenses and permits of the Company as a
result of Nobel's operation of the Purchased Center after the Closing, except to
the extent that any such Damages are due to (i) wrongful actions of Linda Nash
personally (i.e., not actions imputed from employee actions) or (ii) any
condition or state of events the existence of which constitutes a breach of the
Company's representations and warranties hereunder.
9.9 INCOME TAX STATUS OF TRANSACTION.
(a) Nobel, the Company and the Shareholders acknowledge that the
acquisition of the Acquired Assets in consideration of the deliveries provided
for herein (the "TRANSACTION"), followed by the liquidation of the Company, is
intended to qualify as a "reorganization" within the meaning of Section
368(a)(1)(C) of the Code and that the Transaction is intended to be pursuant to
a "plan of reorganization" within the meaning of Section 354 of the Code.
Nobel, the Company and the Shareholders will report the Transaction in
accordance with such intent for income tax purposes.
(b) Nobel represents and warrants that as of the date hereof it has
no plan or intention (i) to fail (A) to conduct the business currently conducted
by the Company or (B) to use a significant portion of the Acquired Assets in a
business or (ii) to dispose of a substantial portion of the Acquired Assets
outside the ordinary course of business, and Nobel covenants that for a
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period of one year following closing it will not take actions inconsistent with
the foregoing. Nobel will defend, indemnify and hold the Shareholders harmless
from any damages (including the incurrence or acceleration of taxes) incurred by
the Shareholders if, as a result of any and all breaches of the representations
and covenants of Nobel contained in this Section 9.9, the Internal Revenue
Service determines that the Transaction does not qualify as a reorganization
under Section 368(a)(1)(C) of the Code (an "IRS DETERMINATION"). The
Shareholders may, but shall have no obligation to, contest any such IRS
Determination, but the Shareholders shall cooperate with Nobel to the extent
reasonably required if it contests any such IRS Determination. The Shareholders
shall not, however, be obligated to pay any tax or other amount as part of such
cooperation. Nobel shall have no obligation to the Shareholders under this
Section 9.9 to the extent that the Transaction fails to qualify as a
"reorganization" within the meaning of Section 368(a)(1)(C) of the Code because
of actions taken or failed to be taken by the Company or the Shareholders.
10. INDEMNIFICATION.
10.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations,
warranties, covenants and agreements made by a party in this Agreement or in any
schedule, certificate, document or list delivered by any such party pursuant
hereto shall survive the Closing, and each party hereto shall be entitled to
rely upon the representations and warranties of the other parties
notwithstanding any investigation conducted before or after the Closing Date or
the decision of any party to complete the Closing.
10.2 INDEMNIFICATION BY THE COMPANY AND SHAREHOLDERS. The Company and the
Shareholders shall, jointly and severally, indemnify and hold harmless Nobel and
its officers, directors and shareholders against and in respect of any and all
losses, costs, expenses, claims, damages, obligations or liabilities (including
interest, penalties, reasonable legal and paralegal fees and expenses, and all
other costs and expenses incurred in investigating any of the foregoing or
preparing for or defending any proceeding, commenced or threatened, incident to
the foregoing or to the enforcement of this Agreement) (collectively, "DAMAGES")
which Nobel or any such person may suffer, incur or become subject to arising
out of, based upon or otherwise in respect of:
(a) any inaccuracy in or breach of any representation or warranty of
the Company or Shareholder made in or pursuant to this Agreement or any Sellers'
Transaction Document;
(b) any material breach or nonfulfillment of any covenant or
obligation of the Company or Shareholder contained in this Agreement or any
Sellers' Transaction Document;
(c) all liabilities of the Company for or with respect to any Taxes
for which returns are filed (whether or not reserved against or contested) for
taxable periods up to and including the Closing Date; and
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(d) the Company's failure timely to pay the Excluded Liabilities.
10.3 INDEMNIFICATION BY NOBEL. Nobel shall indemnify and hold harmless
the Company and its officers, directors and shareholders against and in respect
of any and all Damages which the Company or its officers, directors and
shareholders may suffer, incur or become subject to arising out of, based upon
or otherwise in respect of:
(a) any inaccuracy in or breach of any representation or warranty of
Nobel made in or pursuant to this Agreement or any Nobel's Transaction Document;
(b) any material breach or nonfulfillment of any covenant or
obligation of Nobel contained in this Agreement or any Nobel's Transaction
Document;
(c) Nobel's failure timely to pay the Assumed Liabilities.
Any amount payable by Nobel pursuant to Section 9.8 or this Section 10.3 shall
be paid solely in shares of Nobel Common Stock (such shares to be valued for
such purpose at the average closing price of Nobel Common Stock as reported on
the NASDAQ Small Cap Market for the 20 trading days preceding the date of
payment).
10.4 PROCEDURES RELATING TO INDEMNIFICATION.
(a) In order for a party (the "INDEMNIFIED PARTY") to be entitled to
any indemnification provided for under this Agreement in respect of, arising out
of or involving a claim or demand made by any individual, entity or governmental
authority against the indemnified party (a "THIRD PARTY CLAIM"), such
indemnified party must notify the other party (the "INDEMNIFYING PARTY") in
writing of the Third Party Claim within 45 days after receipt by such
indemnified party of written notice of the Third Party Claim; provided, however,
that failure to give such notification shall not affect the indemnification
provided hereunder except to the extent (and only to the extent) the
indemnifying party shall have been actually prejudiced as a result of such
failure. Thereafter, the indemnified party shall deliver to the indemnifying
party, within five business days after the indemnified party's receipt thereof,
copies of all notices and documents (including court papers) received by the
indemnified party relating to the Third Party Claim. (For purposes of this
Section 10.4, the Company jointly and severally shall be considered to be one
party (represented by Company's Agent, as provided below) and Nobel being the
other party.)
(b) The indemnifying party will be entitled to participate in the
defense of a Third Party Claim made against an indemnified party and, if it so
chooses, to assume the defense thereof with counsel selected by the indemnifying
party; provided that, with respect to such assumption, (i) such counsel is not
reasonably objected to by the indemnified party and (ii) the indemnifying party
first admits in writing its obligation hereunder to the indemnified party to
indemnify the indemnified party with respect to the claim and notifies the
indemnified party of its intention to assume such defense within 30 days of
receipt of notice of a Third Party Claim.
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If the indemnifying party does not timely give written notice of its intention
to assume control in the defense of any Third Party Claim, or, after giving such
notice, fails to do so, the indemnifying party shall be bound by the results
obtained by the indemnified party with respect to such claim. If the
indemnifying party does timely give such notice, the indemnified party (x) will
cooperate in all reasonable respects with the indemnifying party in connection
with such defense, (y) will not admit any liability with respect to, or settle,
compromise or discharge any Third Party Claim without the indemnifying party's
prior written consent and (z) will agree to any settlement, compromise or
discharge of a Third Party Claim which the indemnifying party may recommend and
which by its terms obligates the indemnifying party to pay the full amount of
the liability in connection with such Third Party Claim, which releases the
indemnified party completely in connection with such Third Party Claim, which
does not obligate the indemnified party to take or forbear to take any action,
and which would not, in the case Nobel is the indemnified party, adversely
affect the business, operations or properties of Nobel or its subsidiaries. If
the indemnifying party assumes the defense of any Third Party Claim as provided
above, the indemnified party shall be entitled to participate in (but not
control) such defense with its own counsel and at its own expense. An
indemnifying party who does not assume the defense of a claim will not be
obligated to pay the fees and expenses of more than one counsel for all parties
indemnified by such indemnifying party with respect to such claim.
