Document:

exv4w1

 

Exhibit 4.1

SECURITIES PURCHASE AGREEMENT

     SECURITIES PURCHASE AGREEMENT dated as of June 9, 2003 (this “Agreement”),
by and between Superior Consultant Holdings Corporation, a Delaware corporation
(the “Company”), Superior Consultant Company, Inc., a Michigan corporation
(“OpCo”), and the purchasers set forth on the Purchasers Schedule attached
hereto (collectively the “Purchasers”).

     W I T N E S S E T H:

     WHEREAS, the Company and OpCo, jointly and severally as co-borrowers,
propose, subject to the terms and conditions set forth herein, to issue and
sell to the Purchasers the Debentures (as defined below);

     WHEREAS, to induce the Purchasers to acquire the Debentures and as
consideration hereunder, each Subsidiary other than OpCo has agreed to execute
and deliver the Guaranty (as defined in Section 7.2(i));

     WHEREAS, to induce the Purchasers to acquire the Debentures and as
consideration hereunder, the Company has agreed to grant the Purchasers
warrants (the “Warrants”) to purchase shares of the common stock, par value
$.01 of the Company (“Common Stock”), issued pursuant to a Warrant Agreement
(the “Warrant Agreement”) in the form attached hereto as Exhibit A; and

     WHEREAS, each Purchaser wishes to purchase from the Company, severally and
not jointly, the Warrants and the Debentures in the principal amount set forth
next to such Purchaser’s name on the Purchasers Schedule attached hereto.

     NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby
agree as follows.

ARTICLE 1

DEFINITIONS

Section 1.1 Defined Terms.

     (a)       As used in this Agreement, the following terms shall have the
following meanings:

     “Additional Assets” means (i) any property or assets (other than
indebtedness for money borrowed and Capital Stock) to be used by the Company in
a Permitted Business; (ii) the Capital Stock of a Person that becomes a
Subsidiary as a result of the acquisition of such Capital Stock by the Company;
or (iii) Capital Stock constituting a minority interest in any Person that at
such time is a Subsidiary; provided, however, that any such Subsidiary
described in clauses (ii) or (iii) above is primarily engaged in a Permitted
Business.

 

 

     “Affiliate” means, with respect to (i) the Company, any other Person
directly or indirectly controlling, controlled by, or under direct or indirect
common control with the Company; and (ii) the Purchasers, any general or
limited partners or retired partners of any of the Purchasers, or any Person or
entity that directly or indirectly, through one or more intermediaries,
controls, with the general partner of the Purchasers, the Purchasers. For the
purposes of this definition, “control” when used with respect to any Person
means the power to direct the management and policies of such Person, directly
or indirectly, whether through the ownership of voting securities, by contract
or otherwise; and the terms “controlling” and “controlled” have meanings
correlative to the foregoing.

     “Applicable Law” means any applicable United States federal, state, or
local law, statute, rule, regulation, order, writ, injunction, judgment, decree
or permit of any Governmental Authority.

     “Business Day” means any day other than a Saturday, a Sunday, or a day
when banks in New York, New York are authorized by Applicable Law to be closed.

     “Capital Stock” means (i) with respect to any Person that is a
corporation, any and all shares, interests, participations, rights or other
equivalents (however designated) of capital stock of such Person and (ii) with
respect to any other Person, any and all partnership, membership or other
equity interests of such Person.

     “Code” means the Internal Revenue Code of 1986, as amended from time to
time, and the regulations promulgated and rulings issued thereunder.

     “Commission” means the United States Securities and Exchange Commission.

     “Commission Filings” means all reports, registration statements and other
filings filed by the Company with the Commission (and all notes, exhibits and
schedules thereto and all documents incorporated by reference therein).

     “Company Disclosure Schedule” shall mean the Company disclosure schedule
delivered to the Purchasers concurrently with the date hereof.

     “Contract” means any contract, lease, loan agreement, mortgage, security
agreement, trust indenture, note, bond, instrument, or other agreement or
arrangement (whether written or oral).

     “Debentures” means the Company’s senior subordinated debentures due 2006
to be issued to the Purchasers on the date hereof in the aggregate original
principal amount of up to Twelve Million Dollars ($12,000,000). Such
Debentures shall be substantially in the form attached hereto as Exhibit B.

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     “EBITDA” means for any period, the Company’s earnings during such period
before interest, taxes, depreciation and amortization expenses, all as
determined in accordance with GAAP.

     “ERISA” means the Employee Retirement Income Security Act of 1974, as
amended, and all regulations promulgated thereunder, as in effect from time to
time.

     “Exchange Act” means, as of any date, the Securities Exchange Act of 1934,
as amended through such date, and the rules and regulations of the Commission
promulgated thereunder in effect on such date.

     “Financing Documents” means this Agreement, the Investor Rights Agreement,
the Debentures, the Warrant Agreement, the Warrants, the Guaranty, the
Management Rights Letter, and each certificate, instrument and agreement
delivered in connection with any of the foregoing.

     “GAAP” means, as of any date, United States generally accepted accounting
principles, consistently applied, as in effect on such date.

     “Governmental Authority” means (i) any Federal, state or local court or
governmental or regulatory agency or authority, (ii) any arbitration board,
tribunal or mediator and (iii) any national stock exchange or Commission
recognized trading market on which securities issued by the Company are listed
or quoted.

     “Indebtedness” means all principal, accrued and unpaid interest and all
other obligations arising under the Debentures.

     “Intellectual Property” means domestic and foreign patents and patent
applications, inventions, patent licenses, software licenses, know-how
licenses, trade names, trademarks (registered or unregistered), copyrights
(registered or unregistered), service marks (registered or unregistered),
uniform resource locators, Internet domain names, trade secrets and other
confidential and proprietary information.

     “Investor Rights Agreement” means the Investor Rights Agreement, to be
dated as of the Closing Date, to be entered into by and among the Company, the
Purchasers and the other parties thereto, in the form attached hereto as
Exhibit C.

     “Lien” means any mortgage, pledge, lien, security interest, claim,
restriction, charge or encumbrance of any kind.

     “Majority of the Purchasers” means the Purchasers holding Debentures
representing at least a majority of the principal then outstanding under the
Debentures.

     “Management Rights Letter” means that certain Management Rights Letter, to
be dated as of the Closing Date, by and among the Company and each of the
Purchasers, substantially in the form attached hereto as Exhibit D.

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     “Material Adverse Effect” shall mean, with respect to the Company, any
materially adverse change in or effect on its business, operations, financial
condition, or results of operations of the Company and its Subsidiaries, taken
as a whole.

     “Net Available Cash” from an Asset Disposition means cash payments
received (including any cash payments received by way of deferred payment of
principal pursuant to a note or installment receivable or otherwise and
proceeds from the sale or other disposition of any securities received as
consideration, but only as and when received, but excluding any other
consideration received in the form of assumption by the acquiring Person of
indebtedness for borrowed money or other obligations relating to the properties
or assets that are the subject of such Asset Disposition or received in any
other non-cash form) therefrom, in each case net of (i) all legal, title and
recording tax expenses, commissions and other fees and expenses incurred, and
all Federal, state, provincial, and local taxes required to be paid or accrued
as a liability under GAAP, as a consequence of such Asset Disposition, (ii) all
payments made on any indebtedness for borrowed money which is secured by any
assets subject to such Asset Disposition, in accordance with the terms of any
lien upon or other security agreement of any kind with respect to such assets,
or which must by its terms, or in order to obtain a necessary consent to such
Asset Disposition, and (iii) appropriate amounts to be provided by the seller
as a reserve, in accordance with GAAP, against any liabilities associated with
the property or other assets disposed of in such Asset Disposition and retained
by the Company after such Asset Disposition.

     “Permitted Business” means (i) any business engaged in by the Company or
its Subsidiaries on the Closing Date; and (ii) any business substantially
related to the business of the Company or its Subsidiaries on the Closing Date.

     “Person” means any individual, partnership, corporation, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization, government or agency or political subdivision thereof, or other
entity.

     “Purchaser Affiliate” means (i) any direct or indirect holder of any
equity interests or securities in Purchaser (whether limited or general
partners, members, stockholders or otherwise), (ii) any Affiliate of Purchaser,
(iii) any director, officer, employee, representative or agent of (A)
Purchaser, (B) any Affiliate of Purchaser or (C) any holder of equity interests
or securities referred to in clause (i) above or (iv) any person who is a
“control person” of Purchaser, as defined under Section 15 of the Securities
Act or Section 20 of the Exchange Act.

     “Securities” shall mean, collectively, the Debentures, the Warrants and
the Warrant Shares.

     “Securities Act” means, as of any date, the Securities Act of 1933, as
amended as of such date, and the rules and regulations of the Commission
promulgated thereunder in effect on such date.

     “Senior Indebtedness” means any indebtedness within the meaning of clause
(ii) in Section 6.5.

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     “Senior Lender” means the Lender as such term is defined in the Revolving
Credit and Security Agreement among the Company, OpCo, Comtrust, LLC (as
guarantor) and Fifth Third Bank (as Lender), dated as of May 14, 2003.

     “subsidiary” means, with respect to any Person (i) a corporation a
majority of whose capital stock with voting power, under ordinary
circumstances, to elect directors is at the time, directly or indirectly, owned
by such Person, by a subsidiary of such Person, or by such Person and one or
more subsidiaries of such Person, (ii) a partnership in which such Person or a
subsidiary of such Person is, at the date of determination, a general partner
of such partnership and has the power to direct the policies and management of
such partnership or (iii) any other Person (other than a corporation) in which
such Person, a subsidiary of such Person or such Person and one or more
subsidiaries of such Person, directly or indirectly, at the date of
determination thereof, has (A) at least a majority ownership interest or (B)
the power to elect or direct the election of a majority of the directors or
other governing body of such Person.

     “Subsidiary” means all direct and indirect subsidiaries of the Company
whether now existing or arising hereafter.

     “Transactions” means the transactions contemplated by the Financing
Documents.

     “Warrant Shares” means shares of the Company’s Common Stock to be issued
upon exercise of the Warrants.

     Section 1.2 Additional Defined Terms.

     As used in this Agreement, the following terms shall have the meanings
given thereto in the Sections set forth opposite such terms:

	 	 	 
	TERM	 	SECTION
	Additional Subsidiary	 	
Section 5.12
	Agreement	 	
Preamble
	Asset Disposition	 	
Section 6.2(a)
	Closing	 	
Section 2.2(c)
	Closing Date	 	
Section 2.2(a)
	Common Stock	 	
Third Recital
	Company	 	
Preamble
	Employee Plan	 	
Section 3.12(a)
	Employees	 	
Section 3.12(a)
	Environmental Law	 	
Section 3.18
	Environmental Permit	 	
Section 3.18
	Existing Debt	 	
Section 6.5
	Governmental Licenses	 	
Section 3.11
	Guaranty 	 	
Section 7.2(i)
	Immigration Laws	 	
Section 3.13(i)
	Indemnified Party	 	
Section 8.1(c)

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	TERM	 	SECTION
	indemnified person	 	
Section 8.1(b)
	Indemnifying Party	 	
Section 8.1(c)
	Initial Closing	 	
Section 2.2(a)
	Intellectual Property	 	
Section 3.11
	Losses	 	
Section 8.1(b)
	Net Proceeds	 	
Section 5.4(a)
	Notices	 	
Section 8.2
	Offer	 	
Section 6.2(b)
	OpCo	 	
Preamble
	Permitted Indebtedness	 	
Section 6.5
	Permitted Liens	 	
Section 3.14
	Purchasers	 	
Preamble
	Scheduled Contracts	 	
Section 3.15
	Second Closing	 	
Section 2.2(b)
	Second Closing Date	 	
Section 2.2(b)
	Stock Repurchase	 	
Section 5.4(b)
	Subsequent Closing	 	
Section 2.3
	Subsequent Closing Date	 	
Section 2.3
	Tax	 	
Section 3.13(f)
	Tax Controversy	 	
Section 3.13(c)
	Tax Return	 	
Section 3.13(f)
	Tender Offer	 	
Section 5.4(b)
	Warrants	 	
Third Recital
	Warrant Agreement	 	
Third Recital

     Section 1.3 Knowledge. Where any representation or warranty contained in
this Agreement is expressly qualified to the knowledge of the Company,
knowledge of the Company shall mean the actual knowledge of Richard Helppie,
George Huntzinger, Susan Synor, George Bracken, Richard Saslow and Richard
Sorensen as well as any knowledge or any fact or circumstance that would have
or should have come to the attention of any of them in the course of
discharging his or her duties in a reasonable and prudent manner consistent
with sound business practices.

ARTICLE 2

SALE AND PURCHASE

     Section 2.1 Agreement to Sell and to Purchase; Purchase Price. On the
Closing Dates, and upon the terms and subject to the conditions set forth in
this Agreement:

     (a)       At the Initial Closing, each Purchaser shall deliver to the Company:

		
	 	     (i)     against delivery of (A) the Debenture being issued to such
Purchaser and (B) the Initial Warrant being issued to such Purchaser, an
amount equal to the aggregate purchase price of such Debenture and the
Initial Warrant as set forth on the Purchasers

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	 	Schedule attached hereto via wire transfer of immediately available
funds to such bank account as the Company shall designate not later than
two (2) Business Days prior to the Closing Date; and

		
	 	     (ii)     each document, instrument, agreement and certificate referenced
in Section 7.1.

     (b)     At the Initial Closing, the Company shall deliver to each of the
Purchasers:

		
	 	     (i)     against payment of the purchase price therefor as set forth
opposite such Purchaser’s name on the Purchasers Schedule attached
hereto, (A) the Debenture being issued to such Purchaser and (B) the
Initial Warrant being issued to such Purchaser;
	 
	 	     (ii)     each document, instrument, agreement and certificate referenced
in Section 7.2.

     (c)     At the Second Closing, each Purchaser shall deliver to the Company:

		
	 	     (i)     against delivery of (A) the Debenture being issued to such
Purchaser and (B) the Amended Warrant being issued to such Purchaser, an
amount equal to the aggregate purchase price of such Debenture and the
Amended Warrant as set forth on the Purchasers Schedule attached hereto
via wire transfer of immediately available funds to such bank account as
the Company shall designate not later than two (2) Business Days prior to
the Closing Date and the Initial Warrant.

     (d)     At the Initial Closing, the Company shall deliver to each of the
Purchasers:

		
	 	     (i)     against payment of the purchase price therefor as set forth
opposite such Purchaser’s name on the Purchasers Schedule attached hereto
and surrender of the Initial Warrant, (A) the Debenture being issued to
such Purchaser and (B) the Amended Warrant being issued to such
Purchaser;

     (e)     At the Initial Closing, the Company shall deliver to the Purchasers
evidence of the payment of all costs and expenses of the Purchasers required to
be reimbursed by the Company pursuant to Section 8.9 hereof.

     Section 2.2 Closings.

     (a)       Subject to the satisfaction or written waiver of the conditions set
forth in this Agreement, the first issuance and sale of the Securities
hereunder (the “Initial Closing”) shall take place on the date of this
Agreement at the offices of Sachnoff & Weaver, Ltd. 30 S. Wacker Drive, 29th
Floor, Chicago, IL 60606 (the date of the Initial Closing is the “Closing
Date”), or on such other date hereafter and at such other location as may be
mutually agreed.

     (b)     The second issuance and sale of the Securities hereunder (the “Second
Closing”) shall take place on June 23, 2003 or on such other date thereafter as
may be mutually agreed;

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provided, however, that if a Default has occurred and is continuing under
the Debentures, the Second Closing shall take place promptly following the cure
of such Default (the date of the Second Closing is the “Second Closing Date”);
provided that in no event shall the Company have the right to cause the Second
Closing to occur by curing any Default beyond the earlier of (i) the end of the
cure period for such Default in the Debenture and (ii) August 11, 2003. The
Second Closing shall take place at the offices of Sachnoff & Weaver, Ltd. 30 S.
Wacker Drive, 29th Floor, Chicago, IL 60606 or at such other location as may
be mutually agreed.

     (c)     The Initial Closing, the Second Closing and the Subsequent Closings
(as defined below) are referred to collectively as the “Closings”.

     Section 2.3 Subsequent Closings. From time to time during the sixty (60)
days after the Initial Closing (or such longer period as is mutually agreed
upon by the Company and a Majority of Purchasers), the Company may elect to
sell additional Securities to additional purchasers who execute and deliver
this Agreement. Such additional purchasers shall become Purchasers upon
execution and delivery of this Agreement, together with any amendments that are
approved in writing by the Company and a Majority of Purchasers. The Exercise
Price for Warrants issued in connection with a Subsequent Closing shall be as
provided in the Warrant Agreement. Subject to the satisfaction or written
waiver of the conditions set forth in this Agreement, such subsequent issuances
and sales of the Securities (each a “Subsequent Closing”) shall take place from
time to time (each date of such Subsequent Closing, a “Subsequent Closing
Date”) at the offices of Sachnoff & Weaver, Ltd. 30 S. Wacker Drive, 29th
Floor, Chicago, IL 60606.

