EDUCATIONAL MEDICAL INC, S-1/A, 1996-10-22

EDUCATIONAL MEDICAL INC
S-1/A, 1996-10-22
EDUCATIONAL SERVICES

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 22, 1996

REGISTRATION NO. 333-09777
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------

AMENDMENT NO. 3

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------

EDUCATIONAL MEDICAL, INC.
(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C> <C>
DELAWARE 8222 65-0038445
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification
incorporation or organization) Classification Code Number) No.)
</TABLE>

1327 NORTHMEADOW PARKWAY, SUITE 132
ROSWELL, GEORGIA 30076
(770) 475-9930
(Address including zip code, and telephone number, including area code, of
registrant's principal executive offices)
GARY D. KERBER
PRESIDENT AND CHIEF EXECUTIVE OFFICER
1327 NORTHMEADOW PARKWAY, SUITE 132
ROSWELL, GEORGIA 30076
(770) 475-9930
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
COPIES TO:

<TABLE>
<S> <C>
MORRIS C. BROWN FREDERICK W. KANNER
GREENBERG, TRAURIG, HOFFMAN DEWEY BALLANTINE
LIPOFF, ROSEN & QUENTEL, P.A. 1301 AVENUE OF THE AMERICAS
777 SOUTH FLAGLER DRIVE NEW YORK, NEW YORK 10019
SUITE 310 EAST (212) 259-8000
WEST PALM BEACH, FLORIDA 33401
(561) 650-7900
</TABLE>

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /

If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box: / /
---------------------
CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OFFERING AGGREGATE
OF SECURITIES TO BE AMOUNT TO BE PRICE PER OFFERING AMOUNT OF
REGISTERED REGISTERED(1) SHARE(2) PRICE(2) REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par
value...................... 3,105,000 Shares $13.00 $40,365,000 $13,919.06
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
</TABLE>

(1) Includes 405,000 shares subject to over-allotment options granted to the
Underwriters.
(2) Estimated solely for the purposes of calculating the registration fee.
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.

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<PAGE> 2

EDUCATIONAL MEDICAL, INC.

Cross-reference sheet furnished pursuant to Item 501(b) of Registration S-K
showing location in the Prospectus of information required by Part I of Form
S-1.

<TABLE>
<CAPTION>
FORM S-1 ITEM LOCATION IN PROSPECTUS
------------------------------------------- -------------------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus... Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages
of Prospectus............................ Outside Front Cover Page; Inside Front
Cover Page; Outside Back Cover Page
3. Summary Information, Risk Factors and Ratio
of Earnings to Fixed Charges............. Outside Front Cover Page; Prospectus
Summary; Risk Factors
4. Use of Proceeds............................ Use of Proceeds
5. Determination of Offering Price............ Outside Front Cover Page; Underwriting
6. Dilution................................... Dilution
7. Selling Security Holders................... Principal and Selling Stockholders
8. Plan of Distribution....................... Outside Front Cover Page; Inside Front
Cover Page; Underwriting
9. Description of Securities to be
Registered............................... Dividend Policy; Description of Capital
Stock; Shares Eligible for Future Sale
10. Interests of Named Experts and Counsel..... Not Applicable
11. Information with Respect to the
Registrant............................... Prospectus Summary; Risk Factors; Dividend
Policy; Selected Consolidated Financial
and Other Operating Data; Management's
Discussion and Analysis of Financial
Condition and Results of Operations;
Business; Financial Aid and Regulation;
Management; Principal and Selling
Stockholders; Description of Capital
Stock; Shares Eligible for Future Sale;
Underwriting; Index to Financial
Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.............................. Not Applicable
</TABLE>
<PAGE> 3

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.

SUBJECT TO COMPLETION, DATED OCTOBER 22, 1996

PROSPECTUS

2,700,000 SHARES

EDUCATIONAL MEDICAL, INC. [LOGO]
COMMON STOCK
------------------

Of the 2,700,000 shares of common stock offered hereby (the "Shares"),
2,200,000 Shares are being sold by Educational Medical, Inc. (the "Company") and
500,000 Shares are being sold by certain stockholders of the Company (the
"Primary Selling Stockholders"). The Company will not receive any proceeds from
the sale of the Shares by the Primary Selling Stockholders. See "Principal and
Selling Stockholders."

Prior to this offering (the "Offering"), there has been no public market
for the common stock of the Company (the "Common Stock"). It is currently
estimated that the initial public offering price will be between $11.00 and
$13.00 per share. See "Underwriting" for information relating to the factors
considered in determining the initial public offering price. Subject to
completion of the Offering, the Common Stock of the Company has been approved
for listing on the Nasdaq National Market System ("NNM") under the symbol
"EDMD."

PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY THE FACTORS SET FORTH IN
"RISK FACTORS," BEGINNING ON PAGE 8.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDERS(3)
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<S> <C> <C> <C> <C>
Per Share $ $ $ $
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Total $ $ $ $
- ---------------------------------------------------------------------------------------------------
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</TABLE>

(1) For information regarding indemnification of the Underwriters, see
"Underwriting."

(2) Before deducting expenses estimated at $600,000, which are payable by the
Company.

(3) Certain stockholders of the Company (the "Over-allotment Selling
Stockholders") have granted the Underwriters a 30-day option (the
"Over-allotment Option") to purchase up to 405,000 additional shares of
Common Stock (the "Over-allotment Shares") solely to cover over-allotments,
if any. See "Underwriting." The Company will not receive any proceeds from
the sale of the Over-allotment Shares by the Over-allotment Selling
Stockholders. The Primary Selling Stockholders and the Over-allotment
Selling Stockholders are collectively referred to in this Prospectus as the
"Selling Stockholders." If the Over-allotment Option is exercised in full,
the total Price to Public, Underwriting Discounts and Commissions, Proceeds
to Company and Proceeds to Selling Stockholders will be $ ,
$ , $ and $ , respectively.
------------------

The shares of Common Stock are being offered by the several Underwriters
named herein, subject to prior sale, when, as and if accepted by them and
subject to certain conditions. It is expected that certificates for the shares
of Common Stock offered hereby will be available for delivery on or about
, 1996 at the office of Smith Barney Inc., 333 West 34th Street, New
York, New York 10001.
------------------
SMITH BARNEY INC. MONTGOMERY SECURITIES

, 1996
<PAGE> 4

[A MAP OF THE UNITED STATES SHOWING LOCATIONS OF THE COMPANY'S SCHOOLS
TO BE INSERTED HERE]

IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NNM OR OTHERWISE. SUCH STABILIZING, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
------------------

The Company intends to furnish its stockholders annual reports containing
audited consolidated financial statements and quarterly reports containing
unaudited consolidated financial statements.

2
<PAGE> 5

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and the consolidated
financial statements and notes thereto appearing elsewhere in this Prospectus.
Prospective investors should consider carefully the information set forth under
the heading "Risk Factors." Unless otherwise indicated, the information in this
Prospectus (i) assumes no exercise of the Over-allotment Option, (ii) gives
effect to the automatic conversion of all of the outstanding shares of
convertible preferred stock into 1,705,082 shares of Common Stock, (iii) assumes
the issuance of 141,667 shares of Common Stock upon exercise of certain
outstanding warrants, and (iv) assumes the issuance of 1,000,000 shares of
Common Stock upon the cashless exercise of outstanding warrants to purchase
1,333,333 shares of Common Stock. The transactions referred to in (ii), (iii)
and (iv) above are to occur upon the consummation of the Offering and are called
the "Offering Transactions". Unless otherwise indicated, the information in this
Prospectus excludes the three schools in Texas which the Company entered into an
agreement to acquire on September 6, 1996 (see "Texas Acquisition" below).

