1
EXHIBIT 10.41
PLEDGE AGREEMENT
AGREEMENT, dated as of December 31, 1996 between EDUCATIONAL MEDICAL,
INC., a Delaware corporation (the "Pledgor"), O/E LEARNING, INC., a Michigan
corporation (the "Pledgee") and HBC ACQUISITION CORP., a Delaware corporation
(the "Issuer").
PRELIMINARY STATEMENT
The Pledgor is the owner of all of the issued and outstanding common
stock, par value $.01 per share (the "Pledged Securities"), of the Issuer.
The Issuer and the Pledgor have jointly and severally executed and
delivered to Pledgee their promissory Note in the principal amount of $1,350,000
(the "Second Payment Note"), a copy of which is attached as Exhibit 1 to this
Pledge Agreement. The Pledgor's obligations with respect to the payment of the
second Payment Note (the "Secured Obligations") are to be secured by the Pledged
Collateral, as defined in Section 1.
In consideration of the premises and of the mutual covenants herein
contained, the receipt and adequacy of which are hereby acknowledged, the
parties agree as follows:
1. Pledge. As security for the due and punctual payment and performance
of the payment of the Secured Obligations, and this Agreement, the Pledgor
hereby pledges, hypothecates, assigns, transfers, sets over and delivers unto
the Pledgee, and hereby grants to the Pledgee a security interest in, the
following:
(a) the Pledged Securities and the certificates representing
the Pledged Securities, and all cash, proceeds, securities, dividends and other
property at any time and from time to time received, receivable or otherwise
distributed in respect of or in exchange for any or all of the Pledged
Securities; and
(b) all securities hereafter delivered or issued in
substitution for or in addition to any of the foregoing, all certificates and
instruments representing or evidencing such securities, together with the
interest coupons (if any) attached thereto, and all cash, proceeds, securities,
interest, dividends and other property at any time and from time to time
received or otherwise distributed in respect of or in exchange for any or all
thereof (all such Pledged Securities, certificates, interest coupons, cash,
proceeds, securities, interest, dividends and other property being herein
collectively called the "Pledged Collateral");
TO HAVE AND TO HOLD the Pledged Collateral, together with all rights,
titles, interests, privileges and preferences appertaining or incidental
thereto, unto the Pledgee, its successors and assigns, forever, subject, however
to the terms, covenants and conditions hereinafter set forth.
2. Transfer to Escrow Agent. The original certificates representing all
Pledged Collateral shall be held on behalf of Pledgee by Greenberg, Traurig,
Hoffman, Lipoff, Xxxxx & Xxxxxxx, P.A., 000 Xxxxx Xxxxxxx Xxxxx, Xxxxx 000 Xxxx,
Xxxx Xxxx Xxxxx, Xxxxxxx 00000 (the "Escrow Agent"). The Pledgor shall deliver
to the Escrow Agent all original certificates (the "Original Certificates")
representing the
2
Pledged Collateral issued in the name of the Pledgor, endorsed or assigned in
blank in favor of the Pledgee, and subject only to customary restrictions on
transferability provided for in the Securities Act of 1933 and applicable
related state laws and regulations. All of the Pledged Securities represented
by such certificate(s) are validly issued, duly paid and non-assessable. The
Pledgee may, upon request to the Escrow Agent and delivery by the Escrow Agent
of the appropriate Pledged Collateral to the Issuer, exchange the certificates
representing the Pledged Collateral for certificates of smaller or larger
denominations for any purpose consistent with the terms of this Pledge
Agreement.
3. Voting Rights; Dividends. So long as there is no failure to make
due and punctual payment to the Pledgee in accordance with the terms of the
Secured Obligations nor any other continuing event which would constitute an
event of default under this Agreement (an "Event of Default"):
(a) The Pledgor shall be entitled to exercise any and all
voting and/or consensual rights and powers relating or pertaining to the Pledged
Collateral or any part thereof.