(c) Anything contained in this Agreement to the contrary
notwithstanding, no Company shall be entitled to assume the defense of any Third
Party Claim (and shall be liable for counsel's fees and expenses incurred by
Nobel in defending such Third Party Claim) if the Third Party Claim seeks an
order, injunction or other equitable relief or relief for other than money
damages against Nobel which Nobel reasonably determines would, if successful,
adversely affect the business, operations or properties of Nobel and its
subsidiaries; provided, however, that if such equitable relief portion of the
Third Party Claim can be separated from any related claim for money damages
(such determination to be made solely by Nobel, after conferring with its
outside counsel), the Company shall be entitled to assume the defense of the
portion relating to money damages.
10.5 LIMITATION.
(a) All claims for breach of any representation or warranty made by
any party must be asserted prior to the second anniversary of the Closing Date,
and no party shall be entitled to indemnity hereunder or other relief for any
such claims asserted after that date; provided, however, that in the case of
income or other tax claims and claims relating to environmental matters, notice
may be given within the period of the applicable statute of limitations. This
Section 10.5 shall not impose any time limitation on the assertion of claims for
indemnification (x) otherwise than under Sections 10.2(a) and 10.3(a) or (y)
with respect to the breach of any of representation and warranty if such
representation or warranty was made with actual knowledge that it contained an
untrue statement of a material fact or omitted to state a material fact
necessary to make the statements or facts contained therein not misleading.
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(b) No claims under Section 10.2(a) or in respect of Excluded
Liabilities which are alleged by third parties but not valid shall be made until
and unless there are aggregate Damages in respect thereof equal to at least
$10,000.
(c) The liability of the Company and Shareholders for breaches of the
Company's representations and warranties under Section 5.28 and for Excluded
Liabilities relating to child or sexual abuse, in each case of which the Company
does not have knowledge, shall be limited as follows:
(i) The Company shall only be responsible for Third Party
Claims (and related expenses, including reasonable legal and paralegal fees and
expenses, and all other costs and expenses incurred in investigating any of the
foregoing or preparing for or defending any proceeding, commenced or threatened,
incident to the foregoing or to the enforcement of this indemnification
obligation) and not for consequential damages (such as loss of enrolled children
or the increased cost of raising capital due to a reduction in Nobel's stock
price);
(ii) Nobel shall be responsible for the payment of Nobel's
legal and paralegal fees and expenses relating to the assertion of any defenses
which are applicable to Nobel but not to the Company or the Shareholders (such
as the assertion of the defense that a third party cannot proceed against Nobel
because Nobel is not a transferee of the liabilities of the Company);
(iii) Such liability shall terminate if and when the Company
assigns to Nobel the benefits under the insurance policies described on SCHEDULE
10.5 if such insurance policy will afford to Nobel the same protection for
events occurring prior to the Closing Date as such insurance policy afforded to
the Company prior to such assignment; and
(iv) The Company and Shareholders shall not be obligated to
indemnify for any Damages relating to acts occurring after the Closing Date even
if committed by a person who was employed by the Company.
(d) Nobel's right to recover Damages under this Section 10 shall be
limited to $1,500,000 plus the Earn-Out Payment.
10.6 REMEDIES NOT EXCLUSIVE. The indemnification obligations contained in
this Section 10 are not intended to waive or preclude any other claims, rights
or remedies which may exist at law (whether statutory or otherwise) or in equity
with respect to the matters covered hereby.
10.7 COSTS AND EXPENSES. Any and all costs and expenses (including,
without limitation, all legal, accounting and financial advisory fees) incurred
by the Shareholders or the Company in connection with the negotiations leading
up to and performance under this Agreement shall be borne by the Shareholders
and the Company and shall be paid by them on or before the
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Closing Date. If any cost or expense is not so paid and is paid by Nobel, the
Company and the Shareholders shall promptly reimburse Nobel for any such
expenses so paid.
10.8 RIGHT OF OFFSET. Nobel shall have the option of offsetting against
its obligations to deliver the Earn-Out Payment all or any part of damages Nobel
may suffer upon ten days prior written notice to the Company's Agent (which such
offset amount shall be credited against any indemnification to which Nobel is
entitled under Section 10.3). If, upon Nobel's exercise of this right of
offset, the Company's Agent disputes the amount being offset in a notice
delivered to Nobel by the Company's Agent, Nobel shall immediately deposit the
disputed amount into escrow pending resolution of the dispute.
11. SECURITIES MATTERS.
11.1 INVESTMENT REPRESENTATIONS AND COVENANTS.
(a) The Company and each Shareholder (each, an "INVESTOR")
understands that the issuance of the Nobel Shares will not be registered under
the 1933 Act, or qualified under any state securities laws on the basis that the
issuance of the Nobel Shares is exempt from registration pursuant to Section
4(2) of the 1933 Act and/or Regulation D promulgated under the 1933 Act
("REGULATION D") and from qualification pursuant to Section 13.1-514B(13) of the
Virginia Securities Act and Rule 503 thereunder, and that the reliance of Nobel
on such exemptions is predicated in part on the Investors' representations,
warranties, covenants and acknowledgments set forth in this Section.
(b) Each Investor hereby represents and warrants to Nobel that:
(i) the Nobel Shares will be acquired by such Investor for
such Investor's own account, not as a nominee or agent, for investment and
without a view to resale or other distribution within the meaning of the 1933
Act and the rules and regulations thereunder, and such Investor will not
distribute any of the Nobel Shares in violation of the 1933 Act or any state
securities laws (it being understood that the Company will transfer the Nobel
Shares to the Shareholders upon liquidation of the Company);
(ii) such Investor or she understands that:
(A) the Nobel Shares are not registered under the 1933
Act and must be held indefinitely by such Investor unless the Nobel Shares are
subsequently registered under the 1933 Act (in accordance with the provisions of
Section 11.2 or otherwise) or an exemption from registration is available;
(B) any routine sales of the Nobel Shares made under Rule
144 promulgated under the 1933 Act may be made only in accordance with the terms
and conditions of that Rule (which may include limits as to the amount which may
be sold in specified periods)
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and that in such cases where Rule 144 is not applicable, registration or
compliance with some other registration exemption will be required;
(C) Rule 144 is not presently, and for a period of at
least two years following the Closing Date probably will not be, available for
use by such Investor for resale of the Nobel Shares;
(D) Nobel is not obligated to register any sale, transfer
or other disposition of the Nobel Shares except in accordance with the
provisions of Section 11.2; and
(E) the certificates representing the Nobel Shares
issuable to such Investor will contain a restrictive legend noting the
restrictions on transfer described herein and under federal and applicable state
securities laws, and appropriate "stop-transfer" instructions will be given to
Nobel's stock transfer agent; and
(iii) such Investor acknowledges receipt of the SEC Reports and
confirms and acknowledges that: (i) Nobel has afforded such Investor the
opportunity to ask questions of and receive answers from Nobel's officers and
directors concerning the business and financial condition of Nobel and such
Investor's investment in Nobel Shares and to obtain such additional information
as such Investor has desired, and (ii) such Investor has utilized such
opportunity to the extent such Investor deems necessary and has received the
information requested;
(iv) such Investor has a net worth (or joint net worth with
such investor's spouse) equal to at least $1,000,000 and, accordingly, is an
"accredited investors" as such term is defined in Rule 501 of Regulation D
promulgated under the 1933 Act.