THE COMPANY

The Company provides diversified career oriented postsecondary education to
more than 4,300 students in 14 schools located in six states. The Company's 14
schools offer diploma and/or associate degree programs designed to provide
students with the knowledge and skills necessary to qualify them for entry level
employment in the fields of healthcare (offered in twelve schools), business
(offered in five schools), fashion and design (offered in three schools), and
photography (offered in one school). The Company's curricula include programs
leading to employment in nine of the 15 fastest growing occupations (measured by
percentage growth from 1994 through 2005) as projected by the U.S. Department of
Labor. At March 31, 1996, approximately 70% of the Company's students were
enrolled in programs in the healthcare field. As of the same date, approximately
27% of the Company's students were enrolled in associate degree programs and the
remainder were enrolled in diploma programs. Due to the diversity of the
programs offered by the Company's schools, graduates of the Company's programs
are employed by a wide variety of employers, including hospitals, physicians,
insurance companies, retailers, corporate graphics departments, photographic
studios and other businesses.

The Company believes the demand for postsecondary career oriented education
will increase over the next several years as a result of recognized trends,
including (i) a projected 21% growth in the number of new high school graduates
from approximately 2.5 million in 1993-94 to approximately 3.0 million in
2005-06, (ii) the increasing enrollment of students over the age of 24 in
postsecondary education institutions as they seek to enhance their skills or
retrain for new technologies, and (iii) the increasing recognition of the income
premium attributable to higher education degrees, with individuals holding
associate degrees earning on average approximately 30% more income during their
lifetimes than individuals holding only high school diplomas.

According to the Department of Education, there were approximately 2,355
accredited, proprietary postsecondary schools that participate in federal
financial student aid programs as of June 1996. The ownership of these schools
is highly fragmented. Management believes that no organization either holds a
significant national market share or owns or operates more than 80 schools.

The Company's goal is to increase its market share in the expanding market
for postsecondary education and improve profitability by (i) acquiring
additional schools, (ii) promoting internal growth at the Company's existing and
any newly acquired schools, and (iii) enhancing operating efficiencies. The
Company has implemented the following strategies to achieve these goals:

Acquisition Strategy

The Company has acquired all of its schools. The Company intends to acquire
additional schools and integrate them into its existing school system. The
Company believes that the fragmentation of the postsecondary education market
provides significant opportunities to consolidate existing independently owned
schools and reduce individual school overhead through centralizing certain home
office functions. In general,

3
<PAGE> 6

the Company's principal acquisition criteria are: historical profitability;
acceptable default rates with respect to federally guaranteed or funded student
loans; established and marketable curricula; and locations with populations in
excess of 100,000. The Company intends to concentrate its acquisition efforts on
schools which satisfy its general acquisition criteria and which offer curricula
in the fields of study currently offered at the Company's schools and selected
other fields of study. The Company expects to utilize a majority of the proceeds
of this Offering in connection with such acquisitions. See "Use of Proceeds."

Internal Growth Strategy

The Company intends to increase student enrollment at its existing and any
newly acquired schools by continuing to enhance local marketing efforts and
increasing the number and variety of program offerings at its schools. The
Company also intends to continue to (i) develop new degree and diploma programs,
(ii) replicate existing programs at schools where such programs were not
previously offered, and (iii) introduce associate degree granting programs at
all of its schools currently offering only diploma programs.

Operating Strategy

The Company provides each of its schools with certain services which the
Company believes can be performed most efficiently and cost effectively by a
centralized office. Such services include marketing analysis, accounting,
information systems, financial aid and regulatory compliance. The Company
intends to continue its strategy of operating with a decentralized management
structure in which local school management is empowered to make most of the
day-to-day operating decisions at each school and is primarily responsible for
the profitability and growth of that school.

TEXAS ACQUISITION

On September 6, 1996, the Company entered into an acquisition agreement
providing for the purchase of three schools located in Texas for $2.5 million
(the "Texas Acquisition"), subject to approval by the Texas Workforce
Commission. As of June 30, 1996, approximately 626 students attended the
schools, which offer healthcare diploma programs and are located in San Antonio,
McAllen and El Paso, Texas. The schools had combined net revenues of
approximately $4.7 million and combined income from operations of approximately
$630,000 for the year ended December 31, 1995. For the six month period ended
June 30, 1996, the schools had combined net revenues of approximately $2.5
million and combined income from operations of approximately $247,000. Based on
the Company's experience in obtaining state regulatory approvals with respect to
its prior acquisitions, the Company believes that it will obtain regulatory
approval from the Texas Workforce Commission. The Company intends to account for
the Texas Acquisition as a purchase, effective September 6, 1996. Therefore, the
results of operations after this date will be included in the consolidated
results of the Company's operations.

COMPANY HISTORY

The Company began business by acquiring seven schools in fiscal 1989 and
1990, all of which offered programs in the healthcare field. In fiscal 1992, the
Company continued to grow by acquisition and also implemented a new strategy to
diversify outside of the healthcare field by acquiring a fashion and design
school. In fiscal 1993 and 1994, the Company acquired seven additional schools
which included schools offering programs in the fields of healthcare, business,
fashion and design, and photography. As a result of its fiscal 1992, 1993 and
1994 acquisitions (1,646 students were attending such schools at the dates of
their respective acquisitions) and increasing enrollment at its existing and
newly acquired schools, the number of students attending the Company's schools
rose 288% from 1,112 at March 31, 1991 to 4,318 at March 31, 1996. During the
same period, the Company's revenue increased 345% from $8.7 million for the year
ended March 31, 1991 to $38.7 million for the year ended March 31, 1996.

The Company is a Delaware corporation incorporated in 1988. The Company
operates the majority of its business through eleven subsidiaries. The Company's
principal executive offices are located at 1327 Northmeadow Parkway, Suite 132,
Roswell, Georgia 30076. Its telephone number is (770) 475-9930.

4
<PAGE> 7

THE OFFERING

Common Stock offered by the
Company............................. 2,200,000 shares

Common Stock offered by the Primary
Selling Stockholders................ 500,000 shares

Common Stock to be outstanding after
the Offering(1)..................... 6,694,411 shares

Use of proceeds by the Company...... To repay certain outstanding
indebtedness of the Company, to acquire
additional schools and for working
capital and other general corporate
purposes. See "Use of Proceeds."

Nasdaq National Market symbol....... "EDMD"
- ---------------

(1) Assumes completion of the Offering Transactions. Excludes at September 1,
1996 up to (i) 961,666 shares reserved for issuance under the Company's
1996 Stock Incentive Plan, of which 361,666 shares are reserved for
issuance pursuant to outstanding stock options previously granted to
certain executive officers of the Company and others, and 275,000 shares
are reserved for issuance pursuant to stock options granted to certain
executive officers and other key employees of the Company contingent upon
completion of the Offering, (ii) 200,000 shares reserved for issuance under
the Company's Non-employee Director Stock Option Plan, of which 100,000
shares are reserved for issuance pursuant to outstanding stock options
granted contingent upon completion of the Offering and (iii) 43,334 shares
which may be purchased upon the exercise of outstanding warrants to
purchase Common Stock. See "Underwriting," "Management -- Stock Option
Plan" and "Description of Capital Stock -- Warrants to Purchase Common
Stock."

5
<PAGE> 8

SUMMARY CONSOLIDATED FINANCIAL AND OTHER OPERATING DATA

The following table sets forth certain consolidated financial and other
operating data for the Company. This information should be read in conjunction
with the Consolidated Financial Statements and Notes thereto appearing elsewhere
in this Prospectus. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Unaudited Pro Forma As Adjusted
Financial Data."