(b) The Pledgor shall be entitled to receive and retain any
and all ordinary cash dividends and interest payable on the Pledged Collateral,
but any and all stock and/or liquidating dividends, distributions in property,
returns of capital or other distributions made on or in respect of the Pledged
Collateral, whether resulting from a subdivision, combination or
reclassification of the outstanding capital stock of an Issuer or received in
exchange for Pledged Collateral or any part thereof, or as a result of any
merger, consolidation, acquisition or other exchange of assets to which the
Issuer may be a party or otherwise, and any and all cash and other property
received in payment of the principal of or in redemption of or in exchange for
any Pledged Collateral (either at maturity, upon call for redemption or
otherwise), shall be and become part of the collateral pledged by the Pledgor
hereunder and, if received by the Pledgor, shall be received in trust for the
benefit of the Pledgee or its assigns or the holder of any subsequent perfected
lien as provided in the addendum to this Pledge Agreement and shall forthwith be
delivered to the Escrow Agent (accompanied by proper instruments of assignment
and/or stock and/or bond powers executed by the Pledgor in accordance with the
Pledgee's instructions) to be held as Pledged Collateral subject to the terms of
this Pledge Agreement.
(c) The Pledgee shall execute and deliver (or cause to be
executed and delivered) to the Pledgor all such proxies, powers of attorney,
dividend orders, interest coupons and other instruments as the Pledgor may
request for the purpose of enabling the Pledgor to exercise the voting and/or
consensual rights and powers which it is entitled to exercise pursuant to
subparagraph (a) above and/or to receive the dividends and/or interest payments
which it is authorized to receive and retain pursuant to subparagraph (b) above.
(d) Upon the occurrence and during the continuance of an Event
of Default, all rights of the Pledgor to exercise the voting and/or consensual
rights and powers which it is entitled to exercise pursuant to Section 3(a)
hereof and/or to receive the dividends and interest payments which it is
authorized to receive and retain pursuant to Section 3(b) hereof shall cease,
and all such rights shall thereupon become vested in the Pledgee who shall have
the sole and exclusive right and authority to exercise such voting and/or
consensual rights and powers and/or to receive and retain the dividends and/or
interest payments which the Pledgor would otherwise be authorized to retain
pursuant to Section 3(b) hereof. Any and all money and other property paid over
to or received by the Pledgee pursuant to the provisions of this paragraph (d)
or pursuant to the exercise by Pledgee of the voting and/or consensual rights
and powers shall be retained by the Pledgee as additional collateral hereunder
and be applied in accordance with the provisions of this Pledge Agreement.
4. Events of Default. The occurrence of any one or more of the
following shall constitute an
-2-
3
Event of Default:
(a) if the Makers shall default in making any payment with
respect to the Secured Obligations; or
(b) if Pledgor shall become bankrupt or insolvent, or file any
petition for reorganization or relief from creditors under any applicable law of
any jurisdiction, or make any general assignment for the benefit of creditors,
and in either event
(c) such default or event shall continue for 10 days after
the giving of written notice to the Pledgee.
5. Remedies upon Default. If any Event of Default shall have occurred
and be continuing, then, in addition to exercising any rights and remedies as a
secured party under the Uniform Commercial Code in effect in Maryland, the
Pledgee may, at its option, do any one or more of the following without being
required to give any notice to the Pledgor:
(a) apply the cash (if any) then held by it as collateral
hereunder, first, to the payment of all costs of collection (including
attorneys' fees) incurred in enforcing Pledgee's rights under the Second Payment
Note and this Agreement; second to the payment of interest accrued and unpaid on
the Second Payment Note to and including the date of such application, third to
the payment or prepayment of principal of the Second Payment Note, and fourth,
to the payment of all other amounts then owing to the Pledgee under the terms of
the Second Payment Note and then otherwise pursuant to this Pledge Agreement,
and
(b) sell the Pledged Collateral, or any part thereof, at any
public or private sale or at any broker's board or in any securities exchange,
for cash, upon credit or for future delivery, as the Pledgee shall deem
appropriate. The Pledgee shall be authorized at any such sale (if it deems it
advisable to do so) to restrict the prospective bidders or purchasers to persons
who will represent and agree that they are purchasing the Pledged Collateral for
their own account for investment and not with a view to the distribution or sale
thereof, and upon consummation of any such sale the Pledgee shall have the right
to assign, transfer and deliver to the purchaser or purchasers thereof the
Pledged Collateral so sold, free and clear from any claims or rights of Pledgor.