(v) such Investor's financial situation is such that such
Investor can afford to bear the economic risk of holding the Nobel Shares for an
indefinite period of time and suffer a loss of such Investor's investment in the
Nobel Shares; and
(vi) such Investor's knowledge and experience in financial and
business matters are such that such Investor is capable of evaluating the merits
and risks of such Investor's acquisition of the Nobel Shares as contemplated by
this Agreement.
(c) In order to ensure compliance with the foregoing provisions, each
Investor agrees that, after the Closing, such Investor will not sell, transfer
or otherwise dispose of any of the Nobel Shares or any interest therein (other
than a transfer of the Nobel Shares to the Shareholders pursuant to the
liquidation of the Company) (unless such sale, transfer or disposition has been
registered under the 1933 Act in accordance with the provisions of Section 11.2
hereof or otherwise) without there first having been compliance with either of
the following conditions:
(i) Nobel shall have received a written opinion of counsel in
form and substance reasonably satisfactory to Nobel, or a copy of a "no-action"
or interpretive letter of the
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Commission, specifying the nature and circumstances of the proposed transfer and
indicating that the proposed transfer will not be in violation of any of the
provisions of the 1933 Act and the rules and regulations promulgated thereunder
and any applicable state securities laws; or
(ii) Nobel shall have received an opinion from its own counsel
to the effect that the proposed transfer will not be in violation of any of the
provisions of the 1933 Act and the rules and regulations promulgated thereunder
and any applicable state securities laws.
11.2 REGISTRATION OF NOBEL SHARES.
(A) REGISTRATION STATEMENT.
(i) On or prior to the Target Date, Nobel shall prepare and
file with the Commission a registration statement on Form S-3 or such other form
as Nobel may be required to use for the registration of the Nobel Shares (the
"REGISTRATION STATEMENT") under the 1933 Act to permit the offer and sale of the
Nobel Shares by the Shareholders from time to time through the facilities of the
National Association of Securities Dealers Automated Quotation System at market
prices current at the time of sale or in other transactions at negotiated
prices; provided, however, that the Shareholders will not sell during any
calender month during the Effectiveness Period (defined below) in the aggregate
more than the total number of Nobel Shares divided by the Divisor, where the
"DIVISOR" equals nine minus the number of full months (if any) elapsed between
the date which is twenty days after the date hereof and the date on which Nobel
files the Registration Statement; provided further that (x) the Divisor shall
not be reduced to less than five and (y) if the Divisor is five or six the words
"calender month" in the first proviso clause of this sentence shall be changed
to "30-day period." Nobel shall use best efforts to cause the Registration
Statement to be declared effective promptly and, except as set forth below, to
remain effective under the 1933 Act for 12 months thereafter, and will prepare
and file with the Commission any amendments or supplements or post-effective
amendments to the Registration Statement and the prospectus used in connection
therewith (the "PROSPECTUS") as may be necessary to keep the Registration
Statement effective under the 1933 Act during that period. Nobel will promptly
notify the Shareholders in writing of the date on which the Registration
Statement is declared effective. Notwithstanding the foregoing, if keeping the
Registration Statement effective or the Prospectus current would require the
disclosure of material information which Nobel is not otherwise required to
disclose and which Nobel has a bona fide business purpose for preserving as
confidential or would require disclosure of financial information regarding a
business acquired or to be acquired which is not available pending completion of
an audit, upon notice to the Shareholders in each case of such an event, Nobel's
obligation to keep the Registration Statement effective or the Prospectus
current shall be suspended for period or periods which include in the aggregate
up to 120 days ("BLACK-OUT PERIODS"), provided that the Effectiveness Period
shall be extended for such number of days that the Registration Statement is not
kept effective or the Prospectus is not kept current pursuant to this sentence;
provided further that for a period commencing on the effective date of the
Registration Statement and continuing for the lesser of (x) four months or (y)
the number of days elapsed between the date twenty days following the date
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hereof and the date that the Registration Statement is first filed, Nobel will
not wilfully engage in any transaction (other than a transaction disclosed to
Shareholders prior to the Closing Date) which would require Nobel to impose such
period of suspension. For purposes of this Agreement, the "EFFECTIVENESS PERIOD"
shall be the period during which the Registration Statement is kept effective
and the Prospectus is kept current pursuant to the provisions of this Section
11.2(a). For purposes hereof, "TARGET DATE" shall mean the earlier to occur of
(i) the date which is twenty days following the earlier to occur of (x) the date
that Nobel ceases its negotiations with respect to its proposed acquisition of
certain businesses whose audited financial statements would need to be included
in the Registration Statement (the "PROPOSED ACQUISITIONS") (such audited
financial statements, the "REQUIRED ACQUISITION FINANCIAL STATEMENTS") or (y)
the later of the closing of the Proposed Acquisitions and the date of delivery
to Nobel by Coopers & Lybrand of the Required Acquisition Financial Statements
and (ii) the day that Nobel files any other registration statement with respect
to its securities (other than a registration on Form S-8 or any successor form
to such form or in connection with an offering of securities solely to the
employees, consultants or directors of the Company). Nobel will not permit any
registration statement with respect to an underwritten public offering of its
common stock to become effective prior to the Registration Statement.
(B) PIGGY-BACK REGISTRATION RIGHTS.
(I) RIGHT TO INCLUDE REGISTRABLE SECURITIES. If at any time
following the date the Effectiveness Period terminates and prior to one year
following such date, Nobel shall propose to file a registration statement under
the 1933 Act with respect to an offering by Nobel of Nobel Common Stock (other
than a registration statement on Form S-4 or S-8, or any form substituted
therefor or any equivalent form prescribed by the rules of the SEC, or filed in
connection in with an exchange offer, a unit offering, or an offering of
securities solely to Nobel's existing shareholders or employees, directors and
consultants), then Nobel shall in each case give written notice of such proposed
filing to the Shareholders and of the Shareholders' rights under this Section
11.2(b). Any Shareholder who desires to include Nobel Shares in such
registration shall, within 15 days after the date of Nobel's notice to the
Shareholders of its intended registration, send a written notice to Nobel
specifying the number of Nobel Shares he or she desires to register and the
intended method of disposition thereof. Nobel shall use its best efforts to
permit such disposition in accordance with such intended methods of disposition
of all such Nobel Shares by including such Nobel Shares in the registration
statement pursuant to which Nobel proposes to register the shares of Nobel
Common Stock (a "PIGGY-BACK REGISTRATION"); provided, however, that if such
registration involves an underwritten offering, all Shareholders requesting
inclusion in the registration shall be required to sell their Nobel Shares to
the underwriters selected by Nobel at the same price and on the same terms of
underwriting applicable to Nobel and any other persons selling shares of Nobel
Common Stock.