<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED THREE MONTHS ENDED JUNE ENDED JUNE
YEAR ENDED MARCH 31, MARCH 31, 1996 30, 30, 1996
----------------------------------------------- PRO FORMA AS ------------------------ PRO FORMA AS
1992 1993 1994 1995 1996 ADJUSTED(1) 1995 1996 ADJUSTED(1)
------- ------- ------- --------- --------- -------------- ---------- --------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net revenues............ $13,256 $19,113 $26,475 $ 32,065 $ 38,652 $ 43,395 $ 8,762 $ 9,203 $ 10,398
Cost of education and
facilities............ 4,624 7,596 12,308 15,081 17,639 19,799 4,236 4,644 5,216
Selling and promotional
expenses.............. 1,764 2,593 4,059 5,400 5,569 5,940 1,352 1,419 1,535
Administrative
expenses.............. 4,489 5,501 8,680 10,030 11,110 12,626 2,720 2,658 3,031
Amortization of goodwill
and intangibles....... 821 1,072 1,235 1,255 883 1,080 256 176 225
------- ------- ------- --------- --------- ---------- ---------- ---------- ----------
Income from operations
before other
expenses.............. 1,558 2,351 193 299 3,451 3,950 198 306 391
Other expenses(2)....... -- -- 1,126 776 1,929 1,929 -- -- --
------- ------- ------- --------- --------- ---------- ---------- ---------- ----------
Income (loss) from
operations............ 1,558 2,351 (933) (477) 1,522 2,021 198 306 391
Interest expense, net... 389 574 798 923 811 31 249 196 3
------- ------- ------- --------- --------- ---------- ---------- ---------- ----------
Income (loss) before
income taxes and
extraordinary credit.. 1,169 1,777 (1,731) (1,400) 711 1,990 (51) 110 388
Provision (benefit) for
income taxes(3)....... 519 749 (170) 28 632 1,142 11 44 155
------- ------- ------- --------- --------- ---------- ---------- ---------- ----------
Income (loss) before
extraordinary
credit................ 650 1,028 (1,561) (1,428) 79 $ 848 (62) 66 $ 233
========== ==========
Extraordinary
credit -- utilization
of net operating loss
carryforward(3)....... 435 -- -- -- -- -- --
------- ------- ------- --------- --------- ---------- ----------
Net income (loss)....... $ 1,085 $ 1,028 ($1,561) ($ 1,428) $ 79 $ (62) $ 66
======= ======= ======= ========= ========= ========== ==========
Pro forma net income per
share (unaudited)(4)(5) $ .02 $ .01
========= ==========
Pro forma shares
outstanding
(unaudited)(4)........ 4,788,263 4,788,263
========= ==========
Pro forma as adjusted
income before
extraordinary items
per share
(unaudited)(6)........ $ .12 $ .03
========== ==========
Pro forma as adjusted
shares outstanding
(unaudited)(6)........ 6,988,263 6,988,263
========== ==========
OTHER OPERATING DATA(7):
Number of schools at end
of period............. 8 9 14 14 14 17 14 14 17
Number of students at
end of period......... 2,181 2,374 3,480 4,095 4,318 4,966 3,673 3,796 4,422
Number of new student
starts during
period................ 2,589 3,667 4,668 5,536 5,893 N/A(9) 1,171 1,129 N/A(9)
Monthly withdrawal rate
during period(8)...... 4.9% 4.8% 4.7% 3.8% 3.8% N/A(9) 4.0% 4.0% N/A(9)
</TABLE>

<TABLE>
<CAPTION>
JUNE 30, 1996
---------------------------
PRO FORMA
HISTORICAL AS ADJUSTED(1)
---------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................................................ $ 2,028 $ 21,131
Total current assets................................................................. 6,606 25,725
Total assets......................................................................... 17,118 39,302
Long-term debt, including current portion............................................ 6,738 4,868
Total liabilities.................................................................... 11,523 10,311
Total stockholders' equity........................................................... 5,595 28,991
</TABLE>

See accompanying notes on following page.

6
<PAGE> 9

- ---------------
(1) Pro forma as adjusted to give effect to the Texas Acquisition, the Offering
Transactions and the sale of 2.2 million shares of Common Stock by the
Company pursuant to the Offering and the application of the net proceeds
therefrom as if they had occurred at the beginning of the period. See "Use
of Proceeds."
(2) Other expenses consist of (i) a charge in fiscal 1994 of $1,126 in
connection with the closing of a school purchased in 1989, (ii) charges in
fiscal 1995 of $600 for legal costs associated with the defense of the
class action lawsuit, and $176 for the impairment of other intangible
assets, and (iii) charges in fiscal 1996 of $1,115 for the settlement of
the class action lawsuit (see "Business -- Litigation"), $50 for the cost
of relocating a school, and $764 for the impairment of goodwill and other
intangible assets.
(3) Effective April 1, 1992, the Company adopted the liability method of
accounting for income taxes. Previously, the deferred method was used. The
effect of this change in accounting principle on the 1993 financial
statements was not material.
(4) Computed on the basis described in Note 2 to the Consolidated Financial
Statements of the Company and reflects only the Offering Transactions.
Historical losses per share are not presented here as they are not
meaningful due to the conversion of all outstanding shares of convertible
preferred stock to Common Stock and the exercise of certain Common Stock
purchase warrants, to occur upon consummation of the Offering.
(5) Of the net proceeds from the sale of Common Stock offered by the Company
hereby, approximately $4,800 will be used to repay indebtedness. Assuming
the issuance and sale of 2.2 million shares of Common Stock by the Company
at an initial public offering price of $12.00 per share and assuming that
such indebtedness had been repaid rather than outstanding during fiscal
year 1996, pro forma supplemental net income per share of Common Stock
would have been $0.11 for the year ended March 31, 1996 and $.04 for the
three months ended June 30, 1996.
(6) Gives effect to the Texas Acquisition, the Offering Transactions and the
Offering as if they had occurred at the beginning of the period and is
computed on the same basis as described in Note 4 above.
(7) 1994 Other Operating Data excludes the Company's school located in Albany,
Georgia, which the Company decided to close in fiscal 1994. See Note 2
above.
(8) Represents the percentage calculated by dividing (i) the number of students
who withdrew from the Company's schools in the period by (ii) the sum of
the number of students at each month-end in the period and the number of
students who withdrew in the period.
(9) It is not practicable to determine the information marked "N/A" on a pro
forma basis.

7
<PAGE> 10

RISK FACTORS

The securities offered hereby are speculative and involve a high degree of
risk, including, but not limited to, the risk factors described below. In
addition to the other information contained in this Prospectus, the following
should be considered carefully in evaluating an investment in shares of the
Common Stock.

DEPENDANCE ON TITLE IV FUNDING; REGULATORY COMPLIANCE AS A CONDITION FOR
CONTINUED ELIGIBILITY FOR TITLE IV FUNDING

The Company derives a substantial majority of its revenues from federal
financial aid received by the students of its schools under Title IV programs
("Title IV Programs") administered by the United States Department of Education
("Department of Education") under the Higher Education Act of 1965, as amended
(the "HEA"). Each of the Company's schools participates in Title IV Programs. In
order to participate in Title IV Programs, an institution, such as each of the
schools owned and operated by the Company, must obtain certification by the
Department of Education as an "eligible institution." To obtain such
certification, the institution must satisfy certain eligibility, program, and
general requirements imposed by the HEA and by regulations thereunder (the
"Regulations") promulgated and enforced by the Department of Education.
Generally, a school (a main campus and any additional locations for purposes of
the Regulations) is considered separately for compliance with the Regulations.
Thirteen of the Company's schools are main campuses. One school, located in
Vista, California, is an additional location of the San Marcos main campus. An
institution also must be authorized to offer its programs by the relevant state
agency where it is located and it must be accredited by a nationally recognized
accrediting agency to obtain and maintain such certification. Each of the
Company's schools is licensed and approved in the state where it operates and is
accredited by at least one nationally recognized accrediting agency.

The provisions of the HEA and the Regulations govern many aspects of the
operation of the Company and its schools, including, but not limited to (i) the
maximum acceptable rate of default by a school's students with respect to
federally guaranteed or funded student loans, (ii) the maximum acceptable
proportion of school revenues derived from Title IV Programs, (iii) the school's
satisfaction of certain financial responsibility standards, (iv) the school's
satisfaction of certain administrative capability standards, (v) the ability of
a school to add locations and educational programs, and (vi) the ability of the
Company to engage in transactions involving a change in ownership resulting in a
change in control of the schools or the Company. Generally, each school is
considered separately for purposes of determining compliance with the regulatory
requirements, although certain financial reporting is done on a consolidated
basis. See "Financial Aid and Regulation."