Further, it shall be deemed commercially reasonable for the Pledgee to impose
sufficient conditions on any such sale so as to preclude the necessity of
registration of the Pledged Collateral under the Securities Act of 1933, as
amended. Each such purchaser at any such sale shall hold the property sold
absolutely, free from any claim or right on the part of the Pledgor, and the
Pledgor hereby waives (to the extent permitted by law) all rights of redemption,
stay and/or appraisal which he now has or may at any time in the future have
under any rule of law or statute now existing or hereafter enacted. The Pledgee
shall give the Pledgor at least 30 days' written notice in the manner specified
for notices under this Agreement of the Pledgee's intention to make any such
public or private sale or sales at any broker's board or on any such securities
exchange, and the Pledgor agrees that such notice of sale will be commercially
reasonable notice to it. Such notice, in case of public sale, shall state the
time and place fixed for such sale, and, in the case of sale at a broker's board
or exchange at which such sale is to be made, the day on which the Pledged
Collateral, or portion thereof, will first be offered for sale at such board or
exchange. Any such public sale shall be held at such time or times within
ordinary business hours and at such place or places, as the Pledgee may fix in
the notice of such sale. At any such sale, the Pledged Collateral, or portion
thereof, to be sold may be sold in one lot as an entirety or in separate
parcels, as the Pledgee may (in its sole and absolute discretion) determine and
the Pledgee or other holder of the Secured Obligations may bid (which bid may be
in whole or in part, in the form of cancellation of indebtedness)
-3-
4
for and purchase for the account of the Pledgee or other holder of the any
Secured Obligation the whole or any part of the Pledged Collateral. If the
proceeds of the Pledged Collateral are insufficient to satisfy Pledgor's
obligations under the Second Payment Note and this Agreement, Pledgor shall
remain liable for any deficiency. The Pledgee shall not be obligated to make any
sale of Pledged Collateral if it shall determine not to do so, regardless of the
fact that notice of sale of Pledged Collateral may have been given. The Pledgee
may, without notice or publication, adjourn any public or private sale or cause
the same to be adjourned from time to time by announcement at the time and place
fixed for sale, and such sale may, without further notice, be made at the time
and place to which the same was so adjourned. In case sale of all or any part of
the Pledged Collateral is made on credit or for future delivery, the Pledged
Collateral so sold may be retained by the Pledgee until the sale price is paid
by the purchaser or purchasers thereof, but neither the Pledgee nor any other
holder of the Secured Obligations or the assignee of any of the Pledgee's
rights, shall incur any liability in case any such purchaser or purchasers shall
fail to take up and pay for the Pledged Collateral so sold and, in the case of
such failure, such Pledged Collateral may be sold again upon like notice. As an
alternative to exercising the power of sale herein conferred upon it, the
Pledgee may proceed by a suit or suits at law or in equity to foreclose this
Pledge Agreement and to sell the Pledged Collateral, or any portion thereof,
pursuant to a judgment or decree of a court or courts of competent jurisdiction;
and
(c) purchase the Pledged Collateral or any part thereof at
any public or private sale.
6. Application of Proceeds of Sale. The proceeds of sale of Pledged
Collateral sold pursuant to Section 5 (c) hereof shall be applied by the
Pledgee as follows:
First: in the manner provided in paragraph (a) of Section
hereof; and
Second: the balance (if any) of such proceeds shall be paid
to the Pledgor, its successors or assigns in proportion to their ownership of
the Pledged Collateral, or as a court of competent jurisdiction may direct.
7. Extension or Modification of the Second Payment Note. The Pledged
Collateral pledged hereunder secures the payment and performance of all of the
indebtedness of the Pledgor with respect to the Secured Obligations and the
Pledgor agrees that the Second Payment Note may be extended or otherwise
modified in accordance with its terms without affecting this Pledge Agreement or
the obligations of Pledgor hereunder, which shall continue in full force and
effect until the Secured Obligations shall have been fully paid and performed.