(II) RIGHT TO TERMINATE OR DELAY OFFERING. Notwithstanding the
foregoing, if, at any time after giving written notice of its intention to
register Nobel Common Stock and prior to the effective date of the registration
statement filed in connection with such
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registration, Nobel determines for any reason either not to effect such
registration or to delay such registration, Nobel may, at its election, by the
delivery of written notice to each holder of Nobel Shares, (i) in the case of a
determination not to effect registration, relieve itself of its obligation to
register the Nobel Shares in connection with such registration (but not from its
obligation to pay all expenses, if any, in connection therewith), or (ii) in the
case of a determination to delay the registration, delay the registration of
such Nobel Shares for the same period as the delay in the registration of such
other shares of Nobel Common Stock (but will pay all expenses, if any, as and
when the same become due and payable during such delay).
(III) PRIORITY IN PIGGY-BACK REGISTRATIONS. If any of the
shares of Nobel Common Stock registered pursuant to any Piggy-Back Registration
are to be sold in one or more firm commitment underwritten offerings, and the
managing underwriter or underwriters advise Nobel and the holders of such shares
of Nobel Common Stock in writing that in its or their opinion the number of
shares of Nobel Common Stock (including Nobel Shares) proposed to be sold in
such offering exceeds the maximum number that can be sold in such offering
without materially adversely affecting the success thereof, Nobel shall include
in such registration only such maximum number of shares of Nobel Common Stock
which, in the opinion of such underwriter or underwriters, can be sold without
such material adverse effect, such shares to be allocated as follows: first,
there shall be included in such offering prior to any Nobel Shares (i) all the
shares of Nobel Common Stock which Nobel proposes to sell for its own account,
(ii) any and all shares of Nobel Common Stock being registered pursuant to
"demand" registration rights of a holder or holders (provided that the number of
demand registration rights held by the holders of such shares is reduced upon
completion of the offering), (iii) any and all shares of Nobel Common Stock held
by persons (or their successors) who as of February 2, 1996 are entitled to
contractual "piggy-back" or "incidental" rights to be included in the Piggy-Back
Registration, and (iv) any and all shares of Nobel Common Stock held by persons
to whom shares of Nobel Common Stock are issued after the date hereof in
connection with a financing transaction (not including Seller financing of the
acquisition by Nobel of a business); second, there shall be included in such
offering Nobel Shares and other shares of Nobel Common Stock held by persons
having rights to include their shares in the Piggy-Back Registration (but not
entitled to priority under clause "first") pro rata among all holders as nearly
as practicable to the respective numbers of shares of Nobel Common Stock
requested to be included therein by such holders; third, shares held by persons
who have no or inferior contractual "piggy-back" or "incidental" rights.
(C) HOLD-BACK AGREEMENTS. If requested by the managing underwriter
or underwriters in an underwritten offering of any Nobel Common Stock, each
holder of Nobel Shares will not effect any public sale or distribution of Nobel
Shares, including a sale pursuant to Rule 144 (or any similar provision then in
force) under the Securities Act (except as part of such underwritten
registration), during the 10-day period prior to, and during the 90-day period
beginning on, the effective date of such Registration Statement, to the extent
timely notified in writing by Nobel or the managing underwriter or underwriters
(irrespective of whether Nobel Shares are included in such underwritten
offering); provided that this restriction shall apply only during the period
that the Shareholders are entitled to the rights specified in Section 11.2(b).
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(D) COPIES OF DOCUMENTS. During the Effectiveness Period, Nobel
shall furnish to the Shareholders such number of conformed copies of the
Registration Statement, the Prospectus (including each preliminary Prospectus)
and any amendments and supplements thereto and any documents incorporated by
reference in the Registration Statement in order to facilitate the disposition
of the Nobel Shares by the Shareholders as the Shareholders shall reasonably
request.
(E) BLUE SKY COMPLIANCE. Nobel shall use reasonable efforts to
register or qualify (or use reasonable efforts to obtain exemption from such
registration or qualification with respect to) the Nobel Shares under the
securities or blue sky laws of such jurisdictions in the United States as the
Shareholders reasonably shall request up to a maximum of five states (not
counting states in which Nobel can file a registration by coordination and such
registration is not subject to merit review); provided that, in no event shall
Nobel be required to qualify to do business as a foreign corporation in any
jurisdiction where it is not so qualified, to subject itself to taxation in any
jurisdiction where it has not theretofore done so or to take any action which
would subject it to general service of process in any such jurisdiction where it
is not then so subject.
(F) NOTIFICATION. During the Effectiveness Period, Nobel shall notify
the Shareholders promptly of (i) any request by the Commission for amendments or
supplements to the Registration Statement or a Prospectus or for additional
information relating thereto, (ii) the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement or the
initiation of any proceedings for that purpose, (iii) the receipt by Nobel of
any notification with respect to the suspension of the registration,
qualification or exemption from registration or qualification of any of the
Nobel Shares covered by the Registration Statement for sale in any jurisdiction
or the initiation or threatening of any proceeding for such purpose and (iv) the
happening of any event which makes any statement made in the Registration
Statement or in the Prospectus or any document incorporated therein by
reference, or deemed to be incorporated therein by reference, untrue in any
material respect or which requires the making of any changes in the Registration
Statement or the Prospectus so that such documents will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(G) SUPPLEMENTS AND POST-EFFECTIVE AMENDMENTS. During the
Effectiveness Period (other than during Black-Out Periods), upon the occurrence
of any event contemplated by clause (i) or (iv) of Section 11.2(f), Nobel will
prepare a post-effective amendment to the Registration Statement or a supplement
to the Prospectus or any document incorporated therein by reference or file any
other required document so that, as thereafter delivered to the purchasers of
the Nobel Shares being sold thereunder, the Prospectus will not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
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Nobel shall, as soon as reasonably practicable, provide each Shareholder with a
reasonable number of copies of any documents filed under this Section 11.2(g).
(H) LISTING. Nobel shall use its best efforts to cause all of the
Nobel Shares covered by the Registration Statement to be listed on each
securities exchange or automated quotation system, if any, on which shares of
common stock issued by Nobel are then listed, if the listing of the Nobel Shares
is then permitted under the rules of such exchange or automated quotation
system.
(I) STOCK CERTIFICATES. Nobel will cooperate with the Shareholders
to facilitate the timely preparation and delivery of certificates representing
Nobel Shares sold under the Registration Statement, which certificates shall not
have any restrictive legends.