For the fiscal year ended March 31, 1996, the Company derived approximately
76% of its cash receipts from Title IV Programs. The failure of any of the
Company's schools to comply with the requirements of the HEA or the Regulations,
or the requirements of applicable state law or accrediting agencies, could
result in the restriction or loss by such school of its ability to participate
in Title IV Programs, which could have a material adverse effect on the
financial condition and operations of the Company. A more detailed description
of the regulatory environment in which the Company operates and the Company's
experience with applicable regulations is included below under the caption
"Financial Aid and Regulation;" however, the following matters should be
particularly noted:

Financial Responsibility Requirements. The HEA and the Regulations
prescribe specific standards of financial responsibility which the Department of
Education must consider with respect to qualification for participation in the
Title IV Programs ("Financial Responsibility Standards"). These standards are
generally applied on an individual school basis. However, there can be no
assurance that the Department of Education will not attempt to apply such
standards on a consolidated basis. If the Department of Education determines
that any of the Company's schools fails to satisfy the Financial Responsibility
Standards, it may require that such school post an irrevocable letter of credit
(a "Financial Responsibility Bond") in favor of the Secretary of Education in an
amount equal to not less than one-half of Title IV Program funds received by the
school during the last complete award year or, in the Department of Education's
discretion, require some other less onerous demonstration of financial
responsibility (a "Demonstration of Financial Responsibility"). One-half of
Title IV funds received by the Company's individual schools in the most recent
award year ranged from

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$0.2 million to $3.9 million, and one-half of the total Title IV funds received
by all the Company's schools in the most recent award year was $14.1 million.
Pursuant to the Regulations, the Company submits annual audited consolidated
financial statements and unaudited consolidating financial statements to the
Department of Education. For the amount of Title IV funds received by each of
the Company's schools, along with other data relevant to the financial
responsibility requirements, see "Financial Aid and Regulation -- Selected Data
Regarding Cohort Default Rates, Title IV Funds Received and Net Operating
Losses."

Among the principal Financial Responsibility Standards which a school must
satisfy are: (i) an "acid test" ratio (defined as the ratio of the total of
cash, cash equivalents and current accounts receivable to current liabilities)
of at least 1-to-1 at the end of the most recent fiscal year, (ii) a positive
tangible net worth, as defined by the applicable Regulations, at the end of the
most recent fiscal year (the "Tangible Net Worth Standard") and (iii) net
operating results for the two most recent fiscal years, excluding extraordinary
losses or losses from discontinued operations, which do not show an aggregate
net loss in excess of 10% of tangible net worth at the beginning of the two year
period. Primarily because a large portion of the Company's assets consists of
goodwill and other intangibles related to school acquisitions, the Company has
had a negative tangible net worth on a consolidated basis for each of the
Company's three most recent fiscal years, although none of the Company's schools
had a negative tangible net worth on an individual school basis during that
period. For the Company's fiscal year ended March 31, 1996, the Company's
consolidated negative tangible net worth was approximately $581,000. The Company
has filed audited consolidated financial statements with the Department of
Education for each of the last three fiscal years, along with unaudited
consolidating statements. Although the Department of Education has not cited any
of the Company's schools for violation of the Tangible Net Worth Standard, there
can be no assurance that the Department of Education will not attempt to apply
the Tangible Net Worth Standard on a consolidated basis. Assuming completion of
this Offering, the Offering Transactions and consummation of the Texas
Acquisition, the Company will have a positive tangible net worth on a pro forma
consolidated basis of approximately $20.2 million as of June 30, 1996. However,
no assurance can be given that the Department of Education may not make a
request for the Company to post a Financial Responsibility Bond (which, if done
on a consolidated basis for all of the Company's schools, could aggregate $14.1
million) or otherwise make a request for a Demonstration of Financial
Responsibility based on the consolidated negative tangible net worth at March
31, 1996, the end of its most recent fiscal year. If such a request were to be
made, there is no assurance that the Company (i) would be successful in
persuading the Department of Education or a court that such a request is
contrary to law, (ii) could secure the funds to post the Financial
Responsibility Bond which the Department of Education may request, or (iii) that
the Company would be successful in negotiating a more favorable Demonstration of
Financial Responsibility. If the Company were unable to post a Financial
Responsibility Bond or make a satisfactory Demonstration of Financial
Responsibility, it could become ineligible to receive Title IV funding in some
or all of its schools. Ineligibility for Title IV funding would have an
immediate material adverse effect on the Company's operations.

The Company's school located in Roanoke, Virginia (which accounted for 2.7%
of the Company's total net revenue in fiscal 1996) experienced operating losses
in each of the last two fiscal years, which may result in the Department of
Education requiring the posting of a Financial Responsibility Bond in the
approximate amount of $355,000 or otherwise request a Demonstration of Financial
Responsibility with respect to such school. The amount of any such Financial
Responsibility Bond for Roanoke would be funded from the Company's working
capital.

In May 1995, the Department of Education notified the Company (the "Fiscal
1994 Notice") that, based upon a review of the audited consolidated and
unaudited consolidating fiscal 1994 financial statements of the Company, it
determined that (i) the Company's schools located in Staunton and Harrisonburg,
Virginia, did not meet, for fiscal year 1994, the acid test ratio and the
Tangible Net Worth Standard, and (ii) the Company's school located in
Pittsburgh, Pennsylvania did not meet the acid test ratio. The Department of
Education requested that the Company provide letters of credit with regard to
these three schools in the aggregate amount of $2,065,000. In July 1995, after a
meeting with Department of Education officials, the Company submitted its fiscal
1995 audited consolidated financial statements and unaudited consolidating
financial statements (the "1995 Financials") for review by the Department of
Education. The Department of

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<PAGE> 12

Education agreed to suspend its request for letters of credit subject to their
review of the 1995 Financials. The Company believes that the 1995 Financials
demonstrated compliance by the relevant schools with all of the applicable
financial criteria for the fiscal year ended March 31, 1995. As of the date of
this Prospectus, the Department of Education has neither confirmed nor contested
the Company's belief.

Based on its audited consolidated and unaudited consolidating financial
statements for fiscal 1996, which have been submitted to the Department of
Education, except with respect to the operating losses incurred by the Company's
school in Roanoke, the Company believes each of its schools satisfies all
Financial Responsibility Standards. See "Financial Aid and
Regulation -- Selected Data Regarding Cohort Default Rates, Title IV Funds
Received and Net Operating Losses." Because the HEA and the Regulations are
subject to amendment, and because the Department of Education may change its
interpretation of the HEA and the Regulations, there can be no assurance that
the Department of Education will agree in the future with the Company's
interpretation of each such requirement or that such requirements will not
change in the future.

Student Loan Defaults. The HEA provides that a school may lose its
eligibility to participate in some or all Title IV Programs if defaults on the
repayment of federally guaranteed student loans or direct loans exceed certain
rates ("Cohort Default Rates"). Cohort Default Rates are calculated for each
school for each federal fiscal year by determining the rate at which the
school's students entering repayment in that federal fiscal year default on
repayment of their loan by the end of the following federal fiscal year. Cohort
default rates are subject to revision by the Department of Education if new data
becomes available and are subject to appeal by schools contesting the accuracy
of the data or the adequacy of the servicing of the loans by the loan servicer.
A school that is determined to have had Cohort Default Rates of 25% or greater
for the three most recent federal fiscal years for which data is available is
subject to immediate loss of eligibility to participate in substantially all
Title IV Programs, subject to a limited appeal of the determination, including
an appeal based on a claim of exemption from the Cohort Default Rate
requirements by virtue of exceptional mitigating circumstances. The loss of
eligibility lasts for the duration of the federal fiscal year in which the
determination of ineligibility is made, plus the two succeeding federal fiscal
years. However, an institution remains eligible for Title IV funding while an
appeal of such determination is pending.