8. Authority of Pledgee. The Pledgee shall have and be entitled to
exercise all such powers hereunder as are specifically delegated to the Pledgee
by the terms hereof, together with such powers as are reasonably incidental
thereto. The Pledgee may execute any of its duties hereunder by or through
agents or employees and shall be entitled to retain counsel and to act in
reliance upon the advice of such counsel (whether written or oral) concerning
all matters pertaining to its duties hereunder. Neither the Pledgee, nor any
director, officer or employee of the Pledgee, shall be liable for any action
taken or omitted to be taken by it or them hereunder in connection herewith,
except for its or their own gross negligence or willful misconduct. The Pledgor
hereby agrees to reimburse the Pledgee, on demand, for all expenses incurred by
the Pledgee in connection with the administration and enforcement of this Pledge
Agreement (including expenses incurred by the Escrow Agent or any subagent
employed by the Pledgee) and agrees to indemnify and hold harmless the Pledgee
and/or any such subagent against any and all liability incurred by the Pledgee
(or such subagent hereunder or in connection herewith), unless such liability
shall be due to willful misconduct or gross negligence on the part of the
Pledgee or such subagent.
-4-
5
9. Pledgee Appointed Attorney in Fact. The Pledgor hereby appoints the
Pledgee the Pledgor's attorney-in-fact (any proxy with full power of
substitution to vote and otherwise act following an Event of Default) for the
purpose of carrying out the provisions of this Pledge Agreement and, upon the
occurrence of any Event of Default, taking any action and executing any
instrument which the Pledgee may deem necessary or advisable to accomplish the
purposes hereof, which appointment is irrevocable and coupled with an interest.
Without limiting the generality of the foregoing, upon an Event of Default, the
Pledgee shall have the right and power to receive, endorse and collect all
checks and other orders for the payment of money made payable to the Pledgor
representing any dividend, interest payment or other distribution payable or
distributable in respect of the Pledged Collateral or any part thereof and to
settle or compromise any claims relating thereto and to give full discharge for
the same.
10. Representations, Warranties and Agreements of Pledgor. To induce
Pledgee to accept the Second Payment Note, Pledgor represents and warrants to,
and agrees with, Pledgee, that:
(a) it owns the Pledged Securities and by the execution and
delivery of this Agreement and delivery of the Pledged Collateral it has created
is a first priority lien granted in favor of the Pledgee with respect to such
Pledged Collateral; and
(b) this Agreement is the valid and binding obligation of
Pledgor, enforceable in accordance with its terms; and
(c) so long as this Agreement is in effect, not to sell
substantially of its assets without the prior written consent of Pledgee.
11. No Waiver; Cumulative Remedies. No failure on the part of the
Pledgee to exercise, and no delay in exercising any right, power, privilege or
remedy hereunder, shall operate as a waiver thereof, nor shall any single or
partial exercise of any such right, power, privilege or remedy of the Pledgee
preclude any other or further exercise thereof or the exercise of any other
right, power, privilege or remedy. All remedies hereunder are cumulative and are
not exclusive of any other remedies provided herein or by law.
12. Termination. This Pledge Agreement shall terminate when all
indebtedness secured hereby has been fully paid and performed, at which time
the Pledgee shall reassign and redeliver (or cause to be reassigned and
redelivered) to the Pledgor, or to such person or persons as the Pledgor shall
designate, such of the Pledged Collateral (if any) as shall not have been sold
or otherwise applied by the Pledgee pursuant to the terms hereof and shall
still be held hereunder, together with appropriate instruments of reassignment
and release. Any such reassignment shall be without recourse against or express
or implied representation or warranty by the Pledgee and at the expense of the
Pledgor.
13. Assignability. The Pledgee may assign, in whole or in part, any
or all of its rights, title and interests provided for in this Pledge
Agreement, to any holder of the Secured Obligations or portion thereof.