(J) OBLIGATIONS OF THE SHAREHOLDERS. Following the filing of the
Registration Statement and during any period that the Registration Statement is
effective, each Shareholder shall:
(i) not effect any stabilization transactions or engage in any
stabilization activity in connection with shares of Nobel Common Stock in
contravention of Rule 10b-7 under the 1934 Act;
(ii) furnish each broker through whom the Shareholder offers
Nobel Shares such number of copies of the Prospectus as the broker may require
and otherwise comply with the prospectus delivery requirements under the 1933
Act;
(iii) report to Nobel each month all sales, pledges and other
dispositions of Nobel Shares made by the Shareholder during said month;
(iv) not, and shall not permit any Affiliated Purchaser (as
that term is defined in Rule 10b-6 under the 1934 Act) to, bid for or purchase
for any account in which the Shareholder has a beneficial interest, or attempt
to induce any other person to purchase, any shares of stock of Nobel in
contravention of Rule 10b-6 under the 1934 Act;
(v) cooperate with all reasonable requests of Nobel in
connection with Nobel's satisfaction of its obligations under this Section 11.2;
(vi) furnish such information concerning such Shareholder and
his or her plan of distribution as Nobel may from time to time request;
(vii) sell Nobel Shares pursuant to the Registration Statement
only in "brokers' transactions" or in transactions directly with a "market
maker," as defined in paragraphs (f) and (g) of Rule 144 under the 1933 Act
(collectively, "BROKERS' TRANSACTIONS"); and
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(viii) not offer or sell any Nobel Shares under the Registration
Statement during any period after Nobel has provided notice to the Shareholder
pursuant to Section 11.2(a)(i) or 11.2(f), until Nobel provides to the
Shareholder copies of all documents required to be filed under Section 11.2(f)
and notice that offers and sales may again be made.
(K) EXPENSES. Nobel shall pay all expenses incident to Nobel's
performance of or compliance with this Section 11.2, including, without
limitation, (i) all registration, filing and stock exchange or automated
quotation system listing fees, (ii) all fees and expenses of complying with
securities or blue sky laws (provided that the Shareholders shall pay all fees
payable under blue sky laws after Nobel has expended an aggregate of $10,000 in
respect of such fees), (iii) all word processing, duplicating and printing
expenses, (iv) all messenger and delivery expenses and (v) the fees and
disbursements of counsel for Nobel and of its independent public accountants;
provided that, Nobel shall not be required to bear the expenses of any
underwriting discounts or commissions or brokerage commissions attributable to
the sale of the Nobel Shares or any out-of-pocket expenses of the Shareholders,
including travel costs and the costs of any counsel or any other advisers
engaged by the Shareholders to represent or advise them in connection with the
transactions contemplated by this Section 11.2.
(I) INDEMNIFICATION.
(i) INDEMNITY BY NOBEL. Nobel shall (i) indemnify and hold
harmless each Shareholder (each such person being hereinafter referred to in
this Section 11.2(l)(i) as an "Indemnified Party") against any losses, claims,
damages, liabilities or expenses (for purposes of this Section 11.2(l),
"Losses"), to which each such Indemnified Party may become subject, under the
1933 Act or otherwise, insofar as such Losses (or actions or proceedings,
whether commenced or threatened, in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in the Registration Statement or underlying Prospectus, as amended or
supplemented if Nobel has furnished any amendments or supplements thereto, or
any document filed under a state securities or blue sky law (each such document
individually being referred to as a "REGISTRATION DOCUMENT" and collectively as
"REGISTRATION DOCUMENTS") or insofar as any Losses (or actions or proceedings,
whether commenced or threatened, in respect thereof) arise out of or are based
upon the omission or alleged omission to state in any Registration Document or
underlying Prospectus, as amended or supplemented if Nobel has furnished any
amendments or supplements thereto, a material fact required to be stated therein
or necessary to make the statements made therein (in the case of a Prospectus,
in the light of the circumstances under which they were made), not misleading,
and (ii) reimburse each Indemnified Party for all legal or other expenses
reasonably incurred by it in connection with investigating or defending any
Loss, including any amounts paid in settlement of any litigation, commenced or
threatened, if such settlement is effected with the prior written consent of
Nobel; provided, however, that Nobel shall not be liable for any Losses arising
out of or based upon any untrue statement or omission made in any Registration
Document in reliance upon and in conformity with written information furnished
to Nobel by or on behalf of a Shareholder stating that it is for use in the
preparation of the Registration Document; provided further, that Nobel
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shall not be liable in any case to the extent that any Losses arise out of or
are based upon an untrue statement or alleged untrue statement or omission or
alleged omission in a Prospectus, if such untrue statement, alleged untrue
statement, omission or alleged omission is corrected in an amendment or
supplement to the Prospectus and the selling Shareholder or other person making
a claim for indemnification failed to deliver, within the time required by the
1933 Act, such Prospectus as so amended or supplemented prior to or concurrently
with the sale of the Nobel Shares to the person purchasing Nobel Shares after
Nobel had furnished such Shareholder with the number of copies of such amended
or supplemented Prospectus reasonably requested by such Shareholder.
(ii) INDEMNITY BY THE SHAREHOLDERS. Each Shareholder shall (i)
indemnify and hold harmless Nobel, any officer, director, employee or agent of
Nobel, and each other person, if any, who controls Nobel within the meaning of
Section 15 of the 1933 Act (each such person being hereinafter referred to in
this Section 11.2(l)(ii) as an "Indemnified Party") against any Losses to which
each such Indemnified Party may become subject under the 1933 Act or otherwise,
insofar as such Losses (or actions or proceedings, whether commenced or
threatened, in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in any
Registration Document, or arise out of or are based upon the omission or alleged
omission to state in any Registration Document a material fact required to be
stated therein or necessary to make the statements made therein (in the case of
a prospectus, in the light of the circumstances under which they were made,) not
misleading, and (ii) reimburse each Indemnified Party for all legal or other
expenses reasonably incurred by it in connection with investigating or defending
any such Losses or action, including any amounts paid in settlement of any
litigation, commenced or threatened, if such settlement is effected with the
prior written consent of the Shareholder; provided, however, that such
indemnification or reimbursement shall be payable only if, and to the extent
that, any Losses arise out of or are based upon an untrue statement or omission
made in any Registration Document in reliance upon and in conformity with
written information furnished to Nobel by the Shareholder specifically stating
that it is for use in the preparation thereof.