ARTICLE 3

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

     The Company and OpCo, jointly and severally, hereby each represent and
warrant to each Purchaser on the date hereof as follows:

     Section 3.1 Organization and Standing. Each of the Company and its
Subsidiaries is duly organized, validly existing and in good standing under the
laws of its state of incorporation or organization and has all requisite
corporate power and authority to own, lease and operate its properties and
assets and to carry on its business as it is now being conducted and as
currently proposed to be conducted. Each of the Company and its Subsidiaries is
duly qualified to transact business as a foreign corporation and is in good
standing in each jurisdiction in which the character of the properties owned or
leased by it or the nature of its business makes such qualification necessary,
except for any such failures to so qualify or be in good standing that would
not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect. The Company has delivered to the Purchasers true and
complete copies of the Company’s and OpCo’s certificate or articles of
incorporation, in each case, as amended to date and as effect on the date
hereof, and by-laws, as amended to date and as in effect on the date hereof and
the certificates or articles of incorporation, by-laws or other similar
organizational documents of each of its Subsidiaries, in each case, as amended
through the date hereof and as in effect on the date hereof. Schedule 3.1 of
the Company Disclosure Schedule contains a complete list of each

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of its Subsidiaries that identifies the type of entity and relationship to
the Company and OpCo and their state of incorporation or organization. The
Company has no Subsidiaries other than as set forth in Schedule 3.1.

     Section 3.2 Capital Stock; Warrants.

     (a)       As of the date hereof, the authorized Capital Stock of the Company
consists solely of (i) 30,000,000 shares of Common Stock, of which 10,764,891
shares are issued and outstanding, 352,100 shares are held in treasury and
3,712,631 are reserved for issuance upon the exercise of outstanding warrants,
options and other convertible or exchangeable securities, and (ii) 1,000,000
shares of preferred stock, par value $0.01 per share, none of which are issued
or outstanding. Each share of Capital Stock of the Company that will be issued
and outstanding immediately following the Closing Date will be duly authorized
and validly issued, fully paid and nonassessable, and the issuance thereof will
not have been subject to any preemptive rights or made in violation of any
Applicable Law.

     (b)       Except as set forth on Schedule 3.2(b) of the Company Disclosure
Schedule, as of the date of this Agreement, there are (i) no outstanding
options, warrants, agreements, conversion rights, exchange rights, preemptive
rights or other rights (whether contingent or not) to subscribe for, purchase
or acquire any issued or unissued shares of Capital Stock of the Company or any
Subsidiary, and (ii) no restrictions upon, or Contracts or understandings of
the Company or any Subsidiary, or, to the knowledge of the Company, Contracts
or understandings of any other Person, with respect to, the voting or transfer
of any shares of Capital Stock of the Company or any Subsidiary.

     (c)       The Debentures have been duly authorized by the Company and OpCo and,
when issued and delivered by the Company and OpCo in accordance with the terms
of this Agreement, will constitute valid and legally binding obligations of the
Company and its Subsidiaries, enforceable in accordance with their terms,
except to the extent that their enforceability may be subject to applicable
bankruptcy, insolvency, reorganization or similar laws affecting the
enforcement of creditors’ rights generally and to general equitable principles,
and will be issued free and clear of all Liens or transfer restrictions other
than those in the Financing Documents.

     (d)       The Warrants have been duly authorized by the Company and, when issued
and delivered by the Company in accordance with the terms of this Agreement,
will constitute valid and legally binding obligations of the Company,
enforceable in accordance with their terms, except to the extent that their
enforceability may be subject to applicable bankruptcy, insolvency,
reorganization or similar laws affecting the enforcement of creditors’ rights
generally and to general equitable principles, and will be issued free and
clear of all Liens or transfer restrictions other than those in the Financing
Documents.

     (e)       The Warrant Shares have been duly and validly authorized and validly
reserved for issuance in contemplation of the exercise of the Warrants and,
when issued and delivered in accordance with the terms of the Warrants, will be
validly issued, fully paid and non-assessable, and will be free and clear of
all Liens or transfer restrictions other than those in the Financing

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Documents, and the issuance thereof will not have been subject to any
preemptive rights or made in violation of Applicable Law.

     Section 3.3 Authorization; Enforceability. The Company and OpCo each have
all necessary corporate power and authority to execute, deliver and perform its
obligations under each of the Financing Documents, and has taken all corporate
action necessary to authorize the execution, delivery and performance by it of
each of such Financing Documents and to consummate the Transactions. No other
corporate or stockholder proceeding on the part of the Company or OpCo is
necessary for such authorization, execution, delivery and consummation. The
Company and OpCo have duly executed and delivered this Agreement and the other
Financing Documents. Each of the Financing Documents constitutes a legal,
valid and binding obligation of the Company and OpCo, enforceable against the
Company and OpCo in accordance with its terms, except to the extent that their
enforceability may be subject to applicable bankruptcy, insolvency,
reorganization or similar laws affecting the enforcement of creditors’ rights
generally and to general equitable principles.

     Section 3.4 No Violation; Consents.

     (a)     The execution, delivery and performance by the Company and OpCo of
each of the Financing Documents and the consummation by the Company and OpCo of
the Transactions do not contravene any Applicable Law except where any such
contravention would not reasonably be expected to have a Material Adverse
Effect. Except as set forth on Schedule 3.4(a) of the Company Disclosure
Schedule, the execution, delivery and performance by the Company and OpCo of
each of the Financing Documents and the consummation of the Transactions (i)
will not (A) violate, result in a breach of or constitute (with or without due
notice or lapse of time or both) a default (or give rise to any right of
termination, cancellation or acceleration) under any Contract to which the
Company or any Subsidiary is a party or by which the Company or any such
Subsidiary is bound or to which any of its or their assets is subject, or (B)
result in the creation or imposition of any Lien upon any of the assets of the
Company or any Subsidiary, except for any such violations, breaches, defaults
or Liens that would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect or have a material adverse effect on
the ability of the Company or OpCo to perform its or their obligations under
the Financing Documents and (ii) does not conflict with or violate any
provision of the certificate of incorporation, by-laws or resolutions of the
Company or the certificate or articles of incorporation, by-laws or other
similar organizational documents of the Subsidiaries.

     (b)     Except for such consents as shall have been obtained prior to the
Closing Date and all of which are as set forth on Schedule 3.4(b) of the
Company Disclosure Schedule, no consent, authorization or order of, or filing
or registration with, any Governmental Authority or other Person is required to
be obtained or made by the Company or OpCo for the execution, delivery and
performance of the Financing Documents or the consummation by the Company and
OpCo of the Transactions, except where the failure to obtain such consents,
authorizations or orders, or make such filings or registrations, would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect or a material adverse effect on the ability of the Company to
perform its obligations under the Financing Documents.

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     Section 3.5 Commission Filings; Financial Statements; Indebtedness.

     (a)       The Company has timely filed all reports, registration statements and
other filings, together with any amendments or supplements required to be made
with respect thereto, that it has been required to file with the Commission
under the Securities Act and the Exchange Act, except for certain untimely
filings made pursuant to Section 16 of the Exchange Act where such failure to
file timely has been subsequently disclosed in the Commission Filings. As of
the respective dates of their filing with the Commission, the Commission
Filings complied in all material respects with the applicable provisions of the
Securities Act and the Exchange Act and did 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 made therein, in the light of the
circumstances under which they were made, not misleading. Since July 30, 2002,
the Company and its Subsidiaries have complied in all material respects with
the applicable provisions of the Sarbanes-Oxley Act of 2002 and all applicable
rules and listing standards thereunder.

     (b)       Each of the historical consolidated financial statements of the
Company (including any related notes or schedules) included in the Commission
Filings was prepared in accordance with GAAP (except as may be disclosed
therein), and complied in all material respects with the rules and regulations
of the Commission as in effect at the time of the filing. Such financial
statements when filed fairly present in all material respects the consolidated
financial position of the Company and its Subsidiaries as of the dates thereof
and the consolidated results of operations, cash flows and changes in
stockholders’ equity for the periods then ended (subject, in the case of the
unaudited interim financial statements, to normal, recurring year-end audit
adjustments). Except as set forth or reflected in (i) the Company’s audited
balance sheet dated as of December 31, 2002 or the notes thereto (as included
in the Company’s Report on Form 10-K filed with the Commission on March 31,
2003), (ii) the Company’s unaudited balance sheet dated as of March 31, 2003 or
the notes thereto (as included in the Company’s Report on Form 10-Q filed with
the Commission on May 15, 2003) or (iii) on Schedule 3.5(b) of the Company
Disclosure Schedule, the Company and its Subsidiaries do not have any
liabilities or obligations of any nature (whether accrued, absolute,
contingent, unasserted or otherwise) that are required to be disclosed on the
Company’s financial statements in accordance with GAAP.

     (c)     Except as set forth on Schedule 3.5(c), the Company and its
Subsidiaries have no outstanding indebtedness for borrowed money or guaranty
obligations as of the date hereof.

     Section 3.6 Absence of Certain Changes. Except as disclosed on Schedule
3.6 of the Company Disclosure Schedule, since December 31, 2002, (i) there has
not been any event, occurrence or development of a state of circumstances or
facts (or the failure of any of the foregoing to occur) that has had, or would
reasonably be expected to have (a) a Material Adverse Effect or (b) a material
adverse effect on the ability of the Company or its Subsidiaries to perform its
or their obligations under the Financing Documents; (ii) the business of the
Company and its Subsidiaries has been conducted only in the ordinary course;
(iii) neither the Company nor any of its Subsidiaries has incurred any material
liabilities (direct, contingent or otherwise) or engaged in any material
transaction outside of the ordinary course of business or entered into any
material agreement outside of the ordinary course of business; (iv) the Company
and its

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Subsidiaries have not increased the compensation of any officer or
director or granted any general salary or benefits increase, other than in the
ordinary course of business; (v) neither the Company nor any of its
Subsidiaries has taken any action referred to in Section 5.1, except as
permitted thereby, (vi) there has been no declaration, setting aside or payment
of any dividend or distribution with respect to any Capital Stock of the
Company or any of its Subsidiaries; and (vii) there has been no change by the
Company or any of its Subsidiaries in accounting principles, practices or
methods.

     Section 3.7 Private Offering. Assuming the accuracy of the representations
of the Purchasers, the offer and sale of the Securities are each exempt from
the registration and prospectus delivery requirements of the Securities Act.
None of the Company or its Subsidiaries, nor anyone acting on behalf of it or
them, has offered or sold or intends to offer or sell any securities, or has
taken or will take any other action (including, without limitation, any
offering of any securities of the Company or its Subsidiaries under
circumstances that would require, under the Securities Act, the integration of
such offering(s) or sale(s) with the offering and sale of the Securities),
which would subject the Transactions to the registration provisions of the
Securities Act.

     Section 3.8 Provided Information. All financial projections concerning
the Company, its Subsidiaries and the Transactions that have been prepared by
the Company or its Subsidiaries or any of the Company’s authorized
representatives and that have been made available to the Purchasers or any of
their authorized representatives in connection with the Transactions have been
reasonably prepared on a basis reflecting the reasonable estimates, assumptions
and judgments of the Company’s management as to the future financial
performance of the Company, the Subsidiaries and the individual business
segments thereof; provided, however, that the Purchasers recognize that
projections as to future events are not to be viewed as facts and that the
actual results during the period or periods covered by the projections probably
will differ from the projected results and that the difference may be material.

     Section 3.9 Litigation. Except as set forth in Schedule 3.9 of the Company
Disclosure Schedule, since December 31, 2002, there is no action, suit,
proceeding at law or in equity, or any arbitration or any administrative or
other proceeding by or before (or, to the knowledge of the Company, any
investigation by) any Governmental Authority, pending, or, to the knowledge of
the Company, threatened, against or affecting the Company, or any of its
Subsidiaries, or any of their properties or rights which would reasonably be
expected to have a Material Adverse Effect or would be reasonably likely to
prevent or materially delay consummation of the Transactions. There are no such
suits, actions, claims, proceedings or investigations pending or, to the
knowledge of the Company, threatened, seeking to prevent or challenging the
Transactions. Except as set forth in Schedule 3.9 of the Company Disclosure
Schedule, since December 31, 2002, neither the Company nor any of its
Subsidiaries is subject to any judgment, order, decree or other adverse
determination entered in any action, suit or proceeding which would have a
Material Adverse Effect on the ability of the Company or any of its
Subsidiaries to conduct its or their business as presently conducted or
contemplated to be conducted or would be reasonably likely to prevent or
materially delay consummation of the Transactions.

12

 

     Section 3.10 Compliance with Laws; Permits and Licenses. Neither the
Company nor any of its Subsidiaries is in violation of any Applicable Law
except for such Applicable Laws which the failure to be in compliance would not
(i) have a Material Adverse Effect or (ii) prevent or materially delay the
consummation of the Transactions. The Company and each of its Subsidiaries has
obtained all governmental permits, licenses, franchises and authorizations
required for the Company and each of its Subsidiaries to conduct its business
as currently conducted (collectively, “Governmental Licenses”), except for
those of which the failure to obtain would not (i) have a Material Adverse
Effect or (ii) prevent or materially delay the consummation of the
Transactions. The Company and each of its Subsidiaries is in compliance with
the terms and conditions of all such Governmental Licenses, except where the
failure to so comply would not, singly or in the aggregate, reasonably be
expected to (i) have a Material Adverse Effect or (ii) prevent or materially
delay the consummation of the Transactions. All of the Governmental Licenses
are valid and in full force and effect, except when the invalidity of such
Governmental Licenses or the failure of such Governmental Licenses to be in
full force and effect would not reasonably be expected to (i) have a Material
Adverse Effect, or (ii) prevent or materially delay the consummation of the
Transactions. Neither the Company nor any of its Subsidiaries has received any
notice of proceedings relating to the revocation or modification of any such
Governmental Licenses which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would reasonably be expected to (i)
have a Material Adverse Effect or (ii) prevent or materially delay the
consummation of the Transactions. There exists no reason or cause that could
justify the variation, suspension, cancellation or termination of any such
Governmental Licenses held by the Company or any of its Subsidiaries with
respect to the current or contemplated operation of their respective
businesses, which variation, suspension, cancellation or termination would
reasonably be expected to (i) have a Material Adverse Effect or (ii) prevent or
materially delay the consummation of the Transactions.

     Section 3.11 Intellectual Property. In the operation of its business, the
Company and its Subsidiaries have used, and currently use, certain Intellectual
Property. Unless otherwise indicated in the Commission Filings or on Schedule
3.11 of the Company Disclosure Schedule, the Company (or its Subsidiaries) owns
the entire right, title and interest in and to, free and clear of any Liens, or
has the right to use under valid license, all material Intellectual Property
necessary to conduct the business of the Company and its Subsidiaries as
presently conducted and as presently proposed to be conducted. No Company or
OpCo operations (including products or services of the Company or any of its
Subsidiaries) now infringe or have infringed upon any Intellectual Property
rights except as would not reasonably be expected to have a Material Adverse
Effect. No Intellectual Property of the Company and its Subsidiaries has been
canceled, abandoned, adjudicated invalid, or to Company’s knowledge become
subject to any outstanding judgment, order, decree, ruling, injunction, writ or
consent restricting their use or adversely affecting Company’s or any
Subsidiary’s rights thereto except as would not reasonably be expected to have
a Material Adverse Effect. All maintenance fees and renewal fees (if
applicable) in respect of the Intellectual Property of the Company and its
Subsidiaries that are properly due have in all material respects been duly
paid. Except as set forth in Schedule 3.11 of the Company Disclosure Schedule,
there are no pending or, to the knowledge of the Company, threatened
proceedings or litigation or other claims adversely affecting the Intellectual
Property of the Company and its Subsidiaries, except as would not reasonably be
expected to have a Material Adverse Effect. To the knowledge of the Company,
except as indicated on Schedule

13

 

3.11 of the Company Disclosure Schedule, no Person is infringing,
misappropriating or misusing any of the Intellectual Property of the Company
and its Subsidiaries.

     Section 3.12 Employee Benefit Plans and Employment Matters.