14. Terms Relating to Escrow Agent.
(a) Greenberg, Traurig, Hoffman, Lipoff, Xxxxx & Xxxxxxx, P.A.
shall initially act as Escrow Agent under this Agreement. The Escrow Agent shall
acknowledge its receipt of the original certificate(s) representing the Pledged
Securities by executing this Agreement. Pledgor shall also deliver to the Escrow
Agent any and all original certificates, funds or documents as may hereafter
become part of the Pledged Collateral. The possession of the original
certificates and other documents relating to
-5-
6
the Pledged Collateral shall be deemed to constitute the Pledgee's possession
thereof in order to perfect Pledgee's security interest in the Pledged
Collateral.
(b) The Escrow Agent shall hold all certificates, funds and
documents representing the Pledged Collateral (collectively, the "Instruments")
subject to the following terms and conditions:
(i) If the Pledgee at any time instructs the Escrow
Agent to exchange any certificates representing any securities included
in the Pledged Collateral to change the denominations of such
certificates, the Escrow Agent shall comply with such request promptly
by so exchanging certificates directly with the Issuer. The Escrow
Agent shall give Pledgor and the holder of any subsequent perfected
lien as provided in the addendum to this Pledge Agreement notice of any
such action within 10 days after it is completed.
(ii)Either Pledgor or Pledgee may give the
Escrow Agent a notice requesting the Escrow Agent to make any delivery
or take any action with respect to any Instruments that is proposed to be taken
pursuant to this Agreement. If the notice describing any such request is
executed by both the Pledgor and the Pledgee, the Escrow Agent shall promptly
comply with the request.
If the notice is given by Pledgor or Pledgee, and is not signed by
both, the Escrow Agent shall promptly forward by hand or overnight delivery a
copy of such notice to the party that did not sign it. Thereafter, the Escrow
Agent shall refrain from taking any action with respect to such request for at
least 5 business days, or until the other party authorizes the Escrow Agent in
writing to comply with such request. If the other party fails to deliver written
notice of objection to the Escrow Agent within such 5-day period, the Escrow
Agent shall be fully protected in complying with such request.
(c) In order to induce the Escrow Agent to act under this
Agreement, the Pledgor and the Pledgee jointly and severally agree as follows:
(i) The Escrow Agent shall not in any way be bound or
affected by any notice or modification or cancellation of this
Agreement unless in writing, signed by all parties hereto, nor shall
the Escrow Agent be bound by any modification hereof unless the same
shall be satisfactory to the Escrow Agent. The Escrow Agent shall be
entitled to rely upon any judgment, certification, demand or other
writing (including but not limited to any instructions given to it
under (b), above) without being required to determine the authenticity
or the correctness of any fact stated therein, the propriety of
validity of the service thereof, or the jurisdiction of the court
issuing such judgment or order.
(ii) The Escrow Agent may act in reliance upon any
document, instrument or signature believed by it to be genuine, and the
Escrow Agent may assume that any person purporting to give any notice
or instructions in accordance with the provisions hereof has been duly
authorized to do so.
(iii) The Escrow Agent may act relative hereto in
reliance upon advice of counsel in reference to any matter(s)
connection herewith, and shall not be liable for any mistake of fact or
error of judgment, or for any acts or omissions of any kind, unless
caused by the Escrow Agent's willful misconduct or gross negligence.
The Escrow Agent shall be entitled to consult with its counsel, which
shall include any attorney employed by it, and the Escrow Agent shall
not be liable for any action taken, suffered or omitted by it in
accordance with the advice (whether written or oral) of such counsel.
-6-
7
(iv) This Agreement sets forth exclusively the Escrow
Agent's duties with respect to any and all matters pertinent hereto.
The Escrow Agent shall not refer to, and shall not be bound by, the
provisions of any other agreement.
(v) The Escrow Agent may at any time resign hereunder
by giving written notice of its resignation to all parties hereto at
least thirty (30) days prior to the date specified for such resignation
to take effect, and upon the effective date of such resignation, all
cash, documents and all other property then held by the Escrow Agent
hereunder shall be delivered by it to such persons as may be designated
in writing by all parties hereto, whereupon all its prospective
obligations as Escrow Agent hereunder shall cease and terminate. The
Escrow Agent's sole responsibility thereafter shall be to keep safely
all property then held by it and to deliver same to a person designated
by all parties hereto or in accordance with the directions of a final
order or judgment of a court of competent jurisdiction. In addition,
the Escrow Agent shall be discharged of its prospective duties and
obligations hereunder upon its interpleading in a court of competent
jurisdiction all of the funds and property then held by it hereunder.