(III) PROCEDURE FOR INDEMNIFICATION. In order for an
Indemnified Party (as defined under Sections 11.2(l)(ii) or 11.2(l)(ii), as the
case may be) to be entitled to any indemnification provided for under this
Section 11.2(l), such Indemnified Party must notify the person from whom
indemnification is being sought (for purposes of this Section 11.2(l), the
"Indemnifying Party") in writing of the claim within 45 days after receipt by
such Indemnified Party of written notice thereof; provided, however, that
failure to give such notification shall not affect the indemnification provided
hereunder except to the extent (and only to the extent) the Indemnifying Party
shall have been actually prejudiced as a result of such failure. Thereafter, the
Indemnified Party shall deliver to the Indemnifying Party, within five business
days after the Indemnified Party's receipt thereof, copies of all notices and
documents (including court papers) received by the Indemnified Party relating to
the claim. The Indemnifying Party will be entitled to participate in the defense
of a Third Party Claim made against an Indemnified Party and, if it so chooses,
to assume the defense thereof with counsel selected by the Indemnifying Party;
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provided that, with respect to such assumption, (i) such counsel is not
reasonably objected to by the Indemnified Party and (ii) the Indemnifying Party
first admits in writing its obligation hereunder to the Indemnified Party to
indemnify the Indemnified Party with respect to the claim and notifies the
Indemnified Party of its intention to assume such defense within 30 days of
receipt of notice of a Third Party Claim. If the Indemnifying Party does not
timely give written notice of its intention to assume control in the defense of
any Third Party Claim, or, after giving such notice, fails to do so, the
Indemnifying Party shall be bound by the results obtained by the Indemnified
Party with respect to such claim. If the Indemnifying Party does timely give
such notice, the Indemnified Party (x) will cooperate in all reasonable respects
with the Indemnifying Party in connection with such defense, (y) will not admit
any liability with respect to, or settle, compromise or discharge any Third
Party Claim without the Indemnifying Party's prior written consent and (z) will
agree to any settlement, compromise or discharge of a claim which the
Indemnifying Party may recommend and which by its terms obligates the
Indemnifying Party to pay the full amount of the liability in connection with
such claim, which releases the Indemnified Party completely in connection with
such claim, which does not obligate the Indemnified Party to take or forbear to
take any action. If the Indemnifying Party assumes the defense of any claim as
provided above, the Indemnified Party shall be entitled to participate in (but
not control) such defense with its own counsel and at its own expense. An
Indemnifying Party who does not assume the defense of a claim will not be
obligated to pay the fees and expenses of more than one counsel for all parties
indemnified by such Indemnifying Party with respect to such claim.
11.3 PUT RIGHTS. If Nobel has not filed the Registration Statement prior
to the date 140 days following the date hereof, then for each full month
thereafter that the Registration Statement continues not to be filed, the
Shareholders shall have the right to require Nobel to purchase a number of Nobel
Shares equal to the total number of Nobel Shares divided by five. Nobel will
purchase such Nobel Shares within five days of receipt of written notice from
the Shareholders. The purchase price for such Nobel Shares will equal the
Current Market Value on the date of purchase. Nobel's obligation to repurchase
Nobel Shares pursuant to this Section 11.3 shall terminate upon filing of the
Registration Statement. For the purposes hereof, "CURRENT MARKET VALUE" of a
share of Nobel Common Stock on a specified date shall be the average of the
closing prices of Nobel Common Stock for the 20 consecutive trading days
immediately preceding such date.
11.4 NOBEL'S COVENANTS.
(a) For so long as the Nobel Common Stock is publicly traded, Nobel
shall take all actions necessary or reasonably requested by the Shareholders to
enable the Shareholders to sell the Nobel Shares without registration under the
Securities Act within the limitation of the exemption provided by Rule 144 under
the 1933 Act, as such rules maybe amended form time to time, and any similar
rules or regulations hereafter adopted by the SEC, including, without
limitation, the filing on a timely basis of all reports required to be filed by
the 1934 Act (or, if Nobel is not required to file such reports, making publicly
available, the information referenced in paragraph (c)(2) of Rule 144 (or any
similar provision of a successor rule)). Upon the request
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of the Shareholders, Nobel will deliver to the Shareholders a written statement
as to whether it has complied with such requirements. Notwithstanding the
foregoing, it shall not be a violation of this Section if Nobel fails to file
timely a report required to be filed by the 1934 Act if Nobel has a valid
business reason for delaying the filing of such report.
(b) Nobel understands and acknowledges that the Company intends to
distribute Nobel Shares to the Shareholders as soon as practicable following
Closing. In connection therewith, Nobel will take all actions (not involving
the payment of money) reasonably required to permit the Nobel Shares to be
registered in the names of the Shareholders, including, without limitation,
providing Nobel's transfer agent with an authorization to effect such transfer.
12. REPRESENTATION OF SHAREHOLDERS BY COMPANY'S AGENT.
12.1 APPOINTMENT OF COMPANY'S AGENT.
(a) Each of the Shareholders (herein called the "REPRESENTED
SHAREHOLDERS") hereby irrevocably appoints Linda Nash (herein called the
"COMPANY'S AGENT") as such Represented Shareholders' agent and attorney-in-fact
to take any action required or permitted to be taken by such Represented
Shareholder under the terms of this Agreement, including, without limitation,
the execution, delivery and receipt of any notices, certificates or other
documents to be executed, delivered or received by or on behalf of any or all of
the Represented Shareholders, the payment of expenses relating to the
transactions contemplated by this Agreement, the representation of the
Represented Shareholders in the resolution of any disputed matters hereunder and
in indemnification proceedings hereunder, and the right to waive, modify or
amend any of the terms of this Agreement. Each Represented Shareholder agrees
to be bound by any and all actions taken by the Company's Agent on such
Represented Shareholder's behalf.
(b) Nobel shall be entitled to rely exclusively upon any
communications given by the Company's Agent on behalf of any Represented
Shareholder and shall not be liable in any manner whatsoever for any action
taken or not taken in reliance upon actions taken or not taken or communications
made by the Company's Agent. Nobel shall be entitled to disregard any notices or
communications given or made by Represented Shareholders unless given or made
through the Company's Agent, except as provided in Section 12.2.
12.2 SUCCESSOR AGENT. In the event of the death or resignation of the
Company's Agent or her inability to perform her functions hereunder, the
Represented Shareholders shall promptly appoint a new agent or agents as
attorney-in-fact or attorneys-in-fact, and such appointment or appointments
shall be deemed to have been made when communicated to the Nobel in writing
signed by the former holders (or the personal representatives thereof) of at
least 51% of the Nobel Shares owned by Represented Shareholders immediately
prior to the Closing Date. If the Represented Shareholders do not within fifteen
days appoint a new agent or agents, then the Represented Seller then living who
previously owned the greatest number of Nobel Shares outstanding immediately
prior to the Closing Date shall serve as Company's Agent if he or she
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is able and willing to do so, until a successor agent or agents shall have been
appointed in accordance with the provisions hereof.
12.3 SHAREHOLDERS' ACTIONS. The manner and form by which the Represented
Shareholders shall decide upon any new agent and attorney-in-fact shall be
decided solely by the former holders (or the personal representatives thereof)
of at least 51% of the Nobel Shares owned by Represented Shareholders
outstanding immediately prior to the Closing Date. The Represented Shareholders
recognize, and hereby acknowledge, that the Company's Agent has an interest in
the subject matter of this Agreement and that the appointment of such Agent
(which shall include any person who becomes the Company's Agent pursuant to the
provisions of Section 12.2) as the Company's Agent constitutes an irrevocable
power-of-attorney coupled with an interest.
13. MISCELLANEOUS.
13.1 COSTS AND EXPENSES. Except as expressly otherwise provided in this
Agreement, Nobel shall bear its own costs and expenses and the Company and
Shareholders shall bear all of the costs and expenses of the Company and
Shareholders in connection with this Agreement and the transactions contemplated
hereby.