     (a)     Schedule 3.12 of the Company Disclosure Schedule sets forth as of the
date hereof a true and complete list of each “employee benefit plan” (as
defined in Section 3(3) of ERISA) of the Company and its Subsidiaries in which
current or former employees, agents, directors, or independent contractors of
the Company or its Subsidiaries (“Employees”) participate or pursuant to which
the Company or any of its Subsidiaries has a liability with respect to
Employees (each, an “Employee Plan”). Except as disclosed in the Commission
Filings or on Schedule 3.12 of the Company Disclosure Schedule, neither the
Company nor any of its Subsidiaries has any commitment to establish any
additional Employee Plans or to modify or change materially any existing
Employee Plan. The Company has made available to the Purchasers with respect to
each Employee Plan: (i) a true and complete copy of all material written
documents comprising such Employee Plan (including amendments and individual
agreements relating thereto); and (ii) the most recent financial statements, if
any.

     (b)     Each Employee Plan has been established and maintained in substantial
compliance with its terms and the requirements of all Applicable Law, and all
contributions required to be made to the Employee Plans have been made in a
timely fashion except for any failure to establish and maintain or make
contributions to, any Employee Plan, that would not have a Material Adverse
Effect, or as disclosed on Schedule 3.12.

     (c)     Each Employee Plan which is intended to be “qualified” within the
meaning of Section 401(a) of the Code has received a favorable determination
letter or opinion letter from the Internal Revenue Service (or has submitted,
or is within the remedial amendment period for submitting, an application for a
determination letter and is awaiting a response from the Internal Revenue
Service) and, to the Company’s knowledge, no event has occurred and no
condition exists which could reasonably be expected to result in the revocation
of any such determination letter or opinion letter.

     (d)     Neither the Company nor any Subsidiary currently maintains or
contributes to, or has at any time within the four-year period ending on the
date hereof maintained or contributed to or been obligated to contribute to,
any plan, program or arrangement covered by Title IV of ERISA or subject to
Section 412 of the Code or Section 302 of ERISA.

     (e)     Neither the Company nor any Subsidiary, nor, to the Company’s
knowledge, any other “disqualified person” or “party in interest” (as defined
in Section 4975(e)(2) of the Code and Section 3(14) of ERISA, respectively) has
engaged in any transactions in connection with any Employee Plan that could
reasonably be expected to result in the imposition on the Company or a
Subsidiary of a material penalty pursuant to Section 502 of ERISA, material
damages pursuant to Section 409 of ERISA or a material tax pursuant to Section
4975 of the Code.

     (f)     Except as set forth in the Commission Filings or on Schedule 3.12 of
the Company Disclosure Schedule, none of the execution or delivery of the
Financing Documents or

14

 

the consummation of the Transactions, constitutes an event under any
Employee Plan, loan to, or individual agreement or contract with, an Employee
that may reasonably be expected to result in any material payment (whether of
severance pay or otherwise), restriction or limitation upon the assets of any
Employee Plan, acceleration of payment or vesting, increase in benefits or
compensation, or required funding, with respect to any Employee, or the
forgiveness of any loan or other commitment of any Employees.

     (g)     There are no actions, suits, arbitrations, inquiries, investigations
or other proceedings (other than routine claims for benefits) pending or, to
the Company’s knowledge, threatened, with respect to any Employee Plan, except
for any of the foregoing that do not and would not reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect.

     (h)     No amounts paid or payable by the Company or any Subsidiary to or with
respect to any Employee (including any such amounts that may be payable as a
result of the execution and delivery of the Financing Documents or the
consummation of the transactions contemplated hereby or thereby) will fail to
be deductible for United States federal income tax purposes by reason of
Section 280G of the Code, except as would not reasonably be expected,
individually or in the aggregate to have a Material Adverse Effect.

     (i)     The Company and its Subsidiaries are in compliance in all material
respects with the terms and provisions of the Immigration Reform and Control
Act of 1986, as amended, and all related regulations promulgated thereunder
(the “Immigration Laws”). With respect to each employee of the Company and its
Subsidiaries for whom compliance with the Immigration Laws is required, the
Company has made available to Purchaser such employee’s Form I-9 (Employment
Eligibility Verification Form) and all other records, documents or other papers
which are retained with the Form I-9 by the employer pursuant to the
Immigration Laws. The Company and its Subsidiaries have never been the subject
of any inspection or investigation relating to its compliance with or violation
of the Immigration Laws, nor have they been warned, fined or otherwise
penalized by reason of any such failure to comply with the Immigration Laws,
nor is any such proceeding pending or to the Company’s knowledge, threatened.

     (j)     Except as set forth in the Commission Filings or on Schedule 3.12 of
the Company Disclosure Schedule, the Company and its Subsidiaries are in
compliance in all material respects with all Applicable Laws respecting
employment and employment practices, terms and conditions and wages and hours.

     Section 3.13 Taxes. Except as set forth on Schedule 3.13 of the Company
Disclosure Schedule:

     (a)     The Company and each of its Subsidiaries have timely filed or caused
to be timely filed all material United States federal, state, county, local and
foreign Tax Returns required to be filed by or with respect to them. Such Tax
Returns have accurately reflected all material liability for Taxes of the
Company and its Subsidiaries for the periods covered thereby. All material
Taxes have been paid in full on a timely basis other than Taxes which are being
contested in good faith by appropriate proceedings, diligently pursued, and
which have been

15

 

fully reserved on the balance sheet of the Company. The amount of the
liability of the Company and each of its Subsidiaries for unpaid Taxes for all
periods (or portions thereof) ending on or before March 31, 2003, does not, in
the aggregate, materially exceed the amount of the current liability accrual
for Taxes (excluding reserves for deferred Taxes) reflected on the Company’s
March 31, 2003 balance sheet; and all Tax liabilities of the Company and each
of its Subsidiaries since such time have been incurred in the ordinary course
of business of the Company or its Subsidiaries; and all material Tax
liabilities since such time have been set forth on the books and records of the
Company or each of its Subsidiaries, as the case may be, and disclosed to the
Purchasers prior to the date hereof.

     (b)       There are no material Tax assessments or adjustments that have been
asserted in writing against the Company or any of its Subsidiaries for any
period.

     (c)     There are no material audits, examinations, actions, suits,
proceedings, investigations, claims or assessments pending or, to the knowledge
of the Company, threatened, against the Company or any of its Subsidiaries for
any alleged deficiency in any Tax (a “Tax Controversy”) and neither the Company
nor or any of its Subsidiaries has been notified in writing of any proposed Tax
Controversy against the Company or any of its Subsidiaries. Neither the
Company nor any of its Subsidiaries have been included in any “consolidated,”
“unitary” or “combined” Tax Return provided for under the law of the United
States, any foreign jurisdiction or any state or locality with respect to Taxes
for any taxable period for which the statute of limitations has not expired
with any Person other than the Company and its Subsidiaries. The Company and
each of its Subsidiaries has made available to the Purchasers correct and
complete copies of all United States federal income Tax Returns (to the extent
filed as of the date hereof or, if not filed, correct and complete copies of
extensions thereof), examination reports, statements of deficiencies assessed
against or agreed to by the Company or any of its Subsidiaries, or any other
similar correspondence from a taxing authority, relating to taxable years 1999,
2000, 2001 and 2002.

     (d)       There are no liens for Taxes on the assets of the Company or any of
its Subsidiaries, except for (i) statutory liens for current Taxes not yet due
and payable or (ii) which have been validly reserved for under GAAP, are being
validly contested, and are set forth in Schedule 3.13(d) of the Company
Disclosure Schedule.

     (e)       There are no Tax sharing, allocation, indemnification or similar
agreements in effect as between the Company or any of its Subsidiaries or any
predecessor or affiliate thereof and any other party under which the Company,
any of its Subsidiaries, or the Purchasers could be liable for material Taxes
or other material claims of any third party.

     (f)     For purposes of this Agreement, the term “Tax” means any United States
federal, state, county or local, or foreign or provincial income, gross
receipts, profits, capital gains, capital stock, occupation, severance, stamp,
withholding, property, sales, use, license, excise, franchise, employment,
payroll, value added, alternative or added minimum, ad valorem or transfer tax,
or any other tax, levy, custom, duty or governmental fee or other like
assessment or charge of any kind whatsoever (whether payable directly or by
withholding and whether or not requiring the filing of a Tax Return), together
with all estimated taxes, deficiency assessments,

16

 

additions to tax, interest or penalties imposed by any Governmental
Authority, and shall include any liability for such amounts as a result either
of being or having been a member of a combined, consolidated, unitary or
affiliated group or of a contractual obligation to indemnify any person or
other entity. The term “Tax Return” means a report, return or other information
(including any attached schedules or any amendments to such report, return or
other information) required to be supplied to or filed with any Governmental
Authority with respect to any Tax, including an information return, claim for
refund, amended return or declaration or estimated Tax.

     Section 3.14 Title to Assets. The Company and each of its Subsidiaries has
good and valid title to (i) all of its material tangible properties and assets
(real and personal), including, without limitation, all the properties and
assets reflected in the consolidated balance sheet as of March 31, 2003 (except
as indicated in the notes thereto and except for properties and assets
reflected in the consolidated balance sheet as of March 31, 2003 which have
been sold or otherwise disposed of in the ordinary course of business after
such date), and (ii) all the tangible properties and assets purchased by the
Company and any of its Subsidiaries since March 31, 2003 except for such
properties and assets which have been sold or otherwise disposed of in the
ordinary course of business; in each case subject to no Lien, except for
Permitted Liens. “Permitted Liens” means: (i) Liens for Taxes not yet due or
payable or which have been validly reserved for under GAAP and are being
validly contested; (ii) Liens reflected in (A) the Company’s audited balance
sheet dated as of December 31, 2002 or the notes thereto (as included in the
Company’s Report on Form 10-K filed with the Commission on March 31, 2003) or
(B) the Company’s unaudited balance sheet dated as of March 31, 2003 or the
notes thereto (as included in the Company’s Report on Form 10-Q filed with the
Commission on May 15, 2003); (iii) Liens imposed by applicable law and incurred
in the ordinary course of business for obligations not yet due and payable to
laborers, materialmen and the like; (iv) zoning and other restrictions,
variances, covenants, rights-of-way, encumbrances, easements and or other minor
irregularities of title, none of which, individually or in the aggregate, would
reasonably be expected to have a material adverse effect on the value of any of
the real property of the Company, or would impair in any material respect the
ability of the Company or the relevant Subsidiary to sell such property for its
current use; (v) Liens securing Senior Indebtedness; (vi) Liens in respect of
capital leases or purchase money indebtedness incurred by the Company or any of
its Subsidiaries in connection with its business in the ordinary course; and
(vii) existing and future mortgages secured by real property used by the
Company or any of its Subsidiaries with its business in the ordinary course.

     Section 3.15 Contracts. Schedule 3.15 of the Company Disclosure Schedule
sets forth the following oral or written contracts and other agreements to
which the Company or any of its Subsidiaries is a party:

     (a)     any agreement (or group of related agreements, with the same third
party or any of its Affiliates) for the lease of personal property providing
for lease payments in excess of One Hundred Fifty Thousand Dollars ($150,000)
per annum;

     (b)     any single agreement for the purchase or sale of supplies, products or
other personal property, or for the furnishing or receipt of services,
including, without limitation, any

17

 

single client project, the performance of which involve consideration in
excess of Five Hundred Thousand Dollars ($500,000) for any one such agreement
per annum;

     (c)     any agreement concerning a partnership or joint venture;

     (d)     any agreement (or group of related agreements, with the same third
party or any of its Affiliates) under which the Company or any of its
Subsidiaries has created, incurred, assumed, or guaranteed any indebtedness for
borrowed money, or any capitalized lease obligation, in excess of One Hundred
Thousand Dollars ($100,000) per annum or under which it has imposed a Lien on
any of its material assets, tangible or intangible;

     (e)     any agreement with an employee of the Company or any of its
Subsidiaries, providing for a base salary per annum in excess of Three Hundred
Thousand Dollars ($300,000) and any employment agreement with each of Richard
Helppie, George Huntzinger, Susan Synor, George Bracken, Richard Saslow and
Richard Sorensen;

     (f)     any agreement (or group of related agreements with the same third
party or any of its Affiliates) in respect of any loan or advance to, or
investment in, any other Person, or any commitment to make any of the
foregoing, by the Company or any of its Subsidiaries in an amount in excess of
One Hundred Thousand Dollars ($100,000);

     (g)     any agreement, indenture or other instrument which contains
restrictions on the Company’s or its Subsidiaries’ ability to pay dividends or
otherwise make distributions with respect to their Capital Stock;

     (h)     any agreement, contract or commitment limiting the ability of the
Company or any Subsidiary to compete with any Person or engage in any line of
business, except for any such agreement, contract or commitment entered into in
the ordinary course of business in connection with client engagements or
agreements with healthcare system application developers;

     (i)     any agreement, contract or commitment with any Affiliate (other than a
wholly-owned Subsidiary) of the Company or relative to of or related party to
any Affiliate other than those set forth in Schedule 3.15(i); and

     (j)     any other material agreement, contract or commitment of the Company or
its Subsidiaries not entered into in the ordinary course of business,
including, without limitation, any side letter agreement with an employee,
director, investor of the Company or its Subsidiaries, and any other agreement,
contract or commitment of the Company or its Subsidiaries, a breach or
termination of which would have a Material Adverse Effect.

     The foregoing are referred to hereafter as the “Scheduled Contracts.” With
respect to the Scheduled Contracts, except as set forth in Schedule 3.15 of the
Company Disclosure Schedule or as would not reasonably be expected to have a
Material Adverse Effect (i) all are in full force and effect; (ii) neither the
Company nor any of its Subsidiaries nor, to the knowledge of the Company, any
other party thereto, is in breach or default, and no event has occurred which

18

 

with notice or lapse of time would constitute a breach or default by the
Company, or permit termination, modification, or acceleration, under any such
Scheduled Contract; (iii) neither the Company nor any of its Subsidiaries has
assigned any of its rights or obligations under any of the Scheduled Contracts;
and (iv) neither the Company nor any of its Subsidiaries has received any
outstanding notice of cancellation or termination in connection with any of the
Scheduled Contracts.

     Section 3.16 Insurance. The Company and its Subsidiaries have obtained and
maintain in full force and effect insurance (including director’s and officer’s
liability insurance) with insurance companies or associations in such amounts,
on such terms and covering such risks as disclosed in Schedule 3.16 of the
Company Disclosure Schedule.

     Section 3.17 Investment Company. None of the Company or its Subsidiaries
are an “investment company” or “promoter” or “principal underwriter” for an
“investment company,” as such terms are defined in the Investment Company Act
of 1940, as amended, and the rules and regulations thereunder.

     Section 3.18 Environmental Laws and Regulations. The Company and its
Subsidiaries (including, without limitation, its assets) are not in violation
of any Environmental Laws or Environmental Permits, which violation,
individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect. The Company and its Subsidiaries possesses and are in
compliance with all Environmental Permits which are required for the operation
of their business, except where the failure to possess or comply with such
Environmental Permits could not, individually or in the aggregate, reasonably
be expected to have a Material Adverse Effect. During the last two years,
neither the Company nor any Subsidiary has received any notice, citation,
inquiry or complaint of any alleged violation of any Environmental Law or
Environmental Permit. “Environmental Laws” means all Applicable Laws that
pertain to environmental matters or contamination of any type whatsoever; and
“Environmental Permits” means licenses, permits, registrations, governmental
approvals, agreements and consents which are required under or are issued
pursuant to Environmental Laws

     Section 3.19 Brokers and Finders. Except as set forth on Schedule 3.19 of
the Company Disclosure Schedule, no agent, broker, Person or firm acting on
behalf of the Company is, or will be, entitled to any fee, commission or
broker’s or finder’s fees from any of the parties hereto, or from any Person
controlling, controlled by, or under common control with any of the parties
hereto, in connection with the Financing Documents or any of the Transactions.

     Section 3.20 Solvency. As of the date hereof and after giving effect to
the Transactions: (i) the property of the Company, at a fair valuation, will
exceed its debt; (ii) the capital of the Company will not be unreasonably small
to conduct its business; and (iii) the Company will not have incurred debts, or
have intended to incur debts, beyond its ability to pay such debts as they
mature. As of the date hereof and after giving effect to the Transactions: (i)
the property of OpCo, at a fair valuation, will exceed its debt; (ii) the
capital of OpCo will not be unreasonably small to conduct its business; and
(iii) OpCo will not have incurred debts, or have intended to incur debts,
beyond its ability to pay such debts as they mature.

19

 

     Section 3.21 US Real Property Holding Corporation. Neither the Company
nor OpCo is now and has been at any time for a five (5) year period ending on
the Closing Date a “United States real property holding corporation,” as
defined in Section 897(c)(2) of the Code and Section 1.897-2(b) of the
Regulations promulgated by the Internal Revenue Service.

     Section 3.22 Exclusivity of Representations. The representations and
warranties made by the Company and OpCo in the Financing Documents and the
schedules and certificates delivered by the Company and OpCo thereunder are in
lieu of (and are exclusive of) any other representations and warranties by the
Company, or any officer, employee or agent of the Company, express or implied.
The Company and OpCo hereby disclaim any such other representations or
warranties (express or implied), notwithstanding any delivery or disclosure of
any documents or other information to the Purchasers, their respective
officers, directors, employees, agents or representatives or any other person.