The federal fiscal 1991, 1992 and 1993 Cohort Default Rates for all of the
students at the Company's schools averaged 19.3%, 20.6%, and 19.9%,
respectively, and ranged from highs of 31.2%, 30.9% and 23.5% to lows of 7.8%,
7.3%, and 2.3% for the respective periods. The federal fiscal 1994 Cohort
Default Rates for all of the students at the Company's schools, which have been
preliminarily announced, averaged 19.7% and ranged from a high of 27.5% to a low
of 3.0%. For the Cohort Default Rates for each of the Company's schools for
federal fiscal years 1991 to 1994, the most recent years for which data is
available, see "Financial Aid and Regulation -- Selected Data Regarding Cohort
Default Rates, Title IV Funds Received and Net Operating Losses." The average
Cohort Default Rate for students at all postsecondary proprietary institutions
in the United States for federal fiscal 1992 and 1993 were 30.2% and 23.9%,
respectively. The average rate for federal fiscal 1994 is not available.

None of the Company's schools had Cohort Default Rates of 25% or more for
each of the three consecutive federal fiscal years ending 1993, or those ending
with federal fiscal 1994 based on 1994 data released by the Department of
Education in May 1996. The Department has designated this 1994 data as
preliminary, reserving the right to issue final 1994 Cohort Default Rates in or
about November 1996. The Company does not expect its final 1994 Cohort Default
Rates to differ materially from the preliminary data. Accordingly, the Company
believes that none of its schools is currently vulnerable to termination of
Title IV eligibility based on three consecutive years of excess Cohort Default
Rates. The Company's schools in Harrisonburg and Staunton, Virginia, had Cohort
Default Rates in excess of 25% for the two consecutive federal fiscal years
ending 1993; however both schools had preliminary Cohort Default Rates of less
than 25% for the federal fiscal year ending in 1994. Only the Company's school
located in Stockton, California had a Cohort Default Rate of 25% or more for
federal fiscal 1994 (based on the preliminary data). Although that school had a
Cohort Default Rate of 27.5% in federal fiscal 1994, it had a Cohort Default
Rate of 19.9% for federal fiscal 1993, and therefore is not vulnerable to
termination of Title IV eligibility unless its rates for the next two federal
fiscal years are 25% or more. The Company's other schools must have Cohort
Default Rates

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<PAGE> 13

of 25% or greater for a consecutive three year period beginning with federal
fiscal 1995 or thereafter in order to become vulnerable to termination of Title
IV eligibility.

The Regulations require that any school which experiences a Cohort Default
Rate in excess of 20% must establish a default reduction program meeting the
standards set forth in the Regulations. The Company has instituted default
reduction programs in each of its schools, including measures to improve student
retention rates, improve student employment rates, and counseling of students on
their responsibilities to repay their loans; however, economic and other factors
outside of the Company's control could adversely effect default rates. The loss
of Title IV eligibility at one or more of the Company schools could have a
material adverse effect on the Company.

CHANGE IN OWNERSHIP RESULTING IN CHANGE IN CONTROL

Upon a change in ownership resulting in a change in control of the Company,
as defined in the HEA and the Regulations, each of the Company's schools would
lose its eligibility to participate in Title IV Programs for an indeterminate
period of time during which it applies to regain eligibility. A change of
control also could have significant regulatory consequences for the Company at
the state level and could affect the accreditation of the Company's schools. If
a corporation, such as the Company, is neither publicly traded nor closely held,
the Regulations provide that a change in ownership resulting in a change of
control occurs when a person's legal or beneficial ownership either rises above
or falls below 25% of the voting stock of the corporation and that person gains
or loses control of the corporation. The Company has been advised by the
Department of Education that, based on the facts pertaining to the Company's
ownership and control which are set forth in this Prospectus, the consummation
of this Offering will not constitute a change in ownership resulting in a change
of control within the meaning of the HEA and the Regulations.

The Department of Education's regulations provide that after a Company
becomes publicly-traded, a change in control occurs when a report on Form 8-K is
required to be filed with the Securities and Exchange Commission disclosing a
change in control. Most states and accrediting agencies have similar
requirements, but they do not provide a uniform definition of change in control.
If the Company were to lose its eligibility to participate in Title IV Programs
for a significant period of time pending an application to regain eligibility,
or if it were determined not to be eligible, its operations would be materially
adversely effected. The possible loss of Title IV eligibility resulting from a
change in control may also discourage or impede a tender offer, proxy contest or
other similar transaction involving control of the Company. See "Risk
Factors -- Antitakeover Provisions and Title IV Change in Control Regulations."

PARTICIPATION IN FEDERAL DIRECT LENDING PROGRAM; RISK OF LEGISLATIVE ACTION

Prior to fiscal 1995, the Company derived all of its Title IV loan funding
from the FFEL loan program. In fiscal 1995 and fiscal 1996, the Company's
schools elected to administer their Title IV loan funding pursuant to the
Federal Direct Student Loan Program ("FDSLP"). As of the date of this
Prospectus, the Company expects to derive all of its Title IV loan funding
pursuant to the FDSLP program in fiscal 1997. General descriptions of the FDSLP
and FFEL programs are contained in "Financial Aid and Regulation -- Title IV
Student Assistance Programs." Funding for the FDSLP, as well as for the FFEL
program, must be appropriated by Congress annually. In fiscal 1996 FDSLP and
FFEL loans amounted to approximately $17.7 million and represented approximately
45.7% of the Company's revenues. In 1996 there was debate in Congress over
whether the Title IV loan programs should be financed entirely through the FFEL
program, or through a combination of the FFEL program and the FDSLP program.
Although no adverse changes were made to the FDSLP program and funding for the
FDSLP program was approved for the award year commencing July 1, 1996, there can
be no assurance that funding will continue at current levels, or that the FDSLP
program itself will be continued. If the FDSLP program were discontinued, or
funding reduced so as to reduce the amount of direct lending funds available to
the Company's schools, the Company would have to rely on loans provided for
pursuant to FFEL. Loans pursuant to FFEL are administered through outside
lenders, such as banking institutions and are federally guaranteed. Although the
Company believes that it would have no difficulty finding lenders for federally
guaranteed student loans to its students under FFEL,

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<PAGE> 14

there can be no assurance that such loans would be available in amounts
sufficient to provide for the Company's schools to operate at current and
anticipated levels, or at all.

Furthermore, there can be no assurance that federal funding for the FFEL
program will be continued at current levels, or at all. Because the Company
derives a substantial majority of its cash receipts from Title IV funding (76%
for the fiscal year ended March 31, 1996), discontinuance or significant
reductions in the FDSLP and, if the FDSLP program is discontinued or reduced,
the FFEL program, would have a material adverse effect on the Company's
operations.

RELIANCE ON ACQUISITIONS

The Company has acquired all of its schools. Several of the schools
acquired by the Company have experienced losses following their acquisition in
connection with their integration into the Company's operations or because of
their failure to perform as anticipated by the Company. Additionally, in fiscal
1994, the Company decided to close a school located in Albany, Georgia (which
was originally purchased in fiscal 1990) because of continuing operating losses
and management's assessment of the future prospects of the relevant market. The
school ceased operations in fiscal 1995. The Company expects that a significant
part of its future growth will be based on its ability to identify, acquire and
profitably operate additional schools. While the Company is continually
searching for acquisition opportunities, there can be no assurance that the
Company will be successful in identifying, acquiring and operating additional
schools. When the Company acquires an existing school, a significant portion of
the purchase price for such school is often allocated to goodwill and
intangibles because most of these acquisitions do not involve the purchase of
significant amounts of tangible property. All of such goodwill and intangibles
must be amortized over a relatively short period of time, which amortization
reduces the Company's reported earnings. If any potential acquisition
opportunities are identified, there can be no assurance that the Company will be
able to consummate the acquisition on terms favorable to the Company and
successfully integrate any such acquisition into its existing operations and
there can be no assurance as to the timing or effect on the business of the
Company of any such acquisitions.