13.2 LITIGATION. 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.
13.3 ASSIGNMENT AND BENEFIT. No party shall assign this Agreement or any
rights hereunder, or delegate any obligations hereunder, without the prior
written consent of the other parties. Subject to the foregoing, this Agreement
shall be binding upon the parties and the respective heirs, legal
representatives, successors and permitted assigns of the parties hereto.
13.4 SCHEDULES. Any and all schedules 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
shall constitute a representation by the party providing such schedule of the
truth, correctness and completeness of all information set forth therein. 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.
13.5 EFFECT AND CONSTRUCTION OF THIS AGREEMENT. This Agreement and
schedules hereto 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 or affect the meaning or construction of the provisions of
this Agreement. Wherever the context may require, any pronouns used herein
shall be deemed also to refer to the corresponding singular, plural, masculine,
feminine or neuter form.
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13.6 COUNTERPARTS. 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.
13.7 COOPERATION. Subject to the terms and conditions herein provided,
each of the parties hereto shall use its best 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.
13.8 NOTICES. All notices and other communications required or permitted
hereunder shall be in writing and shall be deemed to be properly given if
transmitted by messenger, overnight courier service, first class certified mail
(return receipt requested) or telecopy (which is confirmed), in each case
postage or other charges prepaid, addressed to the other party at the address
shown below. Any party may change such address by notice given in such manner.
All notices shall be effective (i) if sent by messenger or overnight courier
service, when delivered, (ii) if sent by mail, three days after posting, and
(iii) if sent by telecopy, when sent (provided that, if sent by telecopy, a
duplicate copy thereof is sent by mail by the following day).
If to Nobel:
Nobel Education Dynamics, Inc.
Rose Tree Corporate Center II
1400 North Providence Road
Suite 3055
Media, PA 19063
Attn: Chief Executive Officer
Telecopier: (610) 891-8200
with a copy to:
Nobel Education Dynamics, Inc.
Rose Tree Corporate Center II
1400 North Providence Road
Suite 3055
Media, PA 19063
Attn: General Counsel
Telecopier: (610) 891-8200
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If to the Company or a Shareholder:
Ms. Linda Nash
10006 Stonemill Road
Richmond, VA
With a copy to:
Cantor, Arkema & Edmonds
The First National Bank Building
823 East Main Street
Richmond, VA 23204-0561
Attn: Steven Edmonds, Esq.
Telecopier: (804) 225-8706
13.9 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 (which, in the case
of the Company and each Shareholder, shall include Company's Agent). 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.
13.10 SEVERABILITY. The invalidity or unenforceability of any particular
provision, or part of any provision, of this Agreement shall not affect the
other provisions or parts hereof, and this Agreement shall be construed in all
respects as if such invalid or unenforceable provisions or parts were omitted.
13.11 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.
13.12 NO THIRD PARTY BENEFICIARIES. The agreements included herein, and
otherwise made between the parties hereto as part of this transaction, are
solely the obligation of, and for the benefit of, the parties hereto, and there
shall be no third party beneficiary of any of the warranties, representations or
covenants made in this Agreement or any of the other agreements between the
parties hereto as part of this transaction.
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13.13 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Virginia without reference to
that Commonwealth's conflict of laws provision.
13.14 FORUM SELECTION CLAUSE. The exclusive venue of the resolution of any
dispute arising from the provisions of this Agreement shall lie with any court
of competent jurisdiction in the city of Richmond, Virginia.
13.15 DEFINITION OF "COMPANY'S KNOWLEDGE". As used herein, the phrase "to
the Company's knowledge" (or similar phrases) shall mean the actual knowledge of
Linda Nash, Stephen Nash, Rod Kennedy or Robin Smith.
In Witness Whereof, and intending to be legally bound hereby, the parties
hereto have executed this Agreement as of the date first above written.
COMPANY:
Loudoun Children's Center, Inc.
By:_____________________________
Linda Nash, President
SHAREHOLDERS:
________________________________
Linda Nash
________________________________
Stephen Nash
BUYER:
Nobel Education Dynamics, Inc.
By:_____________________________
John R. Frock
Executive Vice President
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[EXHIBIT A]
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY BE TRANSFERRED ONLY IF
REGISTERED UNDER SUCH ACTS OR UPON DELIVERY TO THE COMPANY OF AN OPINION OF
COUNSEL, SATISFACTORY TO THE COMPANY, THAT SUCH TRANSFER IS EXEMPT FROM SUCH
REGISTRATION.
AMOUNTS DUE UNDER THIS NOTE ARE SUBJECT TO SET-OFF TO THE EXTENT DESCRIBED IN
SECTION 2 HEREOF.
NOBEL EDUCATION DYNAMICS, INC.
No. 1 $336,680
7% SUBORDINATED NOTE DUE FEBRUARY 1, 2001
Nobel Education Dynamics, Inc., a Delaware corporation with an office at
1400 North Providence Road, Suite 3055, Media, PA 19063 ("MAKER"), promises to
pay to the order of Cascades Childcare, Inc., a Virginia corporation, or
registered assigns, the principal sum of Three Hundred Thirty-Six Thousand Six
Hundred Eighty Dollars ($336,680) and to pay interest on the unpaid principal
amount of this Note at the rate of seven percent (7%) per annum. Such principal
and interest shall be payable in 60 equal payments of $6,666.67 due on the first
day of each month, commencing on March 1, 1996.
1. PAYMENTS.
1.1 Payments other than the final payment hereunder may be mailed to the
Holder's address. The Holder must surrender this Note to Maker to collect
payment of the final payment. The Company shall pay principal and interest in
money of the United States that at the time of payment is legal tender for
payment of public and private debts (payment may be by check payable in such
money). Interest shall be computed on the basis of the actual number of days
elapsed in a 365-day year.
1.2 If a payment date is a Legal Holiday at a place of payment, payment
may be made at that place on the next succeeding day that is not a Legal
Holiday. For the purposes hereof, "LEGAL HOLIDAY" means a Saturday, a Sunday or
a day on which federal banking institutions are authorized or obligated by law,
regulation or executive order to remain closed.
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1.3 The Company hereby waives any requirements of presentment for payment,
notice of dishonor, notice of protest and protest.
1.4 The Company may prepay, at its option, this Note, in whole or in part,
at any time or from time to time, without premium or penalty, on at least five
days notice to the Holder. Any prepayment shall be applied to installments of
principal due hereunder in order of maturity.
1.5 When used herein, the term "HOLDER" shall mean the person in whose
name this Note is registered on Maker's books.
2. ASSET PURCHASE AGREEMENT.
This Note is issued pursuant to the closing of the Asset Purchase Agreement
dated as of February 2, 1996 (the "PURCHASE AGREEMENT") among Stony Point
Learning Center, Inc., School's Out, Inc., Cascades Childcare, Inc. and Pump
Road Child Care, Inc., as sellers; Linda Nash and Stephen Nash, as principal
shareholders, and Maker, as buyer. (If a portion of this Note is transferred,
the Note representing the remaining principal amount hereof and the Notes issued
upon such transfer shall collectively be referred to herein as the "NOTES".) Any
payments of amounts under the Notes will be made pro rata in proportion to the
principal amounts outstanding thereunder. By notice to the Holders, Maker may
set-off against installments of principal of, or interest on, the Notes in the
manner and to the extent provided in the Purchase Agreement. Any such set-off
such be effected pro rata in proportion to the principal amounts outstanding
under the Notes.