     Section 3.23 Disclaimer. EXCEPT AS EXPRESSLY SET FORTH IN THE FINANCING
DOCUMENTS AND THE SCHEDULES AND CERTIFICATES DELIVERED BY THE COMPANY
THEREUNDER, THE COMPANY DOES NOT MAKE ANY REPRESENTATION OR WARRANTY, EXPRESS
OR IMPLIED, WITH RESPECT TO THE COMPANY OR THE TRANSACTIONS CONTEMPLATED
HEREBY, AND THE PURCHASERS ACKNOWLEDGE AND AGREE THAT THEY ARE NOT RELYING ON
ANY REPRESENTATION OR WARRANTY MADE BY ANY OTHER PERSON WITH RESPECT TO THE
TRANSACTIONS CONTEMPLATED HEREBY OTHER THAN AS SET FORTH IN THE FINANCING
DOCUMENTS AND THE SCHEDULES AND CERTIFICATES DELIVERED BY THE COMPANY
THEREUNDER.

ARTICLE 4

REPRESENTATIONS AND WARRANTIES

OF EACH PURCHASER

     Each Purchaser hereby severally, and not jointly, represents and warrants
to the Company, as to itself and as to no other person, as of the date hereof
and as of the Closing Date as follows:

     Section 4.1 Organization; Authorization; Enforceability. Such Purchaser is
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its organization. Such Purchaser has the power to execute,
deliver and perform its obligations under each of the Financing Documents to
which it is a party and has taken all corporate, limited liability company or
partnership, as applicable, action necessary to authorize the execution,
delivery and performance by it of such Financing Documents and to consummate
the transactions contemplated hereby and thereby. No other proceedings on the
part of such Purchaser are necessary for such authorization, execution,
delivery and consummation. This Agreement constitutes, and each of the other
Financing Documents to which such Purchaser is a party, when executed and
delivered by such Purchaser, will constitute, a legal, valid and binding
obligation of such Purchaser, except to the extent that its enforceability may
be subject to

20

 

applicable bankruptcy, insolvency, reorganization or similar laws
affecting the enforcement of creditors’ rights generally and to general
equitable principles.

     Section 4.2 Private Placement.

     (a)       Such Purchaser understands that (i) the offering and sale of the
Securities in the Transactions by the Company is intended to be exempt from
registration under the Securities Act pursuant to Section 4(2) thereof and (ii)
there is no existing public or other market for the Debentures or the Warrants.

     (b)     Such Purchaser (i) is an “accredited investor” as defined in
Regulation D promulgated under the Securities Act, (ii) was not organized for
the specific purpose of acquiring the Securities, (iii) has sufficient
knowledge and experience in financial and business matters (either alone or
together with its advisors) so as to enable it to understand and evaluate the
risks of and form an investment decision with respect to its investment in the
Securities and to protect its own interest in connection with such investment
and (iv) can bear the economic risk of (A) an investment in the Securities
indefinitely and (B) a total loss in respect of such investment.

     (c)       Such Purchaser is acquiring the Securities to be acquired hereunder
(and will acquire the Warrant Shares) for its own account, for investment and
not with a view to the public resale or distribution thereof in violation of
any securities law.

     (d)     Such Purchaser understands that the Securities will be issued in a
transaction exempt from the registration or qualification requirements of the
Securities Act and applicable state securities laws, and that such securities
must be held indefinitely unless a subsequent disposition thereof is registered
or qualified under the Securities Act and such applicable state securities laws
or is exempt from such registration or qualification.

     (e)     Such Purchaser (i) has been furnished with or has had access to or has
been given the opportunity to review all of the information that it considers
necessary or appropriate to make an informed investment decision with respect
to the Securities and that it has requested from the Company, (ii) has had an
opportunity to discuss with management of the Company the business and
financial affairs of the Company and to obtain information (to the extent the
Company possessed such information or could acquire it without unreasonable
effort or expense) necessary to verify any information furnished to it or to
which it had access and (iii) has had the opportunity to review all publicly
available Commission Filings, including the section regarding Risk Factors set
forth in the Company’s Annual Report on Form 10-K as filed with the Commission
on March 31, 2003.

     (f)     Such Purchaser understands and agrees that so long as applicable, each
certificate representing any Debenture shall be stamped or otherwise imprinted
with a legend in the following form (in addition to any legend required under
applicable state securities laws):

	 
	THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED OR
THE SECURITIES LAWS OF ANY STATE OF

21

 

	 
	THE UNITED STATES. SUCH SECURITIES MAY NOT BE OFFERED, SOLD,
TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF
IN THE ABSENCE OF SUCH REGISTRATION OTHER THAN PURSUANT TO
AN EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS

     Such Purchaser further understands and agrees that so long as
applicable, each certificate representing any Warrant or Warrant Shares
shall be stamped or otherwise imprinted with a legend as set forth in
the Warrant Agreement.

     Section 4.3 No Violation; Consents.

     (a)       The execution, delivery and performance by such Purchaser of each of
the Financing Documents to which it is a party and the consummation of the
Transactions do not and will not contravene any Applicable Law except where any
such contravention would not reasonably be expected to have a material adverse
effect on such Purchaser. The execution, delivery and performance by such
Purchaser of each of the Financing Documents to which it is a party and the
consummation of the Transactions contemplated therein (i) will not violate,
result in a breach of or constitute (with or without due notice or lapse of
time or both) a default (or give rise to any right of termination, cancellation
or acceleration) under any Contract to which such Purchaser is party or by
which such Purchaser is bound or to which any of its assets is subject, except
for any such violations, breaches or defaults that would not, individually or
in the aggregate, reasonably be expected to have a material adverse effect on
the ability of such Purchaser to perform its obligations under this Agreement,
and (ii) will not conflict with or violate any provision of the organizational
documents of such Purchaser.

     (b)     No consent, authorization or order of, or filing or registration with,
any Governmental Authority or other Person is required to be obtained or made
by such Purchaser for the execution, delivery and performance of any of the
Financing Documents to which it is a party or the consummation of any of the
transactions contemplated therein, except where the failure to obtain such
consents, authorizations or orders, or make such filings or registrations,
would not, individually or in the aggregate, reasonably be expected to have a
material adverse effect on the ability of such Purchaser to perform its
obligations under this Agreement.

     Section 4.4 Brokers and Finders. Except as set forth on Schedule 3.19 of
the Company Disclosure Schedule, no agent, broker, Person or firm acting on
behalf of any of the Purchasers is, or will be, entitled to any fee, commission
or broker’s or finder’s fees from any of the parties hereto, or from any Person
controlling, controlled by, or under common control with any of the parties
hereto, in connection with this Agreement or any of the Transactions.

ARTICLE 5

COVENANTS OF THE COMPANY

     The
covenants set forth below in Sections 5.2, 5.7, 5.8, 5.9, 5.10 and
5.12 will continue, unless otherwise provided below, so long as any
Indebtedness under the Debentures remains

22

 

outstanding. The covenants set forth
below in Sections 5.1, 5.3, 5.4,
5.5, 5.6, 5.11, 5.13 and 5.14 will continue, unless otherwise provided below,
so long as any Indebtedness under the Debentures remains outstanding, or the
Purchasers hold, in the aggregate, at least 83% of the shares of Common Stock
issued and/or issuable upon exercise of the Warrants (subject to adjustment in
connection with a stock split, stock dividend or like recapitalization).

     Section 5.1 Maintain Existence. The Company and OpCo each agrees that,
except as permitted, required or specifically contemplated by, or otherwise
described in, this Agreement or the other Financing Documents or otherwise
consented to or approved in writing by a Majority of the Purchasers, the
Company shall, and shall cause its Subsidiaries to, to take all appropriate,
commercially reasonable actions to preserve and keep in full force and effect
the existence of the Company and OpCo and the Subsidiaries and to maintain the
right to do business in all jurisdictions necessary for the conduct of business
in the ordinary course. Notwithstanding the foregoing, the Company may
liquidate or dissolve any of its Subsidiaries other than OpCo in compliance
with Applicable Law, provided that all of the assets of any such Subsidiary
shall be distributed to the Company or its Subsidiaries.

     Section 5.2 Information Rights.

     (a)       The Company and OpCo shall, and shall cause the Subsidiaries to, upon
the reasonable prior written request of a Purchaser, furnish all information to
the Purchaser to enable the Purchaser to file any reports or other documents
required by any Governmental Authority in connection with the Transactions.

     (b)       The Company and OpCo shall, and shall cause the Subsidiaries to, upon
the reasonable prior written request of a Majority of the Purchasers, afford to
a designee of the Majority of the Purchasers and such accountants, counsel and
representatives designated by the Majority of the Purchasers reasonable access
at reasonable time intervals, at Company and OpCo facilities during normal
business hours to all of its relevant and material properties, books and
records (including, but not limited to, Tax Returns); provided, however, that
the Company and OpCo shall not be obligated to breach any confidentiality
obligations to any other party or disclose any information that is protected as
confidential information under Applicable Law.

     (c)     The Company shall deliver to each Purchaser within ninety (90) days
after the end of each fiscal year, beginning with the fiscal year ended
December 31, 2003, audited statements of income and cash flows of the Company
for such fiscal year, and the audited balance sheet of the Company as of the
end of such fiscal year, all prepared in accordance with GAAP by Grant Thornton
LLP or another nationally recognized accounting firm.

     (d)     The Company shall deliver to each Purchaser within forty five (45)
days after the end of each of the first, second and third calendar quarter
unaudited statements of income and cash flows of the Company for such calendar
quarter and for the period from the beginning of the fiscal year to the end of
such calendar quarter, revenue and gross profit information for such calendar
quarter, comparisons to the previous fiscal year’s financial results for such
calendar quarter, a comparison of such calendar quarter’s financial results to
the budget for such calendar

23

 

quarter, and the balance sheet of the Company as of the end of such
calendar quarter.

     (e)     The Company shall deliver to each Purchaser within thirty (30) days
after the end of each month (except for December, which shall be delivered
within sixty (60) days after the end of December) unaudited statements of
income and cash flows of the Company for such calendar month and for the period
from the beginning of the fiscal year to the end of such calendar month,
revenue and gross profit information for such calendar month, comparisons to
the previous fiscal year’s financial results for such calendar month, a
comparison of such calendar month’s financial results to the budget for such
calendar month, and the balance sheet of the Company as of the end of such
calendar month.

     (f)     The Company shall deliver to each Purchaser promptly following the
acceptance of a monthly budget for a fiscal year by the Board of Directors the
monthly budget of the Company for such fiscal year and projections for the next
three (3) years in a format consistent with the Company’s past practices.

     (g)       Notwithstanding anything herein to the contrary, no assignee of any
Purchaser shall be entitled to the information rights set forth in this Section
5.2 if such assignee is a competitor of the Company or is otherwise deemed
detrimental to the Company as determined in good faith by the Board of
Directors of the Company.

     Section 5.3 Reservation of Shares. At all times during which any of the
Warrants remain outstanding, the Company shall: (i) cause to be authorized and
reserve and keep available, free from preemptive rights, out of its authorized
but unissued shares of Capital Stock, solely for the purpose of effecting the
exercise of the Warrants, sufficient shares of Common Stock to provide for the
issuance of the maximum number of shares issuable upon exercise of the
Warrants; (ii) issue and cause the transfer agent to deliver such shares of
Common Stock as required upon exercise of the Warrants, and take all actions
necessary to ensure that all such shares will, when issued and paid for
pursuant to the exercise of the Warrants, be duly and validly issued, fully
paid and nonassessable and not subject to any preemptive rights or in violation
of any Applicable Law; (iii) if any shares of Common Stock reserved for the
purpose of issuance upon exercise of the Warrants require registration with or
approval of any Governmental Authority under any Applicable Law before such
shares may be validly issued or delivered, use its commercially reasonable
efforts to secure such registration or approval, as the case may be, and
maintain such registration or approval in effect so long as so required (for
the avoidance of doubt, this does not include any registration under any
applicable securities law); and (iv) use its commercially reasonable efforts to
maintain its listing on Nasdaq National Market or a substantially similar
national inter-dealer quotation system or securities exchange.

     Section 5.4 Use of Proceeds.

     (a)     The Company and OpCo shall use a portion of the proceeds from the
Transactions, net of up to $500,000 of fees and expenses related to the
Transactions and the Stock Repurchases, including, without limitation, the fees
described on Schedule 3.19 of the Company Disclosure Schedule,
in Section 8.9
and all attorneys’ fees and expenses paid by the Company to its counsel in
connection with the Transactions and the Stock Repurchases (the “Net

24

 

Proceeds”), to finance the repurchase of outstanding Common Stock on terms
and conditions described in subsection (b) below and the remainder of such
proceeds for general corporate purposes.

     (b)       The Company and OpCo shall utilize a portion of the Net Proceeds to
repurchase shares of outstanding Common Stock pursuant to an overall plan and
procedures developed by the Board of Directors of the Company with the input
and advice of the Majority of the Purchasers, utilizing methods to include,
without limitation, open market transactions and an issuer tender offer
conducted in accordance with Applicable Law using customary “Dutch auction”
tender and bidding procedures (collectively, the “Stock Repurchases”). The
maximum amount of Net Proceeds that the Company shall pay in the Stock
Repurchases and the pricing and procedures for conducting the Stock Repurchases
shall be discussed by the Company and a Majority of the Purchasers in good
faith and attached to this Agreement as Exhibit E.

     Section 5.5 Periodic Information. So long as any Indebtedness is
outstanding under the Debentures, the Company shall file all reports, if any,
required to be filed by the Company under Section 13 or 15(d) of the Exchange
Act and, if the Company is not subject to Section 13 or 15(d) of the Exchange
Act and is not exempt from the reporting pursuant to Rule 12g3-2(b) under the
Exchange Act, shall provide the holders of the Warrant Shares and prospective
purchasers of such shares with the information specified in Rule 144A(d) under
the Securities Act.

     Section 5.6 Legend Removal. After the requirement for a legend is no
longer applicable because the Warrant Shares have become freely transferable
under the Securities Act, the Company shall remove such legend upon request
from a holder of such Warrant Shares, if outside counsel for such holder
reasonably determines and advises in writing that the transfer of such Warrant
Shares is no longer restricted by the Securities Act and outside counsel for
the Company reasonably concurs in such determination.

     Section 5.7 No Default Certificates. Contemporaneously with the delivery
of financial statements in Section 5.2(d), the Company and OpCo shall deliver a
certificate of an officer of the Company stating that no default has occurred
or is occurring under any of the Financing Documents.

     Section 5.8 Material Litigation. Within thirty (30) days of the filing,
the Company and OpCo shall provide the Purchasers with written notice of, and
upon the request of a Majority of the Purchasers, copies of all pleadings
related to, any material lawsuits filed by or against the Company or any of its
Subsidiaries.

     Section 5.9 Default Notice. The Company and OpCo will provide the
Purchasers with written notice of and copies of any notification received of
any defaults on, any material loans or leases to which the Company or any of
its Subsidiary is a party within ten (10) days of the receipt thereof.

     Section 5.10 Insurance. The Company and OpCo will, and will cause the
Subsidiaries to, maintain liability, hazard and business interruption insurance
in form, amounts, coverages and

25

 

basis determined by the Board of Directors of the Company to be adequate
to protect the assets and business of the Company and its Subsidiaries.
Notwithstanding the foregoing, the Company will maintain directors and officers
liability insurance of at least $10 million.

     Section 5.11 Securities Compliance. The Company will, with the full
cooperation of Purchaser but at the Company’s own expense, prepare the Form 3
filing required by Section 16 of the Exchange Act required to be filed with the
Commission by Purchaser as a result of the consummation of the Transactions.

     Section 5.12 Additional Subsidiaries. Upon the Company or OpCo creating
or acquiring any subsidiary after the date hereof (each such subsidiary
referred to herein as an “Additional Subsidiary”), the Company or OpCo shall
cause each such subsidiary to promptly execute and deliver the Guaranty, all
such agreements, guarantees, documents and certificates as the Purchasers may
reasonably request and do such other acts and things as the Purchasers may
reasonably request in order to have such Additional Subsidiary guarantee the
Indebtedness.

     Section 5.13 US Real Property Interest Statement. The Company shall
provide prompt written notice to each Purchaser following any “determination
date” (as defined in Treasury Regulation Section 1.897-2(c)(1)) on which the
Company becomes a United States real property holding corporation. In
addition, upon a written request by any Purchaser, the Company shall provide
such Purchaser with a written statement informing the Purchaser whether such
Purchaser’s interest in the Company constitutes a U.S. real property interest.
The Company’s determination shall comply with the requirements of Treasury
Regulation Section 1.897-2(h)(1) or any successor regulation, and the Company
shall provide timely notice to the Internal Revenue Service, in accordance with
and to the extent required by Treasury Regulation Section 1.897-2(h)(2) or any
successor regulation, that such statement has been made. The Company’s written
statement to any Purchaser shall be delivered to such Purchaser within ten (10)
days of such Purchaser’s written request therefor.