The Company's acquisition of a school constitutes a change in ownership
resulting in a change of control with respect to such school for purposes of
Title IV eligibility, which means that schools must either be acquired subject
to recertification of eligibility by the Department of Education or that the
school will lose its eligibility to participate in Title IV Programs for an
indeterminate period of time during which it applies for recertification of
eligibility. The Company's experience has been that the Department of Education
typically processes such applications for recertification in three to six
months. Since that is generally less than the minimum enrollment period for each
of the Company's schools, there generally should be no significant interruption
of Title IV funding caused by the need to apply for a recertification of
eligibility as a result of an acquisition. There can be no assurance, however,
that recertification applications will be acted upon on a timely basis by the
Department of Education so as to avoid any significant interruption of Title IV
funding to students at the acquired school. Prior to recertification by the
Department of Education, the Company must also obtain approval of the change in
control from applicable states and accrediting agencies. In the past this
process has taken from three to six months for the Company to complete. The
Company has been recertified for eligibility by the Department of Education with
respect to each of its acquisitions. Although the Company has had no difficulty
in obtaining such recertification and approval in the past, there can be no
assurance that such state, accrediting and Department of Education approvals
(including those approvals required in connection with the Texas Acquisition)
may not be subject to unexpected delays or difficulties which may materially and
adversely effect the Company's operations.

In acquiring a school, the Company becomes liable to the Department of
Education for any liabilities of the seller on account of the seller's failure
to comply with the HEA or the Regulations prior to the date of acquisition. The
Company attempts to minimize the impact of any such liabilities by including
representations as to regulatory compliance and indemnification provisions in
the relevant acquisition agreements. No material amount of Title IV regulatory
liabilities have been asserted against the Company with respect to any of its
prior acquisitions, however, no assurance can be given that any assertions will
not be made in the future, including possible assertions of liabilities in
connection with the Texas Acquisition. See "Business -- Texas Acquisition." In
addition, if available offsets are insufficient, there can be no assurance that
the parties

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<PAGE> 15

responsible for indemnification of the Company from such liabilities will have
the financial resources necessary to indemnify the Company for all or any
portion of such possible liabilities.

NEED FOR ADDITIONAL FINANCING

VARIABILITY IN QUARTERLY OPERATING RESULTS

The Company's quarterly revenues have varied in the past and may vary
significantly in the future as a result of a number of factors, including
fluctuations in the number of new students enrolling in the Company's programs.
New enrollments in the Company's schools tend to be higher in the third and
fourth fiscal quarters because the third and fourth quarters cover periods
associated with the beginning of school semesters. The Company expects these
seasonal trends will continue. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Variations in Quarterly Results
of Operations."

HISTORY OF OPERATING LOSSES

The Company has experienced net losses in two of the last three fiscal
years ($1,561,000 and $1,428,000 in fiscal 1994 and fiscal 1995, respectively).
In addition, the Company's strategy of growth through acquisition exposes it to
potential losses incurred in connection with the integration of newly acquired
schools into its systems, the potential need for additional capital or operating
expenditures to enhance the operations of such schools or their failure to
perform as anticipated. There can be no assurance that the Company will operate
profitably or have positive cash flow from operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

COMPETITION

The postsecondary education market is highly fragmented and competitive
with no private or public institution having a significant market share. The
Company's schools compete for students with not-for-profit public and private
colleges and proprietary institutions which offer degree and/or non-degree
granting programs. Such proprietary institutions include vocational and
technical training schools, continuing education programs and commercial
training programs. Public and private colleges may offer programs similar to
those offered by the Company's schools at lower tuition costs due in part to
government subsidies, foundation grants, tax deductible contributions, or other
financial resources not available to proprietary institutions. Certain of the
Company's competitors in both the public and private sector have greater
financial and other resources than the Company. See "Business -- Competition."

DEPENDENCE ON KEY PERSONNEL

The Company's success depends upon the availability and performance of its
senior management, particularly Gary D. Kerber, the Company's Chairman and
President. Mr. Kerber has entered into an

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<PAGE> 16

employment contract with the Company, however, it may be terminated by him at
any time. Although the Company maintains key man life insurance on Mr. Kerber in
the amount of $1,000,000, the loss of Mr. Kerber's services could have a
material adverse effect on the Company. See "Management."

CONTROL BY INSIDERS

Upon completion of the Offering, Sprout Capital V, Sprout Technology Fund,
L.P. and DLJ Venture Capital Fund II, L.P. (collectively, the "Sprout Group"),
Lawrence, Tyrrell, Ortale & Smith ("LTOS"), and Delaware State Employees'
Retirement Fund (the "Delaware Fund"), Declaration of Trust for Defined Benefit
Plans of ICI American Holding Inc. (the "ICI Trust") and Declaration of Trust
for Defined Benefit Plans of Zeneca Holding Inc. (the "Zeneca Trust") will own,
approximately 14.0%, 14.0%, 9.6%, 2.0% and 1.6%, respectively, of the
outstanding Common Stock of the Company, assuming the Over-allotment Option is
exercised. Mr. Robert T. Cresci, a director of the Company, is a principal of
Pecks Management Partners Ltd. ("Pecks"), an investment management firm which
exercises voting and investment control over the shares of Common Stock owned by
the Delaware Plan, the ICI Trust and the Zeneca Trust. Mr. W. Patrick Ortale and
Mr. Richard E. Kroon, both of whom are directors of the Company, are principals
of LTOS and the Sprout Group, respectively. As a practical matter, Messrs.
Cresci, Kroon and Ortale, or the respective entities they represent, acting
together would be able to elect all of the Company's directors and to control
other actions requiring shareholder approval. In addition, pursuant to a
Coinvestors Agreement (the "Coinvestors Agreement"), dated July 23, 1991, each
of such shareholders and Mr. Gary Kerber, the Chairman of the Company and the
holder of approximately 4.6% of the Company's outstanding Common Stock after the
Offering (assuming the Over-allotment Option is exercised), have agreed to vote
their shares of Common Stock for the election of one director nominated jointly
by the Delaware Plan, the ICI Trust and the Zeneca Trust (collectively, the
"Pecks Managed Entities"). See "Certain Transactions" and "Principal and Selling
Stockholders."

NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE

Prior to the Offering, there has been no public market for the Common
Stock. Subject to notice of issuance, the Common Stock has been approved for
quotation and trading of its Common Stock on the NNM. The initial public
offering price for the Common Stock will be determined by negotiations between
the Company and the representatives of the Underwriters and may not be
indicative of the market price for the Common Stock after the Offering. See
"Underwriting." There can be no assurance that the market price of the Common
Stock prevailing at any time after the Offering will equal or exceed the initial
public offering price. In addition, the stock market has, from time to time,
experienced extreme price and volume fluctuations, which could adversely affect
the market price of the Common Stock without regard to the financial performance
of the Company. The market price of the Common Stock may fluctuate substantially
in response to variations in the Company's results of operations, announcements
by the Company or other developments affecting the Company, as well as by
general economic and other external factors.

ABSENCE OF DIVIDENDS

The Company has not paid any dividends to date. The Company does not
currently intend to declare or pay dividends on its Common Stock in the
foreseeable future, but plans to retain any earnings for use in its business
operations. See "Dividend Policy." In addition, the Proposed Bank Line of Credit
contains restrictions which prohibit the Company from paying dividends while
such credit line is in effect.

IMMEDIATE AND SUBSTANTIAL DILUTION

Based upon an assumed initial public offering price of $12.00 per Share,
purchasers of Shares in the Offering will experience an immediate and
substantial dilution of $8.99 in pro forma net tangible book value per Share.
See "Dilution."