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. As used herein, the term "SENIOR INDEBTEDNESS" means (i)
all indebtedness of Maker to First Valley Bank (and its successors and assigns),
(ii) all other amounts, including costs and expenses, payable by Maker to any
holder of Senior Indebtedness with respect to Senior Indebtedness and (iii) all
renewals, extensions, refunding and modifications of any indebtedness referred
to above or any other financing or refinancing of Senior Indebtedness, whether
done with First Valley Bank or with other lenders, in a principal amount equal
to up to
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$30,000,000, together with all interest thereon and all fees, costs and expenses
(including attorney's fees and legal expenses). The subordination of this Note
to Senior Indebtedness of Maker as provided for herein shall not be impaired or
affected in any way notwithstanding that the Senior Indebtedness is acquired or
originated by an officer, director, stockholder or other affiliate of Maker.
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 or (ii) rental obligations under operating
leases.
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
Holder 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 the Company 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
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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
thereof, and upon receipt by Holder 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 Holder
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.
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 Holder 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 Holder 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, Holder 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 Holder during a Payment Default, Insolvency Event or
Payment Blockage Period, Holder 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
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contained herein to the contrary, Holder 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.
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 Holder. 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 Holder, 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 Holder, the
obligation of Maker which is unconditional and absolute, to pay Holder the
principal of and interest on this Note in accordance with its terms, or affect
the relative rights of Holder and creditors of Maker other than the holders of
the Senior Indebtedness.
(b) Upon any payment or distribution of assets of Maker
subsequent to an Insolvency Event, Holder 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 Holder 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 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.
(c) Holder hereby agrees that, without any notice to or
consent from Holder, and without any other action in respect of Holder 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
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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 Holder 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, Holder 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 Holder shall, as between Maker, its creditors
other than the holders of the Senior Indebtedness, and Holder, 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 Holder, 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
cumulative and shall not be exclusive of any rights or remedies provided by law.
3.2.7 BINDING EFFECT. Maker covenants and agrees, and Holder 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) Holder will be bound
by
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such provisions, and (z) the holders of the Senior Indebtedness shall be
entitled to enforce the provisions of this Section 3.2 directly against Holder.
3.3 ENFORCEMENT. Holder 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 Holder 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
Holder to file such claim, or (ii) fifteen days of any date upon which Holder's
claim would be barred in the applicable proceeding, provided that Holder 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 Holder or otherwise, as the holders of the Senior
Indebtedness may deem necessary or advisable for the enforcement of the
subordination provisions of this Note. Holder 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 Holder 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 Holder under
this Note, and only payments received by Holder and not subject to any claim by
the holders of the Senior Indebtedness shall reduce the obligation of Maker to
Holder hereunder.
4. CONTROL BY MAJORITY; AMENDMENTS.
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4.1 CONTROL BY MAJORITY. The Holders of a majority in principal amount of
the Notes outstanding may direct the time, method and place of conducting any
proceeding for any remedy available to the Holders or exercising any trust or
power conferred on them.
4.2 LIMITATION ON SUITS. A Holder may not pursue a remedy with respect to
the Notes unless the Holders of at least a majority in principal amount of the
Notes then outstanding consent to the pursuit of the remedy. A Holder may not
use the provision hereof to prejudice the rights of another Holder or to obtain
a preference or priority over another Holder.
4.3 WITH CONSENT OF HOLDERS.
4.3.1 The Company may amend or supplement the Notes with the written
consent of the Holders of at least a majority in principal amount of the then
outstanding Notes. An amendment with the requisite consent of Holders may,
without limitation: reduce the amount of Notes whose Holders must consent to an
amendment or waiver; reduce the rate of or change the time for payment of
interest, including default interest, on the Notes; and reduce the principal of
or change the amortization or maturity date of the Notes.
4.3.2 It shall not be necessary for the consent of the Holders under
this Section to approve the particular form of any proposed amendment or waiver,
but it shall be sufficient if such consent approves the substance thereof. An
amendment under this Section may not make any change that adversely affects the
rights under Article 3, the definition of "Senior Indebtedness" or this Section
4.3.2 unless the holders of such Senior Indebtedness pursuant to its terms
consent to the change.
4.3.3 After an amendment or waiver under this Section 4.3 becomes
effective, Maker shall mail to the Holder of each Note affected thereby a notice
briefly describing the amendment or waiver. Any failure of Maker to mail such
notice, or any defect therein, shall not, however, in any way impair or affect
the validity thereof. The Holders of at least a majority in principal amount of
the Notes then outstanding may waive compliance in a particular instance by
Maker with any provision of the Notes.
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4.4 REVOCATION AND EFFECT OF CONSENTS.
Until an amendment or waiver becomes effective, a consent to it by a Holder
of a Note is a continuing consent by the Holder and every subsequent Holder of a
Note or portion of a Note that evidences the same debt as the consenting
Holder's Note, even if notation of the consent is not made on any Note. However,
any such Holder or subsequent Holder may revoke the consent as to his Note or
portion of a Note if Maker receives written notice of revocation before the date
on which the Holders of the requisite principal amount of Notes have consented
to such amendment or waiver. An amendment or waiver becomes effective upon
receipt by Maker of written consents from the Holders of the requisite
percentage in principal amount of Notes. After an amendment or waiver becomes
effective it shall bind every Holder.
5. MISCELLANEOUS.
5.1 NOTICES. All notices and other communications required or permitted
hereunder shall be in writing and shall be deemed to be properly given if
transmitted by messenger, overnight courier service, first class certified mail
(return receipt requested) or telecopy (which is confirmed), in each case
postage or other charges prepaid. All notices shall be effective (i) if sent by
messenger or overnight courier service, when delivered, (ii) if sent by mail,
three days after posting, and (iii) if sent by telecopy, when sent (provided
that, if sent by telecopy, a duplicate copy thereof is sent by mail by the
following day). Notices to Maker shall be sent to the address of Maker set
forth in the first paragraph of this Note; notices to the original Holder of
this Note shall be sent to such original Holder at 10006 Stonemill Road,
Richmond, VA; notices to any other Holder, shall be sent to the address shown on
the register kept by Maker. Any party may change such address by notice given
in such manner.
5.2 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.
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5.3 GOVERNING LAW. This Note shall be governed by the laws of the
Commonwealth of Virginia applicable to contracts to be performed wholly in the
Commonwealth of Virginia, without regard to the conflicts of laws rules thereof.
5.4 SUCCESSORS. All agreements of Maker in this Note shall bind its
successors.
5.5 SEVERABILITY. In case any provision in this Note shall be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
5.6 HEADINGS. The headings of the Articles and Sections of this Note have
been inserted for convenience of reference only, are not to be considered a part
hereof and shall in no way modify or restrict any of the terms or provisions
hereof.
Dated: February 2, 1996
Nobel Education Dynamics, Inc.
By ____________________________________
John R. Frock
Executive Vice President
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