     Section 5.14 Sarbanes-Oxley Compliance. The Company and OpCo shall, and
shall cause the Subsidiaries to, comply in all material respects with the
applicable provisions of the Sarbanes-Oxley Act of 2002 and all applicable
rules and listing standards thereunder. In the event of any breach of this
Section 5.14, the Company shall promptly notify the Purchaser in writing, but
in no event later than five (5) Business Days of the Company’s knowledge, of
any such breach.

ARTICLE 6

NEGATIVE COVENANTS

     Unless otherwise provided below, so long as any Indebtedness under the
Debentures remains outstanding, the Company and OpCo shall comply with the
following covenants:

     Section 6.1 Transactions with Related Parties. The Company and OpCo will
not, and will cause the Subsidiaries not to, enter into any transaction with
any current director, officer or Affiliate of the Company or any of its
Subsidiaries or any relative of or related party to any of

26

 

the foregoing, except for Contracts that are determined by a majority of
the disinterested members of the Board of Directors of the Company to be at
arm’s length on terms no less favorable to the Company or such Subsidiary as
those that could be obtained from any unaffiliated third party.

     Section 6.2 Sale of Assets. (a) The Company and OpCo shall not, and shall
cause the Subsidiaries not to, sell, transfer, pledge or otherwise dispose of
any assets (other than granting non-exclusive licenses and sublicenses of
software in the ordinary course of business and consistent with past practice)
any assets (an “Asset Disposition”) unless such assets are obsolete or no
longer needed; provided that the Company may make Asset Dispositions if:

		
	 	     (i)     the Company receives consideration (including by way of relief
from, or by any other Person assuming sole responsibility for, any
liabilities, contingent or otherwise) at the time of such Asset
Disposition at least equal to the fair market value as determined in the
good faith judgment of the Board of Directors of the Company of the
assets subject to such Asset Disposition; and
	 
	 	     (ii)     the Company or OpCo applies an amount equal to 100% of the Net
Available Cash from such Asset Disposition as follows:

		
	 	     (A)     first, to the extent the Company or OpCo elects (or is
required by the terms of any Indebtedness of the Company or OpCo),
to prepay, repay, redeem or purchase the Indebtedness of the
Company or OpCo pursuant to any senior credit facility or other
Senior Indebtedness, or elects to reinvest up to an aggregate
amount with respect to all Asset Dispositions of $10,000,000 in
Additional Assets, in each case, within a reasonable amount of time
after such Asset Disposition;
	 
	 	     (B)     second, to the extent of the balance of such Net Available
Cash after application in accordance with clause (A), to make an
Offer (as defined in Section 6.2(b)) to purchase Debentures
pursuant to and subject to the conditions of Section 6.2(b); and
	 
	 	     (C)     third, to the extent of the balance of such Net Available
Cash after application in accordance with clauses (A) and (B), for
any general corporate purpose permitted by the terms of this
Agreement.

     Notwithstanding the foregoing provisions of this Section 6.2, the Company
or OpCo shall not be required to apply any Net Available Cash from any Asset
Disposition (or group of related Dispositions) in accordance with this Section
6.2 except to the extent that the aggregate Net Available Cash from such Asset
Disposition exceeds $500,000.

     (b)     In the event of an Asset Disposition that requires the purchase of
Debentures pursuant to Section 6.2(a)(ii)(B), the Company and OpCo will be
required to purchase Debentures tendered pursuant to an offer by the Company
and/or OpCo for the Debentures (the “Offer”) at a purchase price of 100% of
their principal amount plus accrued and unpaid interest

27

 

thereon, if any, to the date of purchase (subject to the right of holders of record on the relevant
date to receive interest due on the relevant interest payment date) up to
the amount of Net Available Cash available, pro rata among all tendering
holders of Debentures. If the aggregate purchase price of Debentures tendered
pursuant to the Offer is less than the Net Available Cash allotted to the
purchase of the Debentures, the Company and/or OpCo shall apply the remaining
Net Available Cash in accordance with Section 6.2(a)(ii)(C). Neither the
Company nor OpCo will be required to make an Offer for Debentures pursuant to
this Section 6.2 if the Net Available Cash available therefor (after
application of the proceeds as provided in Section 6.2(a)(ii)(A)) is less than
$500,000 for any particular Asset Disposition (which lesser amount shall be
carried forward for purposes of determining whether an Offer is required with
respect to the Net Available Cash from any subsequent Asset Disposition). The
Offer shall be in the form of a written notice delivered to the holders of the
Debentures. Such notice shall state the total amount of Net Available Cash
available for distribution pursuant to this Section 6.2 and shall allow the
holders of the Debentures twenty (20) Business Days to either accept or reject
such Offer, provided, however, that the rejection of any Offer does not act as
a waiver to the right to future distributions of Net Available Cash in
accordance with this Section 6.2.

     (c)       The Company and OpCo shall, and shall cause the Subsidiaries to,
comply, to the extent applicable, with the requirements of the Exchange Act and
any other securities laws or regulations in connection with the repurchase of
Debentures pursuant to this Section 6.2. To the extent that the provisions of
any securities laws or regulations conflict with this Section 6.2, the Company
and its Subsidiaries shall comply with the applicable securities laws and
regulations and will not be deemed to have breached its obligations under this
Section by virtue thereof.

     Section 6.3 No Dividends. The Company and OpCo shall not, and shall cause
the Subsidiaries not to:

     (a)     declare or pay any dividend or distribution (whether in cash, stock or
property) in respect of its Capital Stock (other than dividends payable with
respect to any stock splits and similar recapitalizations that affect all
stockholders equally, or by any Subsidiary to the Company); or

     (b)     repurchase or redeem any of its Capital Stock or the Capital Stock of
any Subsidiary or any equity interest in the Company or any Subsidiary, except,
at any time when no Default (as defined in the Debenture) is then continuing
and no Event of Default (as defined in the Debenture) has occurred and is then
continuing under the Debentures, pursuant to (i) the Stock Repurchase, (ii)
equity incentive agreements or arrangements with employees or other service
providers upon termination of their services to the Company or pursuant to
agreements entered into to evidence grants or awards or other compensation
under any equity incentive plan or employment agreement, and (iii) stock
repurchase programs approved by the Company’s board of directors and approved
by the Majority of the Purchasers, not to be unreasonably withheld.

     Section 6.4 No Subsidiaries. The Company and OpCo will not, and will cause
the Subsidiaries not to, establish any subsidiaries unless the subsidiary
becomes a co-borrower or guarantor of the Debentures and the Indebtedness of
such subsidiary, when incurred, would

28

 

constitute a Permitted Indebtedness as
such term is defined in Section 6.5 below if incurred by
the Company. The Company and OpCo shall not permit any Subsidiary to
consolidate or merge into or with or sell or transfer all or substantially all
its assets, except (i) that any Subsidiary may merge into or sell or transfer
assets to the Company or any other Subsidiary or (ii) in compliance with
Section 6.2. The Company and OpCo shall not sell or otherwise transfer any
shares of Capital Stock of any Subsidiary or permit any Subsidiary to issue,
sell or otherwise transfer any shares of its Capital Stock or the Capital Stock
of any Subsidiary, except, in each case, (i) to the Company or any other
Subsidiary or (ii) in compliance with Section 6.2. The Company and OpCo will
cause each Subsidiary to comply with the covenants in Article 5 and this
Article 6 and the protective provisions of the Financing Documents as if such
covenants and protective provisions applied directly to such Subsidiary.

     Section 6.5 Additional Indebtedness. The Company and OpCo will not, and
will cause the Subsidiaries not to, incur any additional indebtedness or other
liabilities for borrowed money, or create or incur any contingent liability or
act as guarantor for any such indebtedness or other liabilities for borrowed
money other than (i) the Debentures; (ii) secured or unsecured financing in an
aggregate amount not exceeding at any date (A) the greater of $8 million or 10
times the Company’s EBITDA for the quarter most recently then completed minus
(B) the aggregate amount of Existing Debt then outstanding; (iii) all existing
and future capital leases and purchase money indebtedness incurred by the
Company in connection with its business in the ordinary course; (iv) all
existing and future mortgages secured by real property used by the Company or
any of its Subsidiaries with its business in the ordinary course; (v)
indebtedness for borrowed money existing as of the Closing Date and disclosed
on Schedule 6.5 of the Company Disclosure Schedule (“Existing Debt”); and (vi)
indebtedness for money borrowed in respect of performance bonds, bankers’
acceptances, letters of credit and surety or appeal bonds provided by the
Company in the ordinary course of business (collectively, the “Permitted
Indebtedness”).

     Section 6.6 Nature of Business. The Company and OpCo shall not, and shall
cause the Subsidiaries not to, change the fundamental nature of its business
operations or its form of entity in a manner that imposes unlimited liability
on the equity holders of the Company.

     Section 6.7 No Encumbrances. The Company and OpCo shall not and shall
cause the Subsidiaries not to, permit to exist against any of its material
assets any Lien, except for Permitted Liens.

ARTICLE 7

CONDITIONS PRECEDENT TO CLOSING

     Section 7.1 Conditions to the Company’s Obligations at the Initial
Closing. The obligations of the Company and OpCo with respect to each Purchaser
required to be performed on the Closing Date shall be subject to the
satisfaction or waiver in writing, at or prior to the Initial Closing, of the
following conditions:

29

 

     (a)     The representations and warranties of such Purchaser contained in this
Agreement which are qualified by any “materiality”, “material adverse effect”
or any similar qualifier shall
be true and correct in all respects and the representations and warranties
of such Purchaser which are not so qualified shall be true and correct in all
material respects, in each case on and as of the Closing Date except for
representations and warranties made as of a specific date which shall be true
and correct, or true and correct in all material respects, as the case may be,
as of such date.

     (b)     Such Purchaser shall have performed in all material respects all
obligations and agreements, and complied in all material respects with all
covenants contained in this Agreement to be performed and complied with by such
Purchaser at or prior to the Closing Date.

     (c)       The Company’s Board of Directors shall have approved the Financing
Documents and the consummation of the Transactions.

     (d)     No provision of any Applicable Law shall be in effect which has the
effect of making the Transactions illegal or shall otherwise restrain or
prohibit the consummation of the Transactions.

     (e)       The Purchasers shall have executed and delivered the Investor Rights
Agreement.

     (f)     The Senior Lender shall have approved the form of Debenture, including
the subordination provisions therein.

     (g)     The Company shall have received the purchase price payable in respect
of the Debentures and Warrants purchased by such Purchaser in the Initial
Closing.

     Section 7.2 Conditions to Purchaser’s Obligations at the Initial Closing.
The obligations of each Purchaser required to be performed on the Closing Date
shall be subject to the satisfaction or waiver in writing, at or prior to the
Initial Closing, of the following conditions:

     (a)     The representations and warranties of the Company and OpCo contained
in this Agreement which are qualified by any “materiality”, “material adverse
effect” or any similar qualifier shall be true and correct in all respects and
the representations and warranties of the Company and OpCo which are not so
qualified shall be true and correct in all material respects, in each case on
and as of the Closing Date except for representations and warranties made as of
a specific date which shall be true and correct, or true and correct in all
material respects, as the case may be, as of such date.

     (b)       The Company and OpCo shall have performed all of its obligations,
agreements and covenants contained in the Financing Documents to be performed
and complied with at or prior to the Closing Date.

     (c)       No provision of any Applicable Law shall be in effect which has the
effect of making the Transactions illegal or shall otherwise restrain or
prohibit the consummation of the Transactions.

30

 

     (d)       The Company and OpCo shall have delivered to Purchaser a certificate
executed by it or on its behalf by duly authorized representative, dated the
Closing Date, to the effect that each of the conditions specified in this
Section 7.2 has been satisfied.

     (e)       The Company and Richard D. Helppie, Jr. shall have executed and
delivered the Investor Rights Agreement.

     (f)     The Company shall have executed and delivered the Warrants to be
issued at the Initial Closing.

     (g)     The Purchasers shall have received an opinion of counsel to the
Company, dated the Closing Date, and addressed to the Purchasers, in form and
substance reasonably acceptable to the Purchasers.

     (h)       The Company and OpCo shall have executed and delivered the Debentures
to be issued at the Initial Closing.

     (i)     Each Subsidiary (other than OpCo) shall have executed and delivered a
guaranty in the form attached as Exhibit F (the “Guaranty”).

     (j)     There shall not have occurred any event, circumstance, condition,
fact, effect or other matter which has had or would reasonably be expected to
have (i) a Material Adverse Effect or (ii) a material adverse effect on the
ability of the Company to perform on a timely basis any obligation under this
Agreement or to consummate the Transactions.

     (k)     The Company shall have delivered to the Purchasers a certificate of
the secretary of the Company setting forth (i) a copy of the certificate of
incorporation of the Company and all amendments thereto as in effect on the
date hereof and on the Closing Date all certified by the Secretary of State of
the State of Delaware, (ii) a copy of the by-laws of the Company, as in effect
on the date hereof and on the Closing Date, (iii) copies of all resolutions of
the Company authorizing the Transactions; and (iv) an incumbency certificate
setting forth the name, title and authorized signature of each officer of the
Company or OpCo who will execute documents in connection with the Transactions.

     (l)       The Company shall have executed and delivered the Management Rights
Letter.

     Section 7.3 Conditions to the Company’s Obligations at the Second Closing.
The obligations of the Company and OpCo with respect to each Purchaser
required to be performed at the Second Closing shall be subject to the
satisfaction or waiver in writing, at or prior to the Second Closing, of the
following conditions:

     (a)     The Company shall have received the purchase price payable in respect
of the Debentures and Warrants purchased by such Purchaser in the Second
Closing.

31

 

     (b)     No provision of any Applicable Law shall be in effect which has the
effect of making the Transactions illegal or shall otherwise restrain or
prohibit the consummation of the Transactions.

     Section 7.4 Conditions to Purchaser’s Obligations at the Second Closing.
The obligations of each Purchaser required to be performed at the Second
Closing shall be subject to the satisfaction or waiver in writing, at or prior
to the Second Closing, of the following conditions:

     (a)     There shall have not occurred an Event of Default under the
Debentures.

     (b)     There shall not have occurred, and be continuing, any Default under
the Debentures.

     (c)     No provision of any Applicable Law shall be in effect which has the
effect of making the Transactions illegal or shall otherwise restrain or
prohibit the consummation of the Transactions.

     (d)       The Company shall have executed and delivered the Warrants to be
issued at the Second Closing.

     (e)       The Company and OpCo shall have executed and delivered the Debentures
to be issued at the Second Closing.

     Section 7.5 Conditions to the Company’s Obligations at a Subsequent
Closing. The obligations of the Company and OpCo with respect to each Purchaser
required to be performed on each Subsequent Closing Date shall be subject to
the satisfaction or waiver in writing, at or prior to the Subsequent Closing,
of the following conditions:

     (a)       The representations and warranties of such Purchaser contained in this
Agreement which are qualified by any “materiality”, “material adverse effect”
or any similar qualifier shall be true and correct in all respects and the
representations and warranties of such Purchaser which are not so qualified
shall be true and correct in all material respects, in each case on and as of
the Subsequent Closing Date except for representations and warranties made as
of a specific date which shall be true and correct, or true and correct in all
material respects, as the case may be, as of such date.

     (b)       Such Purchaser shall have performed in all material respects all
obligations and agreements, and complied in all material respects with all
covenants contained in this Agreement to be performed and complied with by such
Purchaser at or prior to the Subsequent Closing Date.

     (c)       No provision of any Applicable Law shall be in effect which has the
effect of making the Transactions illegal or shall otherwise restrain or
prohibit the consummation of the Transactions.

     (d)       The Purchasers shall have executed and delivered the Investor Rights
Agreement.

32

 

     (e)       The Company shall have received the purchase price payable in respect
of the Debentures and Warrants purchased by such Purchaser in the Subsequent
Closing.

     Section 7.6 Conditions to Purchaser’s Obligations at each Subsequent
Closing. The obligations of each Purchaser required to be performed on the
Subsequent Closing Date shall be subject to the satisfaction or waiver in
writing, at or prior to the Subsequent Closing, of the following conditions:

     (a)     The representations and warranties of the Company and OpCo contained
in this Agreement which are qualified by any “materiality”, “material adverse
effect” or any similar qualifier shall be true and correct in all respects and
the representations and warranties of the Company and OpCo which are not so
qualified shall be true and correct in all material respects, in each case on
and as of the Subsequent Closing Date except for representations and warranties
made as of a specific date which shall be true and correct, or true and correct
in all material respects, as the case may be, as of such date.