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<PAGE> 17

SHARES ELIGIBLE FOR FUTURE SALE

After the Offering 6,694,411 shares of Common Stock will be outstanding.
The Company has reserved an additional (i) 961,666 shares of Common Stock for
issuance pursuant to the 1996 Stock Incentive Plan, which shares will be
registered under the Securities Act of 1933, as amended (the "Securities Act"),
(ii) 200,000 shares of Common Stock for issuance pursuant to the Company's
Non-employee Director Stock Option Plan, which shares will be registered under
the Securities Act, and (iii) 43,334 shares of Common Stock which may be
purchased upon exercise of outstanding warrants to purchase Common Stock. Any
shares issued pursuant to the 1996 Stock Incentive Plan or the Non-employee
Director Stock Option Plan will be freely transferable upon issuance without
registration under the Securities Act, subject to volume limitations contained
in Rule 144 ("Rule 144") under the Securities Act applicable to affiliates, as
that term is defined in the Securities Act. Of the 6,694,411 outstanding shares,
the 2,700,000 shares sold in the Offering (3,105,000 shares if the
Over-allotment Option is exercised in full) will be freely transferable by
persons other than affiliates of the Company without registration under the
Securities Act. The remaining 3,994,411 shares of Common Stock which will be
beneficially owned by the existing stockholders of the Company upon the
completion of the Offering will be "restricted securities," as defined in Rule
144, and may be resold thereafter in compliance with Rule 144. No prediction can
be made as to the effect that resale of shares of Common Stock, or the
availability of shares of Common Stock for resale, will have on the market price
of the Common Stock prevailing from time to time. The resale of substantial
amounts of Common Stock, or the perception that such resales may occur, could
adversely affect prevailing market prices of the Common Stock and could
impair the Company's ability in the future to raise additional capital through
the sale of its equity securities. The Company has agreed not to issue, and
certain current shareholders of the Company holding substantially all of the
existing shares of Common Stock have agreed not to sell, any shares of Common
Stock or other equity securities of the Company for 180 days after the date of
this Prospectus without the prior written consent of Smith Barney Inc. See
"Underwriting."

ANTITAKEOVER PROVISIONS AND TITLE IV CHANGE IN CONTROL REGULATIONS

Certain provisions of the Company's Certificate of Incorporation and Bylaws
authorize the issuance of "Blank Check" preferred stock and establishing advance
notice requirements for director nominations and actions to be taken at
stockholder meetings. These provisions could discourage or impede a tender
offer, proxy contest or other similar transaction involving control of the
Company, which transactions might be viewed favorably by minority stockholders.
See "Description of Capital Stock -- Delaware Law and Certain Charter and Bylaw
Provisions." Provisions in the applicable Regulations pursuant to which the
Company would lose its Title IV eligibility in the event of a change in
ownership resulting in a change of control could have a similar discouraging
effect. See "Risk Factors -- Potential Adverse Effects of Regulation."

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<PAGE> 18

USE OF PROCEEDS

The net proceeds to the Company from the Offering (after deduction of
estimated underwriting discounts and commissions and Offering expenses) are
estimated to be approximately $24.0 million, assuming an initial public offering
price of $12.00 per Share. The Company will not receive any proceeds from the
sale of Common Stock by the Primary Selling Stockholders or the Over-allotment
Selling Stockholders. The Company expects to use (i) approximately $2.2 million
of the net proceeds of the Offering to repay senior subordinated indebtedness
with a carrying value of approximately $1.9 million, bearing interest at 14% per
annum and maturing in March 2000, and (ii) approximately $2.6 million of the net
proceeds of the Offering to repay senior subordinated indebtedness with a
carrying value of approximately $2.4 million, bearing interest at 13% per annum
and maturing in July 2000 or earlier if the 14% senior subordinated indebtedness
is repaid prior to March 2000. The Company intends to use the remainder of the
net proceeds of the Offering for general corporate purposes, including the
expansion of its operations through the acquisition of additional schools and
adding academic programs at existing Company schools. The Company continually
investigates opportunities to acquire new schools and related businesses. The
Company has entered into an agreement to acquire three schools located in Texas
for an aggregate consideration of $2.5 million (see "Business -- Texas
Acquisition"). No assurance can be given that such acquisition will be
completed. Pending use for the purposes described above, the Company will invest
net proceeds from the Offering in short-term, interest bearing investment-grade
securities.

DIVIDEND POLICY

Following the Offering, the Company anticipates that it will not pay
dividends on the Common Stock for the foreseeable future and that it will retain
its earnings to finance future growth. The declaration and payment of dividends
by the Company are subject to the discretion of its Board of Directors and
applicable corporation law. Any determination as to the payment of dividends in
the future will depend upon, among other things, general business conditions,
the effect of such payment on the Company's financial condition and other
factors the Company's Board of Directors may in the future consider to be
relevant. Prior to 1991, the Company's convertible preferred stock had a
cumulative dividend feature of 8% per annum. This feature was eliminated in 1991
and the dividends due of $1,232,498 were paid by the issuance of 410,833 shares
of Common Stock. Since then, no dividends have been declared or paid on the
convertible preferred stock, which shares are being converted into 1,705,082
shares of Common Stock in connection with the consummation of the Offering. No
dividends have been declared or paid on the Common Stock since the Company's
inception.

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DILUTION

At June 30, 1996, the pro forma net tangible book value (deficit) of the
Company (assuming the consummation of the Offering Transactions and the Texas
Acquisition but before the Offering) was approximately ($3.3 million), or ($.73)
per share of Common Stock. The pro forma net tangible book (deficit) per share
of Common Stock is defined as the Company's total assets excluding goodwill and
other intangibles, less its total liabilities, divided by the number of shares
of Common Stock outstanding. After giving effect to the issuance by the Company
of the 2,200,000 Shares offered hereby (at an assumed initial public offering
price of $12.00 per Share, and after deducting estimated underwriting discounts
and commissions and offering expenses), the pro forma as adjusted net tangible
book value of the Company as of June 30, 1996 would have been approximately
$20.2 million or $3.01 per share of Common Stock. This represents an immediate
dilution of $8.99 per share of Common Stock to new investors purchasing Shares
in the Offering at the assumed initial public offering price. The following
table illustrates this per share dilution:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.............................. $12.00
Pro forma net tangible book value (deficit) per share after
consummation
of the Offering Transactions and the Texas Acquisition and
before the Offering............................................. $ (.73)
Increase attributable to the Offering.............................. 3.74
------
Pro forma as adjusted net tangible book value per share after consummation
of the Offering Transactions, the Texas Acquisition and the Offering....... 3.01
------
Dilution per share to new investors.......................................... $ 8.99
======
</TABLE>

The following table sets forth with respect to existing stockholders and
new investors in this Offering, a comparison of the number of shares of Common
Stock acquired from the Company, the percentage of ownership of such shares, the
total cash consideration paid, the percentage of total cash consideration paid
and the average price per share. It assumes that the Offering Transactions have
been completed and the Over-allotment Option has not been exercised.

<TABLE>
<CAPTION>
TOTAL CASH CONSIDERATION
SHARES PURCHASED PAID
--------------------- ------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1)........ 4,494,411 67.1% $ 8,143,193 23.6% $ 1.81
New investors purchasing shares
from the Company.............. 2,200,000 32.9 26,400,000 76.4 $ 12.00
--------- ----- ----------- -----
Total................. 6,694,411 100.0% $34,543,193 100.0%
========= ===== =========== =====
</TABLE>

- ---------------

(1) Shares are net of 29,165 shares of Common Stock held by the Company as
treasury stock and consideration is net of $35,000 related cost.