All parties hereto hereby submit to the personal jurisdiction of said
court (but solely for the purpose of implementing this Agreement) and
waive all rights to contest said jurisdiction. However, the Escrow
Agent's resignation and/or interpleading of the Property shall not in
any manner affect or impair any of its obligations under this
Agreement.
(vi) Pledgor and Pledgee shall be jointly and
severally obligated to reimburse the Escrow Agent for all its fees,
costs and expenses in connection herewith, including reasonable counsel
fees, and to indemnify it and hold it harmless against any claim
asserted against it or any liability, loss or damage incurred by it in
connection herewith.
(vii) Nothing herein contained shall be deemed to
obligate the Escrow Agent to deliver any securities, cash, instruments,
documents or any other property referred to herein, unless the same
shall have first been received by the Escrow Agent pursuant to this
Agreement.
(viii) Pledgee acknowledges that the Escrow Agent is
general counsel for the Pledgor, and for its parent corporation,
Educational Medical, Inc. ("EMI"), and agrees that no action taken by
the Escrow Agent under this Agreement shall affect or impair the right
of the Escrow Agent to represent the Pledgor and/or EMI in any matter,
including an interpleader action pursuant to this Agreement.
15. Miscellaneous. This Agreement shall be binding on and inure to the
benefit of the respective parties hereto and their successors and assigns. This
Agreement may be executed simultaneously in counterparts, each of which shall be
deemed an original, but both of which together shall constitute one and the same
instrument. This Agreement represents the entire understanding of the parties
hereto, and supersedes any and all other prior agreements between the parties.
The terms and provisions of this Agreement cannot be terminated or modified or
amended except in writing and signed by the party against whom enforcement is
sought. The provisions of this Agreement are severable, and any invalidity,
unenforceability or illegality in any provision or provisions hereof shall not
affect the remaining provisions of this Agreement. In any suit, action or
proceeding arising out of or in connection with this Agreement, the prevailing
party shall be entitled to an award of the amount of costs and reasonable
attorneys' fees, including costs fees on one or more appeals and in bankruptcy
proceedings.
All notices required or allowed hereunder shall be in writing and shall
be deemed given as provided for in the Asset Purchase Agreement dated December
12, 1996 (the "Asset Purchase
-7-
8
Agreement") pursuant to which the Second Payment Note has been issued, at the
address written in the first paragraph hereof if not otherwise provided for in
the Asset Purchase Agreement, or such other address as is most recently noticed
for such party as aforesaid.
IN WITNESS WHEREOF, the Pledgee has caused this Pledge Agreement to be
duly executed and delivered by its officer thereunto duly authorized, and the
Pledgor has duly executed and delivered this Agreement, as of the date first
above written.
In the Presence of: EDUCATIONAL MEDICAL, INC., Delaware
corporation
/s/ Xxxxx Xxxxx
-----------------------
/s/ Xxxxxxx X. Xxxx By: /s/ Xxxxxx X. Xxxxx
----------------------- ------------------------------------
Authorized Signatory
HBC ACQUISITION CORP., a Delaware
corporation
/s/ Xxxxx Xxxxx
-----------------------
/s/ Xxxxxxx X. Xxxx
-----------------------
By: /s/ Xxxxxx X. Xxxxx
------------------------------------
Authorized Signatory
O/E LEARNING, INC., a Michigan corporation
/s/ Xxxxx X. Xxxxxxxxxx
-----------------------
/s/ Xxxxxxx X. Xxxxxx By: /s/ Xxxxxx X. Xxxxxx
----------------------- ------------------------------------
Authorized Signatory
ACCEPTANCE OF ESCROW AGENT
Greenberg, Traurig, Hoffman, Lipoff, Xxxxx & Quentel, P.A.
acknowledges receipt of the foregoing Agreement and the Original Certificates,
and agrees to act as Escrow Agent under its terms.
By: /s/ Xxxxxxx Xxx Xxxxx
------------------------------------
Authorized Signatory
-8-