     (b)     The Company and OpCo shall have performed all of its obligations,
agreements and covenants contained in the Financing Documents to be performed
and complied with at or prior to the Subsequent Closing Date.

     (c)     No provision of any Applicable Law shall be in effect which has the
effect of making the Transactions illegal or shall otherwise restrain or
prohibit the consummation of the Transactions.

     (d)     The Company and OpCo shall have delivered to Purchaser a certificate
executed by it or on its behalf by duly authorized representative, dated the
Subsequent Closing Date, to the effect that each of the conditions specified in
this Section 7.6 has been satisfied.

     (e)     The Company shall have executed and delivered the Warrants.

     (f)       The Company and OpCo shall have executed and delivered the Debentures.

     (g)       Each Subsidiary (other than OpCo) shall have executed and delivered
the Guaranty.

     (h)       There shall not have occurred any event, circumstance, condition,
fact, effect or other matter which has had or would reasonably be expected to
have (i) a Material Adverse Effect or (ii) a material adverse effect on the
ability of the Company to perform on a timely basis any obligation under this
Agreement or to consummate the Transactions.

     (i)     The Company shall have delivered to the Purchasers a certificate of
the secretary of the Company setting forth (i) a copy of the certificate of
incorporation of the Company and all amendments thereto as in effect on the
date hereof and on the Subsequent Closing Date all certified by the Secretary
of State of the State of Delaware, (ii) a copy of the by-laws of the Company,
as in effect on the date hereof and on the Subsequent Closing Date, (iii)
copies of all

33

 

resolutions of the Company authorizing the Transactions; and (iv) an
incumbency certificate setting forth the name, title and authorized signature
of each officer of the Company or OpCo who will execute documents in connection
with the Transactions.

ARTICLE 8

MISCELLANEOUS

     Section 8.1 Survival; Indemnification.

     (a)     All representations and warranties contained in this Agreement or in
any certificate delivered in connection with the Initial Closing shall survive
the Initial Closing for 12 months (except representations contained in Sections
3.1 through 3.4, 3.5(a), 3.12, and Section 3.13, which shall survive for the
applicable statute of limitation, including extensions thereof, and in Section
3.5(b), which shall survive the Initial Closing for 24 months). Notwithstanding
the foregoing, with respect to claims asserted pursuant to this Section 8.1
before the expiration of the applicable representation or warranty, such claims
shall survive until the date they are finally adjudicated or otherwise
resolved. The Covenants in Articles 5 and 6 shall survive until terminated as
provided in such Articles.

     (b)     (i) The Company and OpCo, jointly and severally, agree to indemnify
and hold harmless Purchaser, each Purchaser Affiliate and each of their
respective representatives, heirs, successors and assigns (each an “indemnified
person”) on an after-tax basis, from and against (and to reimburse each
indemnified person as the same are incurred) any and all losses, claims,
damages, liabilities, costs and expenses (collectively, “Losses”) to which any
indemnified person becomes subject or which any indemnified person incurs based
upon, arising out of, or relating to (A) a breach of any representation or
warranty of this Agreement by the Company or OpCo; (B) any breach of any
covenant or agreement contained herein or in the Financing Documents by the
Company or OpCo; or (C) any claim, litigation, investigation or proceeding
brought by or on behalf of any Person other than the Company or OpCo relating
to the Transactions (including without limitation as a result of the use of
proceeds from the Transactions), and to reimburse each indemnified person upon
demand for any reasonable legal or other reasonable out of pocket expenses
incurred in connection with investigating or defending or otherwise as a result
of any of the foregoing, provided that the maximum amount indemnifiable to
indemnified persons under Section 8.1(b)(i) (A) and (B) of this Agreement shall
not exceed the sum of (x) the aggregate principal amount of all Debentures
issued hereunder, (y) all accrued and unpaid interest on any outstanding
Debentures, as determined on the date of the final resolution of the Losses and
(z) fees and expenses with respect to the Debentures through the date of the
final resolution of the Losses.

     (ii)       Each Purchaser severally, and not jointly, agrees to indemnify and
hold harmless the Company, each Company Affiliate, and each of their respective
representatives, heirs, successors and assigns (each an “indemnified person”)
on an after-tax basis, from and against (and to reimburse each indemnified
person as the same are incurred) any Losses to which any indemnified person may
become subject or which any indemnified person may incur based upon,

34

 

arising out of, or relating to a breach of any representation or warranty
of this Agreement by such Purchaser and to reimburse each indemnified person
upon demand for any reasonable legal or other reasonable out of pocket expenses
incurred in connection with investigating or defending or otherwise as a result
of any of the foregoing, provided that the maximum amount indemnifiable to
indemnified persons under this Agreement shall not exceed the aggregate
principal amount of all Debentures issued by the Company to such Purchaser
hereunder.

     (c)     If a Person entitled to indemnity hereunder (an “Indemnified Party”)
asserts that another party hereto (the “Indemnifying Party”) has become
obligated to the Indemnified Party pursuant to Section 8.1(b), or if any suit,
action, investigation, claim or proceeding is begun, made or instituted as a
result of which the Indemnifying Party may become obligated to the Indemnified
Party hereunder, the Indemnified Party shall notify the Indemnifying Party
promptly and shall cooperate with the Indemnifying Party, at the Indemnifying
Party’s expense, to the extent reasonably necessary for the resolution of such
claim or in the defense of such suit, action or proceedings, including making
available any information, documents and things in the possession of the
Indemnified Party. Notwithstanding the foregoing notice requirement, the right
to indemnification hereunder shall not be affected by any failure to give, or
delay in giving, notice unless, and only to the extent that, the rights and
remedies of the Indemnifying Party shall have been actually and materially
prejudiced as a result of such failure or delay.

     (d)     In fulfilling its obligations under this Section 8.1, the Indemnifying
Party shall have the right to investigate, defend, settle or otherwise handle,
with the aforesaid cooperation, any claim, suit, action or proceeding brought
by a third party in such manner as the Indemnifying Party may in its sole
discretion reasonably deem appropriate; provided, that (i) counsel retained by
the Indemnifying Party is reasonably satisfactory to the Indemnified Party and
(ii) the Indemnifying Party will not consent to any settlement or entry of
judgment imposing any obligations on any other party hereto other than
financial obligations for which such party will be indemnified hereunder,
unless such party has consented in writing to such settlement or judgment
(which consent may be given or withheld in its sole discretion) and (iii) the
Indemnifying Party will not consent to any settlement or entry of judgment
unless, in connection therewith, the Indemnifying Party obtains a full and
unconditional release of the Indemnified Party from all liability with respect
to such suit, action, investigation claim or proceeding. Notwithstanding the
Indemnifying Party’s election to assume the defense or investigation of such
claim, action or proceeding, the Indemnified Party shall have the right to
employ separate counsel and to participate in the defense or investigation of
such claim, action or proceeding at their expense, which participation shall be
at the expense of the Indemnifying Party, if (i) on the written advice of
counsel to the Indemnified Party use of counsel of the Indemnifying Party’s
choice will give rise to a material conflict of interest, (ii) the Indemnifying
Party shall not have employed counsel reasonably satisfactory to the
Indemnified Party to represent the Indemnified Party within a reasonable time
after notice of the assertion of any such claim or institution of any such
action or proceeding, or (iii) if the Indemnifying Party shall authorize the
Indemnified Party to employ separate counsel at the Indemnifying Party’s
expense.

     Section 8.2 Notices. All notices, demands, requests, consents, approvals
or other communications (collectively, “Notices”) required or permitted to be
given hereunder or which are given with respect to this Agreement shall be in
writing and shall be personally served,

35

 

delivered by reputable air courier service with charges prepaid, or
transmitted by hand delivery, telegram, telex or facsimile, addressed as set
forth below, or to such other address as such party shall have specified most
recently by written notice. Notice shall be deemed given on the date of service
or transmission if personally served or transmitted by telegram or facsimile.
Notice otherwise sent as provided herein shall be deemed given on the next
Business Day following delivery of such notice to a reputable air courier
service. Notices shall be delivered as follows:

     If to the Company or OpCo:

	 
	Superior Consultant Holdings Corporation

17570 West Twelve Mile Road

Southfield, Michigan 48076

Attn: Richard D. Helppie, Jr.

Chief Executive Officer

Telephone:(248) 226-8300

Fax: (248) 226-8392

     with a copy to (which shall not constitute notice hereunder):

	 
	Sachnoff & Weaver, Ltd.

30 S. Wacker Dr.

29th Floor

Chicago, IL 60606

Attn: William E. Doran, Esq.

Telephone:(312) 207-6412

Fax: (312) 207-6400

     if to any Purchaser, to such Purchaser at its address as set forth on the
Purchasers Schedule:

     with a copy to (which shall not constitute notice hereunder):

	 
	Wilmer, Cutler & Pickering

1600 Tysons Boulevard

Tysons Corner, Virginia 22102

Attn: Greg Ewald, Esq.

Telephone:(703 ) 251-9715

Fax: (703) 251-9797

     Section 8.3 Governing Law. This Agreement shall be governed by,
interpreted under, and construed in accordance with the laws of the State of
Delaware, regardless of the laws that might otherwise govern under applicable
principles of conflicts of law thereof.

     Section 8.4 Entire Agreement. As among the Company, OpCo and the
Purchasers, this Agreement and the other Financing Documents (including all
agreements entered into pursuant hereto and thereto and all certificates and
instruments delivered pursuant hereto and thereto)

36

 

constitute the entire agreement of the parties with respect to the subject
matter hereof and supersede all prior and contemporaneous agreements,
representations, warranties, understandings, negotiations and discussions
between the parties, whether oral or written, with respect to the subject
matter hereof.

     Section 8.5 Modifications and Amendments. No amendment, modification or
termination of this Agreement as among the Company, OpCo and the Purchasers
shall be binding unless executed in writing by the Company, OpCo and a Majority
of the Purchasers.

     Section 8.6 Waivers and Extensions. Any party to this Agreement may waive
any condition, right, breach or default that such party has the right to waive,
provided that such waiver will not be effective against the waiving party
unless it is in writing, is signed by such party, and specifically refers to
this Agreement. A Majority of the Purchasers may waive any condition, right,
breach or default that the Purchasers have the right to waive, and such waiver
shall be effective against all the Purchasers, provided that such manner will
not be effective against all the Purchasers unless it is in writing signed by a
Majority of the Purchasers and specifically refers to this Agreement. Waivers
may be made in advance or after the right waived has arisen or the breach or
default waived has occurred. Any waiver may be conditional. No waiver of any
breach of any agreement or provision herein contained shall be deemed a waiver
of any preceding or succeeding breach thereof nor of any other agreement or
provision herein contained. No waiver or extension of time for performance of
any obligations or acts shall be deemed a waiver or extension of the time for
performance of any other obligations or acts.

     Section 8.7 Titles and Headings. Titles and headings of sections of this
Agreement are for convenience only and shall not affect the construction of any
provision of this Agreement.

     Section 8.8 Exhibits and Schedules. Each of the exhibits and schedules
referred to herein and attached hereto is an integral part of this Agreement
and is incorporated herein by reference.

     Section 8.9 Expenses. All costs and expenses incurred in connection with
this Agreement shall be paid by the party incurring such cost or expense;
provided, however, that the Company shall reimburse the Purchasers at the
Initial Closing for up to $25,000 of expenses of the Purchasers (including the
expenses of Wilmer, Cutler & Pickering, counsel to the Purchasers) incurred in
connection with the Transactions.

     Section 8.10 Press Releases and Public Announcements. All public
announcements or disclosures relating to the Transactions or this Agreement
shall be made only if mutually agreed upon by the Company and the Purchasers,
except to the extent such disclosure is required by Applicable Law, provided
that (a) any such required disclosure shall only be made to the extent
consistent with Applicable Law and (b) the Company shall promptly notify each
Purchaser if such disclosure or announcement identifies such Purchaser or an
Affiliate of the Purchasers. Each Purchaser agrees to provide the Company
with a draft of any Schedule 13D or 13G that such Purchaser intends to file
with the Commission in connection with any security of the Company at least one
(1) Business Day in advance of such filing. The Company shall maintain the
confidentiality of such draft until the filing of such Schedule 13D or 13G.

37

 

     Section 8.11 Confidentiality. Each Purchaser shall hold in confidence and
trust and not use or disclose any non-public information that is identified as
confidential or would be expected by a reasonable person to be treated as
confidential (“Confidential Information”), in whatever form or format and
however it may be embodied, concerning the Company that is furnished, made
available, or otherwise disclosed to such Purchaser by or on behalf of the
Company, orally or in writing, in connection with the Financing Documents.
Each Purchaser acknowledges that it is aware (and that the representatives of
each Purchaser with access to the Company’s information have been or will be
advised in writing) that the United States securities laws restrict persons
with material non-public information about a company obtained directly or
indirectly from that company from purchasing or selling securities of such
company and from communicating such information to any other person under
circumstances in which it is reasonably foreseeable that such person is likely
to purchase or sell such securities. Each Purchaser and its directors,
officers, and employees shall not purchase or sell securities of the Company
while in possession of material non-public information about the Company, nor
shall any of them communicate any material non-public information regarding the
Company to any person under circumstances in which it is reasonably foreseeable
that such person is likely to purchase or sell securities of the Company. Any
representative of any Purchaser that will have access to the Company’s
Confidential Information shall be advised of these confidentiality and insider
trading restrictions and shall acknowledge and agree to these restrictions in
writing before receiving any Confidential Information concerning the Company.

     Section 8.12 Assignment; No Third Party Beneficiaries. This Agreement and
the rights, duties and obligations hereunder may not be assigned or delegated
by the Company without the prior written consent of the Purchasers which shall
not be unreasonably withheld, and may not be assigned or delegated by the
Purchasers without the Company’s prior written consent which shall not be
unreasonably withheld except that a Purchaser may assign any or all of its
rights and obligations under this Agreement to any one or more of its
Affiliates. Any assignment hereunder by a party without the prior written
consent of the other party shall be void and of no effect. This Agreement and
the provisions hereof shall be binding upon and shall inure to the benefit of
each of the parties and their respective successors and permitted assigns. This
Agreement is not intended to confer any rights or benefits on any Persons other
than the parties hereto, except as expressly set forth in Section 8.1, this
Section 8.12 or Section 8.18.

     Section 8.13 Severability. This Agreement shall be deemed severable, and
the invalidity or unenforceability of any term or provision hereof shall not
affect the validity or enforceability of this Agreement or of any other term or
provision hereof. Furthermore, in lieu of any such invalid or unenforceable
term or provision, the parties hereto intend that there shall be added as a
part of this Agreement a provision as similar in terms to such invalid or
unenforceable provision as may be possible and be valid and enforceable.

     Section 8.14 Counterparts; Fax Signatures. This Agreement may be executed
in counterparts, each of which shall be deemed an original, but all of which
taken together shall constitute one and the same instrument. Any signature page
delivered by a fax machine or telecopy machine shall be binding to the same
extent as an original signature page, with regard to any agreement subject to
the terms hereof or any amendment thereto. Any party who delivers

38

 

such a signature page agrees to later deliver an original counterpart to
any party which requests it.

     Section 8.15 Further Assurances. As among the Company, OpCo and the
Purchasers, each party hereto, upon the request of any other party hereto,
shall do all such further acts and execute, acknowledge and deliver all such
further instruments and documents as may be necessary or desirable to carry out
the Transactions, including, in the case of the Company and OpCo, such acts,
instruments and documents as may be necessary or desirable to convey and
transfer to each Purchaser the Debentures and Warrants to be purchased by it
hereunder.

     Section 8.16 Remedies Cumulative. The remedies provided herein shall be
cumulative and shall not preclude the assertion by any party hereto of any
other rights or the seeking of any remedies against the other party hereto.

     Section 8.17 Specific Performance. The parties hereto agree that the
remedy at law for any breach of this Agreement may be inadequate, and that
among the Company, OpCo and the Purchasers, any party by whom the Financing
Documents are enforceable shall be entitled to specific performance in addition
to any other appropriate relief or remedy. Such party may, in its sole
discretion, apply to a court of competent jurisdiction for specific performance
or injunctive or such other relief as such court may deem just and proper in
order to enforce the Financing Documents as among the Company, OpCo and the
Purchasers, or prevent any violation hereof, and, to the extent permitted by
applicable law, as between the Company, OpCo and the Purchasers, each party
waives any objection to the imposition of such relief.

     Section 8.18 No Purchaser Affiliate Liability. No Purchaser Affiliate
shall have any liability or obligation of any nature whatsoever in connection
with or under this Agreement or the transactions contemplated hereby, and the
Company and OpCo hereby waives and releases (and shall cause its Subsidiaries
to waive and release) all claims of any such liability and obligation, it being
understood that no such Person (other than the Purchasers) shall be liable for
or in respect of the Financing Documents.

     Section 8.19 Tax Matters.

     (a)       The Company and the Purchasers hereby acknowledge and agree that the
Debenture and Warrant issued to each Purchaser constitute an investment unit
within the meaning of section 1273(c)(2) of the Code. The Company and the
Purchasers hereby further acknowledge and agree that, for purposes of
allocating the issue price of the investment unit between the Debentures and
the Warrants pursuant to section 1.1273-2(h) of the Treasury Regulations, the
Company shall engage an independent third party reasonably acceptable to the
Purchasers to determine the fair market value of the Warrants and Debentures
issued at Closings. Such determination shall be made within seventy-five (75)
days of Closings. The Company and the Purchasers agree that they will report
consistently with such determination for all income tax purposes with respect
to the Warrant and Debentures.

     (b)       The Company and the Purchasers hereby acknowledge that the amount and
timing of certain payments on the Debentures may be affected by contingencies,
and that if such

39

 

payments were to qualify as “contingent payments” for federal income tax
purposes, the Debentures would be treated as contingent payment debt
instruments subject to section 1.1275-4 of the Treasury Regulations. The
Company has determined that all such contingencies are remote and/or incidental
within the meaning of section 1.1275-2(h) of the Treasury Regulations and,
pursuant to section 1.1275-4 of the Treasury Regulations, the Debentures do not
constitute contingent payment debt instruments subject to section 1.1275-4 of
the Treasury Regulations. The Company shall report consistently with the
preceding sentence for all income tax purposes. The Company shall not take any
position that a change in circumstances has occurred within the meaning of
section 1.1275-2(h)(6)(i) of the Treasury Regulations or with respect to any
deemed retirement and reissuance of the Debentures pursuant to section
1.1275-2(h)(6)(ii) of the Treasury Regulations without consent of the
Purchasers, such consent not to be unreasonably withheld, conditioned or
delayed.

[SIGNATURE PAGES FOLLOW]

40

 

     IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.

	 	 	 
	 	
SUPERIOR CONSULTANT HOLDINGS 
CORPORATION
	 	 	 
	 	
By:	

	 	
Name: Richard D. Helppie, Jr.

Title:   Chief Executive Officer
	 	 	 
	 	
SUPERIOR CONSULTANT COMPANY, INC.
	 	 	 
	 	
By:	

	 	
Name: Richard D. Helppie, Jr.

Title:   Chief Executive Officer

 

 

	 	 	 
	CAMDEN PARTNERS STRATEGIC FUND II-A, L.P.
	 	 	 
	By: 	    Camden Partners Strategic II, LLC,

    its General Partner
	 	 	 
	By:
	

	 	    Name: David L. Warnock

    Title: Managing Member
	 	 	 
	Address:	Camden Partners

One South Street, Suite 2150

Baltimore, MD 21201

Fax No.: (410) 895-3805

Attention: David Warnock
	 	 	 
	CAMDEN PARTNERS STRATEGIC FUND II-B, L.P.
	 	 	 
	 By:	    Camden Partners Strategic II, LLC,

    its General Partner
	 	 	 
	By:
	

	 
	 	    Name: David L. Warnock

    Title: Managing Member
	 	 	 
	Address: 	Camden Partners

One South Street, Suite 2150

Baltimore, MD 21201

Fax No.: (410) 895-3805

Attention: David Warnock

 

 

PURCHASERS SCHEDULE

	 	 	 	 	 	 	 	 	 	 
	 	 	 	Initial Closing	 	Second Closing
	 	 	 	Committed	 	Committed
	Purchaser	 	Investment Amounts	 	Investment Amounts
	
	 	
	 	

	Camden Partners Strategic Fund II-A, L.P.
	 	$	2,360,000	 	 	$	4,720,000	 
	One South Street, Suite 2150

Baltimore, Maryland 21202

Attn: Mr. David L. Warnock
	 	 	 	 	 	 	 	 
	Camden Partners Strategic Fund II-B, L.P.
	 	$	140,000	 	 	$	280,000	 
	One South Street, Suite 2150

Baltimore, Maryland 21202

Attn: Mr. David L. Warnock
	 	 	 	 	 	 	 	 
	 
	 	 	
	 	 	 	
	 
	 	TOTAL:
	 	$	2,500,000	 	 	$	5,000,000	 
	 
	 	 	
	 	 	 	
	 

Purchasers in Subsequent Closings

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Committed Investment
	Purchaser	 	Amounts
	
	 	

	 	 	 	TOTAL:exv4w2

 

Exhibit 4.2

DEBENTURE

THIS DEBENTURE HAS BEEN ACQUIRED FOR INVESTMENT PURPOSES ONLY AND HAS NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE
SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. THIS DEBENTURE MAY NOT BE
OFFERED, SOLD TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF IN
THE ABSENCE OF SUCH REGISTRATION OTHER THAN PURSUANT TO AN EXEMPTION FROM SUCH
REGISTRATION REQUIREMENTS. IN ADDITION, THIS DEBENTURE IS SUBJECT TO CERTAIN
RESTRICTIONS AGAINST TRANSFER SET FORTH HEREIN.

THIS DEBENTURE IS SUBJECT TO THE TERMS AND PROVISIONS OF THE SECURITIES
PURCHASE AGREEMENT AMONG SUPERIOR CONSULTANT HOLDINGS CORPORATION, SUPERIOR
CONSULTANT COMPANY, INC., AND THE PURCHASERS THEREIN DATED AS OF JUNE 9, 2003,
AS AMENDED FROM TIME TO TIME, AND THE HOLDERS OF THIS DEBENTURE ARE ENTITLED TO
THE BENEFITS THEREOF.

SUPERIOR CONSULTANT HOLDINGS CORPORATION

7.2% SENIOR SUBORDINATED DEBENTURE

	 	 	 
	$	 	
June 9, 2003

SECTION 1. GENERAL; INTEREST.

     1.1 General. For value received, SUPERIOR CONSULTANT HOLDINGS
CORPORATION, a Delaware corporation (the “Company”) and SUPERIOR CONSULTANT
COMPANY, INC., a Michigan corporation (“OpCo”), jointly and severally as
co-borrowers, (the Company and OpCo, collectively, including any successors of
the Company and/or OpCo (by way of merger, consolidation, sale or otherwise,
the “Payor”), hereby promises to pay to the order of            or
such
payee’s successors or assigns (the “Payee”), $            or

such lesser
principal amount, plus any accrued and unpaid interest thereon and all other
obligations arising hereunder (the “Indebtedness”), which may be outstanding
hereunder on June 9, 2006 (the “Maturity Date”), provided, however, that the
Maturity Date may be extended until June 9, 2007 at the sole option of the
Payor upon written notice to the Payee delivered at least 60 days before the
Maturity Date as in effect prior to giving effect to such extension provided,
further, that the Payor may not extend the Maturity Date if (i) as of the
original Maturity Date an Event of Default has occurred or a Default has
occurred and is then continuing, or (ii) a Mandatory Prepayment is then
required under Section 2.2 hereof. This Debenture is one of the Debentures
(each a “Debenture” and collectively, the “Debentures”) issued pursuant to that
certain Securities Purchase Agreement, dated as of June 9, 2003 (the
“Securities Purchase Agreement”), by and among the Payor and the Purchasers
thereto (each a “Payee” and collectively, the “Payees”). The unpaid principal
amount of this Debenture and the accrued and unpaid interest thereon, shall be
payable in U.S. Dollars by wire transfer of immediately available funds to the
account of the Payee or by certified or official bank check payable to the
Payee mailed to the Payee at the address of the Payee as set forth on the
records of the Payor or such other address as shall be designated in writing by
the Payee to the Payor. Capitalized terms used and not otherwise defined
herein have the meanings ascribed thereto in the Securities Purchase Agreement.

 

 

     1.2 Interest. The Payor promises to pay interest on the outstanding
principal amount of this Debenture at the rate of (i) 7.2% per annum for the
period commencing on the date hereof (the “Closing Date”) and ending the
Maturity Date or such earlier date as all obligations under this Debenture have
been paid in full, and (ii), if the Maturity Date is extended, 12% per annum
(or, if less, to the maximum rate allowed under applicable law) commencing on
June 9, 2006 and ending on the Maturity Date as so extended or such earlier
date as all obligations under the Debenture have been paid in full (the
“Interest Rate”); provided, however, that upon the occurrence of a Default, the
Payor promises to pay interest on the outstanding principal amount of this
Debenture at the rate of fourteen percent (14%) per annum (or, if less, to the
maximum rate allowed under applicable law) (“Default Interest”) from the date
that such Default has occurred until the date such Default is cured, waived in
writing by the Payee or all Indebtedness under this Debenture has been paid in
full. The Payor shall pay interest (the “Interest Amount”) quarterly in
arrears on the first Business Day of July, October, January and April of each
year beginning on July 1, 2003 or, if any such date shall not be a Business
Day, on the next succeeding Business Day to occur after such date (each date
upon which interest shall be so payable, an “Interest Payment Date”). Interest
shall be payable in cash in U.S. Dollars by wire transfer to Payee of
immediately available funds equal to such Interest Amount. Interest on this
Debenture shall accrue daily, and compound quarterly, from the date of issuance
until the date of repayment in full of the principal amount of this Debenture,
plus any accrued and unpaid interest thereon. Interest shall be computed on
the basis of a 365-day year and the actual number of days elapsed. Subject to
Applicable Law, any interest that shall accrue on Default Interest on this
Debenture and shall not have been paid in full on or before the next Interest
Payment Date to occur after the Interest Payment Date on which the Default
Interest became due and payable shall itself be deemed to be overdue interest
on this Debenture. “Business Day” shall mean any other day other than a
Saturday, a Sunday or a day on which banking institutions in New York City, New
York are not required to be open.

     1.3 Guaranty. This Debenture is unconditionally guaranteed by each of the
subsidiaries of the Payor (the “Guarantors”), pursuant to a Guaranty (the
“Guaranty”) executed and delivered on the date hereof by each subsidiary of the
Payor, to which reference is made for a statement of the nature and extent of
the benefits and security for this Debenture afforded thereby and the rights of
the holder of this Debenture and the Guarantors in respect hereof.

     1.4 Warrant. As part of the consideration for the loan evidenced by this
Debenture, the Payor has authorized and issued, initially, warrants to purchase            shares
of the Common Stock of the Company to the Payee. The Warrants
shall be exercisable in accordance with the terms and conditions of that
certain Warrant Agreement, of even date herewith, between the Company and the
Payees (the “Warrant Agreement”). The Warrants and this Debenture are not
attached and may be separately transferred or assigned.

SECTION 2. PREPAYMENT.

     2.1 Prepayment at the Option of the Payor.

2

 

		
	 	     (a)     Prepayment in Full. The principal amount of this Debenture,
together with the accrued and unpaid interest thereon, may be prepaid in
whole, without premium or penalty, at the option of the Payor at any
time.
	 
	 	     (b)     Partial Prepayment. At the Payor’s option, the Payor may make
up to three (3) partial prepayments, provided that each of prepayments
constitutes at least 33% of the original principal amount of the
Debenture plus accrued but unpaid interest through the date of such
prepayment (except where a lesser percent would result in a full
prepayment of the Indebtedness as of such date).
	 
	 	     (c)     Concurrent Prepayment. Each prepayment pursuant to Section
2.1(b) shall be allocated pro rata among all holders of the Debentures.

     2.2 Mandatory Prepayment.

		
	 	     (a)     The Payor shall be required to prepay all Indebtedness upon a
Change of Control, unless otherwise agreed to in writing by the Payee.
The Payor shall provide the Payee with written notice ten (10) business
days prior to a Change of Control. For purposes of this Section 2.2
only, “Change of Control” means any event or series of events that
results in (A) any Person other than (x) Richard D. Helppie, Jr., his
family members and/or trusts for their respective benefit or charitable
foundations founded by any of them (collectively, “Helppie”), or (y) the
Purchasers under the Securities Purchase Agreement and their Affiliates
(an “Acquiring Person”), obtaining more of the Payor’s Common Stock
(calculated on a fully diluted basis) than is then held in the aggregate
by Helppie and the Payees, but in any event at least 35% of the Payor’s
Common Stock (calculated on a fully-diluted basis); including, without
limitation, by acquisition of securities convertible or exchangeable for
Common Stock; (B) the merger, consolidation, reorganization,
recapitalization, dissolution or liquidation of the Payor and/or any of
the Subsidiaries as a result of which the stockholders of the Payor
immediately prior to giving effect to such transaction do not
collectively own more than 50% or more of the securities of the Payor
ordinarily entitled to vote for the election of directors, immediately
after giving effect to such transactions; (C) any sale, lease, exchange
or other transfer of all, or substantially all, of the assets of the
Payor and/or any of the Subsidiaries in a single transaction or a series
of related transactions; or (D) the adoption of a plan leading to the
liquidation or dissolution of the Payor and/or any of the Subsidiaries.
	 
	 	     (b)     Payor shall be required to make repayments pursuant to accepted
offers under, and in accordance with the terms of, Section 6.2 of the
Securities Purchase Agreement.

SECTION 3. EVENTS OF DEFAULT.

     3.1 Definition. In each case of the happening of the following events
(each of which is an “Event of Default” or, if the giving of notice or the
lapse of time or both is required, then, prior to such notice or lapse of time,
a “Default”),

		
	 	     (a)     if any default occurs in the due observance or performance of
any covenant or agreement of the Payor or any of the Subsidiaries to be
observed or

3

 

		
	 	performed pursuant to Sections 5.1, 5.5, 6.1, 6.3, 6.5 or 6.6 of the
Securities Purchase Agreement;
	 
	 	     (b)     if a default occurs in the due observance or performance of any
covenant or agreement of the Payor or any of the Subsidiaries to be
observed or performed pursuant to the terms of any of the Financing
Documents (other than those set forth in Section 3.1(a) above) and such
default shall continue for more than forty-five (45) days after Payor has
received written notice thereof from the Payee;
	 
	 	     (c)     if a default occurs in the payment of any principal or interest
under this Debenture and such default shall continue for more than ten
(10) business days from the date such payment is due;
	 
	 	     (d)     if any representation or warranty of the Payor or any of the
Subsidiaries in any of the Financing Documents shall prove to have been
false in any material respect upon the Closing Date or if such
representation or warranty is made as of a specific date, as of such
date;
	 
	 	     (e)     the lenders under any senior credit facility accelerate the
payment of principal or interest under such senior credit facility and
such acceleration is not cured within thirty (30) days after the
triggering date;
	 
	 	     (f)     if the Payor or any of the Subsidiaries shall (1) discontinue
its business, (2) apply for or consent to the appointment of a receiver,
trustee, custodian or liquidator of it or any of its property, (3) admit
in writing its inability to pay its debts as they mature, (4) make a
general assignment for the benefit of creditors, or (5) file a voluntary
petition in bankruptcy, or a petition or an answer seeking reorganization
or an arrangement with creditors, or to take advantage of any bankruptcy,
reorganization, insolvency, readjustment of debt, dissolution or
liquidation laws, or an answer admitting the material allegations of a
petition filed against it in any proceeding under any such law; provided,
however, that the Payor may liquidate or dissolve any of the Subsidiaries
in compliance with Applicable Law; provided, further that all of the
assets of any such Subsidiary shall be distributed to the Payor or the
Subsidiaries;
	 
	 	     (g)     there shall be filed against the Payor or any of the
Subsidiaries an involuntary petition seeking reorganization of the Payor
or any of the Subsidiaries or the appointment of a receiver, trustee,
custodian or liquidator of the Payor or any of the Subsidiaries or a
substantial part of its or their assets, or an involuntary petition under
any bankruptcy, reorganization or insolvency law of any jurisdiction,
whether now or hereafter in effect;
	 
	 	     (h)     if final judgment for the payment of money not fully covered by
insurance (subject to deductible amounts) in excess of an aggregate
amount of $750,000 shall be rendered against the Payor or any of the
Subsidiaries and shall remain undischarged for a period of greater than
thirty (30) days without such judgment and any levy or execution thereof
having been effectively stayed or vacated or a surety bond been given for
the payment thereof; or

4

 

		
	 	     (i)     any violation of ERISA that could reasonably be expected to
result in liability to the Payor or any of its Subsidiaries in excess of
$250,000.

then, upon the occurrence of each and every such Event of Default (other than
an Event of Default specified in Sections 3.1(f) or (g)) and at any time
thereafter during the continuance of such Event of Default, the holders of at
least a majority in the aggregate principal amount of the outstanding
Debentures (“Majority of Holders”) may, by written notice to the Payor declare
the principal and accrued and unpaid interest on all Debentures to be
immediately due and payable. If an Event of Default specified in Sections
3.1(f) or (g) occurs, the principal and accrued and unpaid interest on this
Debenture and all other Debentures shall ipso facto become due and payable
without any declaration or other act on the part of the holders hereof or
thereof. The Majority of Holders may, by written notice to the Company,
rescind an acceleration (other than one pursuant to Sections 3.1(f) or (g)) and
its consequences if the rescission would not conflict with any judgment or
decree and if all existing Events of Default have been cured or waived except
nonpayment of principal and interest that has become due solely because of
acceleration. No such rescission shall affect any subsequent Event of Default
or impair any right consequent thereto.

     3.2 Remedies on Default, Etc. In case any one or more Events of Default
shall occur and be continuing and acceleration of this Debenture shall have
occurred, the Payee may, among other things, proceed to protect and enforce its
rights by an action at law, suit in equity or other appropriate proceeding,
whether for the specific performance of any agreement contained in the
Financing Documents, or for an injunction against a violation of any of the
terms hereof or thereof or in and of the exercise of any power granted hereby
or thereby or by law. No right conferred upon the Payee in the Financing
Documents shall be exclusive of any other right now or hereafter available at
law, in equity, by statute or otherwise.

     3.3 Waiver of Past Defaults. The Majority of Holders may waive an
existing Event of Default and its consequences. When an Event of Default is
waived, it is deemed cured, but no such waiver shall extend to any subsequent
Event of Default or other Default or impair any consequent right.

     3.4 Control by Majority of Holders. The Majority of Holders shall direct
the time, method and place of conducting any proceeding for any remedy
available to the holders of the Debentures.

SECTION 4. SUBORDINATION.

     4.1 Agreement to Subordinate. The Payor agrees, and each holder of
Debentures by accepting a Debenture agrees, that the Indebtedness evidenced by
the Debentures is subordinated in right of payment, to the extent and in the
manner provided in this Section 4, to the prior payment in full of all Senior
Indebtedness of the Payor and that the subordination is for the benefit of and
enforceable by the holders of such Senior Indebtedness. The Payor agrees, and
each holder of Debentures by accepting a Debenture agrees, that the Debentures
shall rank senior to all other indebtedness of the Payor whether outstanding
now and from time to time issued (other than Permitted Indebtedness) while the
Debentures are outstanding and that each of the

5

 

Debentures issued pursuant to the Securities Purchase Agreement shall be
pari passu with each other Debenture issued thereunder.

     4.2 Liquidation, Dissolution, Bankruptcy. Upon any payment, assignment or
distribution of the assets of the Payor to creditors upon a total or partial
liquidation or a total or partial dissolution of the Payor or in a bankruptcy,
reorganization, insolvency, receivership or similar proceeding relating to the
Payor or its property:

		
	 	     (a)     holders of Senior Indebtedness of the Payor shall be entitled to
receive payment in full of such Senior Indebtedness before holders of
Debentures shall be entitled to receive any payment of principal or
interest on the Debentures; and

		
	 	     (b)     until the Senior Indebtedness of the Payor is paid in full, any
payment or distribution to which holders of Debentures would be entitled
but for this Section 4 shall be made to holders of such Senior
Indebtedness as their interests may appear, except that holders of
Debentures may receive shares of stock and any debt securities that are
subordinated to such Senior Indebtedness to at least the same extent as
the Debentures.

     4.3 Default on Senior Indebtedness. The Payor may not pay the principal
or interest on the Debentures and may not otherwise repurchase, redeem or
otherwise retire any Debentures (collectively, “pay the Debentures”) if (a) any
Senior Indebtedness of the Payor is not paid when due or (b) any other default
on such Senior Indebtedness occurs and the maturity of such Senior Indebtedness
is accelerated in accordance with its terms unless and until, in either case,
(i) the default has been cured or waived and any such acceleration has been
rescinded or (ii) such Senior Indebtedness has been paid in full; provided,
however, that the Payor may pay the Debentures without regard to the foregoing
if the Payor receives written notice approving such payment from the
Representative (as such term is defined in Section 4.12 below) with respect to
which either of the events set forth in clause (a) or (b) of this sentence has
occurred and is continuing. In addition to the foregoing, during the
continuance of any default (other than a default described in clause (a) or (b)
of the preceding sentence) with respect to any Senior Indebtedness of the Payor
pursuant to which the maturity thereof may be accelerated immediately without
further notice (except such notice as may be required to effect such
acceleration) or the expiration of any applicable grace periods, the Payor may
not pay the Debenture for a period (a “Payment Blockage Period”) commencing
upon the receipt by the Payor of written notice (a “Blockage Notice”) of such
default from the Representative specifying an election to effect a Payment
Blockage Period and ending 180 days thereafter (or earlier if such Payment
Blockage Period is terminated (a) by written notice to the Payor from the
Representative, (b) by repayment in full of such Senior Indebtedness or (c)
because the default giving rise to such Blockage Notice is no longer
continuing). Notwithstanding the provisions described in the immediately
preceding sentence (but subject to the provisions contained in the first
sentence of this Section), unless the Representative shall have accelerated the
maturity of such Senior Indebtedness, the Payor shall resume payments on the
Debentures after the end of such Payment Blockage Period, including any missed
payments. For purposes of this Section, no default or event of default that
existed or was continuing on the date of the commencement of any Payment
Blockage Period with respect to the Senior Indebtedness shall be, or be made,
the basis of the commencement of a subsequent Payment Blockage Period unless
such default or

6

 

event of default shall have been cured or waived for a period of not less
than 90 consecutive days.

     4.4 Acceleration of Payment of Debentures. If payment of the Debentures
is accelerated because of an Event of Default, the Payor shall promptly notify
the Representative of the acceleration. If any Senior Indebtedness of the
Payor is outstanding the Payor may not pay the Debentures until ten (10)
Business Days after the Representative receives notice of such acceleration
and, thereafter, may pay the Debentures only if this Section 4 otherwise
permits payment at that time.

     4.5 When Distribution Must Be Paid Over. If a distribution is made to
holders of Debentures that because of this Section 4 should not have been made
to them, the holders of Debentures who receive the distribution shall hold it
in trust for holders of Senior Indebtedness of the Payor and pay it over to the
Representative as their interests may appear.

     4.6 Subrogation. After all Senior Indebtedness of the Payor is paid in
full and until the Debentures are paid in full, holders of Debentures shall be
subrogated to the rights of holders of such Senior Indebtedness to receive
distributions applicable to Senior Indebtedness. A distribution made under
this Section 4 to holders of such Senior Indebtedness which otherwise would
have been made to holders of Debentures is not, as between the Payor and
holders of Debentures, a payment by the Payor on such Senior Indebtedness.

     4.7 Relative Rights. This Section 4 defines the relative rights of
holders of Debentures and holders of Senior Indebtedness of the Payor. Nothing
in this Section 4 of Debentures shall:

		
	 	     (a)     impair, as between the Payor and holders of Debentures, the
obligation of the Payor, which is absolute and unconditional, to pay
principal of and interest on the Debentures in accordance with their
terms; or
	 
	 	     (b)     prevent any holder of Debentures from exercising its available
remedies upon an Event of Default, subject to the rights of holders of
Senior Indebtedness of the Payor to receive distributions otherwise
payable to such holder of Debentures.

     4.8 Subordination May Not Be Impaired by Payor. No right of any holder of
Senior Indebtedness of the Payor to enforce the subordination of the
indebtedness evidenced by the Debentures shall be impaired by any act or
failure to act by the Payor or by its failure to comply with this Section 4.

     4.9 Distribution or Notice to Representative. Whenever a distribution is
to be made or a notice given to holders of Senior Facility Indebtedness, the
distribution may be made and the notice given to the Representative.

     4.10 Section 4 Not To Prevent Events of Default or Limit Right to
Accelerate. The failure to make a payment pursuant to the Debentures by reason
of any provision in this Section 4 shall not be construed as preventing the
occurrence of an Event of Default. Nothing in this Section 4 shall have any
effect on the right of the holders of Debentures to accelerate the maturity of
the Debentures.

7

 

     4.11 Reliance by Holders of Senior Indebtedness on Subordination
Provisions. Each holder of a Debenture by accepting such Debenture
acknowledges and agrees that the foregoing subordination provisions are, and
are intended to be, an inducement and a consideration to each holder of any
Senior Indebtedness of the Payor, whether such Senior Indebtedness was created
or acquired before or after the issuance of the Debentures, to acquire and
continue to hold, or to continue to hold, such Senior Indebtedness and such
holder of such Senior Indebtedness shall be deemed conclusively to have relied
on such subordination provisions in acquiring and continuing to hold, or in
continuing to hold, such Senior Indebtedness.

     4.12 Definitions. As used herein, the following terms shall have the
following meanings:

		
	 	     (a)     "Representative” shall mean a single designated trustee, agent
or representative (if any) for all of the Senior Indebtedness; and
	 
	 	     (b)     "Senior Indebtedness” shall have the meaning set forth in the
Securities Purchase Agreement.

SECTION 5. COVENANTS.

               The Payor agrees to comply with the covenants set forth in the Securities
Purchase Agreement (including, without limitation, Articles 5 and 6) and such
covenants are incorporated herein by reference thereto.

SECTION 6. DEFENSES.

               The obligations of the Payor under this Debenture shall not be subject to
reduction, limitation, impairment, termination, defense, set-off, counterclaim
or recoupment for any reason.

SECTION 7. EXCHANGE OR REPLACEMENT OF DEBENTURE.

     7.1 The Payee may, at its option, in person or by duly authorized
attorney, surrender this Debenture for exchange, at the principal business
office of the Payor, and the Payee will receive in exchange therefor, a new
Debenture or Debentures, as the case may be, in the same principal amount as
the unpaid principal amount of this Debenture and bearing interest at the same
annual rate as this Debenture, such new Debenture, or Debentures, as the case
may be, to be dated as of the date of this Debenture and to be in such
principal amount as remains unpaid and payable to such Person or Persons, or
order, as the Payees may designate in writing.

     7.2 Upon receipt by the Payor of evidence reasonably satisfactory to it of
the loss, theft, destruction, or mutilation of this Debenture, and in case of
loss, theft or destruction of an indemnity reasonably satisfactory to it and
its transfer agent, if applicable, and upon surrender and cancellation of this
Debenture, if mutilated, the Payor will deliver a new Debenture of like tenor
in lieu of this Debenture. Any Debenture delivered in accordance with the
provisions of this Section 7 shall be dated as of the date of this Debenture.

SECTION 8. EXTENSION OF MATURITY.

8

 

               Should the principal of or interest on this Debenture become due and
payable on a day other than a Business Day, the maturity date thereof shall be
extended to the next succeeding Business Day, and, in the case of principal,
interest shall be payable thereon at the rate per annum herein specified during
such extension.

SECTION 9. ATTORNEYS’ AND COLLECTION FEES.

               Should any obligation of Payor under this Debenture (including without
limitation, the Indebtedness or any part thereof, evidenced by this Debenture
and interest or any part thereof) be collected at law or in equity or in
bankruptcy, receivership or other court proceedings, or this Debenture be
placed in the hands of attorneys for collection, the Payor agrees to pay, in
addition to principal and interest due and payable hereon, all reasonable costs
of collection, including reasonable attorneys’ fees and expenses, incurred by
the Payee in collecting or enforcing this Debenture.

SECTION 10. WAIVERS.

     10.1 The Payor waives presentment, demand for payment, notice of dishonor,
notice of protest and all other notices or demands in connection with the
delivery, acceptance, performance or default of this Debenture.

     10.2 No delay by any Payee in exercising any power or right hereunder
shall operate as a waiver of any power or right, nor shall any single or
partial exercise of any power or right preclude other or further exercise
thereof, or the exercise of any other power or right hereunder or otherwise;
and no waiver whatsoever or modification of the terms hereof shall be valid
unless set forth in writing by any Payee and then only to the extent set forth
therein.

SECTION 11. AMENDMENTS AND WAIVERS.

               No provision of this Debenture may be amended or waived except if such
amendment and waiver is in writing and is signed, in the case of an amendment,
by the Payee, or, in the case of a waiver, by a Majority of Holders.

SECTION 12. GOVERNING LAW.

               This Debenture is made and delivered in, and shall be governed by,
interpreted under, and construed in accordance with the laws of the State of
Delaware, regardless of the laws that might otherwise govern under applicable
principles of conflicts of law thereof.

SECTION 13. NOTICES.

     13.1 All notices, consents, demands, requests, reports, approvals or other
communications (collectively, “Notices") required or permitted to be given
hereunder or which otherwise are given with respect to this Debenture shall be
in writing and shall be delivered by reputable air courier service with charges
prepaid, registered mail, hand, telegram, or confirmed facsimile, as follows:

               if to Payee, to it at:

9

 

	 	 	 	 
	 	

	 	

	 	

	 	Attention:	

	 	Tel:	

	 	Fax:	

          with a copy to (which shall not constitute notice hereunder):

          Wilmer, Cutler & Pickering

          1600 Tysons Boulevard

          Tysons Corner, VA 22102

          Attention: Greg Ewald, Esq.

          Tel: 703-251-9715

          Fax: 703-251-9797

          if to Payor, to it at:

          17570 West Twelve Mile Road

          Southfield, MI 48076

          Attention: Chief Financial Officer

          Tel: (248) 226-8300

          Fax: (248)226-8392

          If to Representative, to it at:

          the address most recently provided to the Payee or Payor

	 	or to such other address or such other person as the addressee
party shall have last designated by notice to the other party. All
Notices shall be deemed to have been given (i) when delivered
personally, (ii) three (3) days after being sent by registered mail
with proper postage prepaid, (iii) upon transmission by fax and
receipt of confirmation of such transmission by the sender’s fax
machine, or (iv) two (2) days after being sent by air courier
service with proper postage prepaid.

SECTION 14. SEVERABILITY.

          If any provision of this Debenture is held in any jurisdiction to be
invalid, prohibited or unenforceable for any reason, such provision, as to such
jurisdiction, shall be ineffective, without invalidating the remaining
provisions of this Debenture or affecting the validity or enforceability of
such provision in any other jurisdiction. Notwithstanding the foregoing, such
provision shall automatically be amended to the extent (but only to the extent)
necessary to make it not invalid, prohibited or unenforceable in such
jurisdiction, without invalidating the remaining provisions of this Debenture
or amending or affecting the validity or enforceability of such provision in
any other jurisdiction.

10

 

SECTION 15. ASSIGNMENT.

          Payor may not assign its rights or obligations hereunder to any Person
without the prior written consent of Payee. Payee may not assign any of its
rights and obligations hereunder; provided that Payee may assign this Debenture
in whole or in part with all corresponding rights and obligations hereunder to
any one or more of its Associates (as defined below). Upon such assignment,
the assignee(s) shall be deemed the Payee(s) for all purposes under the
Debenture(s) so transferred. “Associate” means any current or former members
of, or any general or limited partners or retired partners of, the Payee, or
any Person that directly or indirectly, through one or more intermediaries,
controls, with the general partner of the Payee, the Payee. For the purposes
of this definition, “control” when used with respect to any Person means the
power to direct the management and policies of such Person, directly or
indirectly, whether through the ownership of voting securities, by contract or
otherwise; and the terms “controlling” and “controlled” have meanings
correlative to the foregoing. Any attempted assignment in violation of this
Section 15 shall be void ab initio and shall not be recognized by the party
sought to be bound thereby.

SECTION 16. NO IMPAIRMENT.

          The Payor will not, by amendment of its certificate or articles of
incorporation or through any reorganization, transfer of assets, consolidation,
merger, dissolution, or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Debenture, but will at
all times in good faith use its reasonable best efforts to assist in the
carrying out of all such terms and in the taking of all such actions as may be
necessary or appropriate in order to protect the rights of the Payor against
impairment due to such event. Without limiting the generality of the
foregoing, the Payor will not consolidate with or merge into any other Person
or permit any such Person to consolidate or merge into the Payor, unless such
other Person (or, in the case of a merger or consolidation in which the Company
is the surviving entity, the Person issuing the securities involved in such
merger or consolidation) shall expressly assume in writing and will be bound by
all terms of this Debenture.

(Signature page follows)

11

 

     IN WITNESS WHEREOF, the Payor has duly executed and delivered this
Debenture as of the date first written above.

	 	SUPERIOR CONSULTANT HOLDINGS CORPORATION

	 	By:	

	 	 	     Name: Richard D. Helppie, Jr.
	 	 	     Title: Chief Executive Officer

Attest:

Name:

Title:

DATED:

	 	SUPERIOR CONSULTANT COMPANY, INC.

	 	By:	

	 	 	     Name: Richard D. Helppie, Jr.
	 	 	     Title: Chief Executive Officer

Attest:

Name:

Title:

DATED:

12

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