17
<PAGE> 20

CAPITALIZATION

The following table sets forth as of June 30, 1996 (i) the historical
capitalization of the Company, (ii) pro forma capitalization of the Company,
giving effect to the Offering Transactions and (iii) such pro forma
capitalization, as adjusted to give effect to the Texas Acquisition and the sale
of the Common Stock offered hereby and the application of net proceeds therefrom
as described under "Use of Proceeds."

<TABLE>
<CAPTION>
JUNE 30, 1996
---------------------------------------
PRO FORMA
HISTORICAL PRO FORMA AS ADJUSTED(1)
---------- --------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents.................................... $ 2,028 $ 2,029 $ 21,131
======= ======= =======
Long-term debt............................................... $ 6,738 $ 6,738 4,868
Stockholders' equity
Preferred stock, $.01 par value -- authorized 5,000,000
shares (pro forma and pro forma as adjusted); none
issued and outstanding.................................. -- -- --
Convertible preferred stock, $.01 par value -- authorized
1,100,000 shares (historical); none (pro forma and pro
forma as adjusted), 1,023,049 shares issued and
outstanding (historical), none (pro forma and pro forma
as adjusted)............................................ 10 -- --
Additional paid-in capital on convertible preferred
stock................................................... 6,732 -- --
Common stock, $.01 par value -- authorized 5,833,333
(historical), 15,000,000 shares (pro forma and pro forma
as adjusted); 1,676,827 shares issued and outstanding
(historical); 4,523,576 shares (pro forma) and 6,723,576
shares (pro forma as adjusted).......................... 17 45 67
Additional paid-in capital on common stock................. -- 9,655 33,585
Common stock purchase warrants............................. 2,940 -- --
Accumulated deficit........................................ (4,069) (4,069) (4,626)
Less treasury stock, at cost (29,165 shares of Common
Stock).................................................. (35) (35) (35)
------- ------- -------
Total stockholders' equity................................... 5,595 5,596 28,991
------- ------- -------
Total capitalization.................................... $ 12,333 $12,334 $ 33,859
======= ======= =======
</TABLE>

- ---------------

(1) For a description of adjustments, see "Unaudited Pro Forma As Adjusted
Condensed Consolidated Balance Sheet."

18
<PAGE> 21

UNAUDITED PRO FORMA AS ADJUSTED FINANCIAL DATA

On September 6, 1996, the Company entered into an acquisition agreement
providing for the purchase of three schools located in Texas for $2.5 million
(the "Texas Acquisition") subject to approval by the Texas Workforce Commission.
The Company financed the Texas Acquisition as follows: $50,000 was paid on
September 6, 1996, $50,000 will be paid upon approval by the Texas Workforce
Commission, $1,150,000 will be paid upon approval by the Department of Education
and the remaining $1,250,000 is payable in the form of a five year promissory
note bearing interest at 8% per annum and due in five equal annual principal
payments. The Company intends to account for the business combination as a
purchase, effective September 6, 1996.

The Unaudited Pro Forma As Adjusted Condensed Consolidated Statement of
Operations set forth below for the year ended March 31, 1996 has been derived
from the Company's consolidated historical statement of operations for the
fiscal year ended March 31, 1996 and from the Texas Acquisition's combined
statement of operations for the year ended December 31, 1995, and gives effect
to the Texas Acquisition, the Offering Transactions and the Offering as if they
had occurred on April 1, 1995.

The Unaudited Pro Forma As Adjusted Condensed Consolidated Statement of
Operations set forth below for the three months ended June 30, 1996 has been
derived from the Company's unaudited consolidated historical statement of
operations for the three months ended June 30, 1996 and from the Texas
Acquisition's unaudited combined historical statement of operations for the same
three month period, and gives effect to the Texas Acquisition, the Offering
Transactions and the Offering, as if they had occurred on April 1, 1996.
Although the Company and the Texas Acquisition used different fiscal years, the
pro forma as adjusted data for the three months ended June 30, 1996 uses the
same calendar quarter, in order to match seasonality.

The Unaudited As Adjusted Condensed Consolidated Balance Sheet as of June
30, 1996 has been derived from the unaudited interim financial statements. The
Unaudited As Adjusted Condensed Consolidated Balance Sheet has been adjusted to
reflect the Texas Acquisition, the Offering Transactions and the Offering, as if
they had occurred on June 30, 1996.

THE UNAUDITED PRO FORMA AS ADJUSTED FINANCIAL DATA ARE PROVIDED FOR
COMPARATIVE PURPOSES ONLY AND DO NOT PURPORT TO BE INDICATIVE OF THE RESULTS
WHICH ACTUALLY WOULD HAVE BEEN OBTAINED IF THE ABOVE-MENTIONED TRANSACTIONS HAD
BEEN EFFECTED ON THE DATES INDICATED OR OF THE RESULTS WHICH MAY BE OBTAINED IN
THE FUTURE. THE INFORMATION PROVIDED IN THE UNAUDITED PRO FORMA AS ADJUSTED
FINANCIAL DATA IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY AND
RELATED NOTES THERETO, THE UNAUDITED INTERIM FINANCIAL STATEMENTS OF THE COMPANY
AND RELATED NOTES THERETO AND THE SAN ANTONIO COLLEGE OF MEDICAL AND DENTAL
ASSISTANTS, INC. AND CAREER CENTERS OF TEXAS -- EL PASO, INC.'S COMBINED
FINANCIAL STATEMENTS AND RELATED NOTES THERETO.

19
<PAGE> 22

UNAUDITED PRO FORMA AS ADJUSTED CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
EDUCATIONAL EDUCATIONAL
EDUCATIONAL TEXAS MEDICAL, INC. PRO FORMA MEDICAL, INC.
MEDICAL, INC. ACQUISITION MARCH 31, OFFERING YEAR ENDED
YEAR ENDED YEAR ENDED 1996 AND MARCH 31,
MARCH 31, DECEMBER 31, PRO FORMA PRO FORMA OFFERING 1996
1996 1995 ACQUISITION FOR TEXAS TRANSACTION PRO FORMA
ACTUAL ACTUAL ADJUSTMENTS ACQUISITION ADJUSTMENTS AS ADJUSTED
------------- ------------ ----------- ------------- ------------ -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net revenues....................... $ 38,652 $4,743 $ -- $43,395 $ -- $ 43,395
Cost of education and facilities... 17,639 2,225 (65)(1) 19,799 -- 19,799
Selling and promotional expenses... 5,569 371 -- 5,940 -- 5,940
Administrative expenses............ 11,110 1,516 -- 12,626 -- 12,626
Amortization of goodwill and
intangibles...................... 883 1 196(2) 1,080 -- 1,080
------- ------ ---- -------
Income (loss) from operations
before other expenses............ 3,451 630 (131) 3,950 -- 3,950
Other expenses..................... 1,929 -- -- 1,929 -- 1,929
------- ------ ---- -------
Income (loss) from operations...... 1,522 630 (131) 2,021 -- 2,021
Interest expense (income), net..... 811 (49) 100(3) 862 (831)(4) 31
------- ------ ---- -------
Income (loss) before income taxes
and extraordinary loss........... 711 679 (231) 1,159 831 1,990
Provision for income taxes......... 632 -- 153(5) 785 357(6) 1,142
------- ------ ---- -------
Income (loss) before extraordinary
loss(7).......................... $ 79 $ 679 $(384) $ 374 $ 474 $ 848
======= ====== ==== =======
Income before extraordinary loss
per share(8)..................... $ .02
=======
Weighted average number of shares
used in computing income before
extraordinary loss per share..... 4,426,311
=======
Pro forma as adjusted income before
extraordinary loss per
share(9)......................... $ .12
===========
Pro forma as adjusted weighted
average number of shares used in
computing pro forma as adjusted
income before extraordinary loss
per share........................ 6,988,263
===========
</TABLE>

- ---------------

(1) Represents a negotiated reduction in lease expense for property leased from
the former owner.
(2) Represents additional amortization of goodwill recorded in connection with
the purchase price allocation of the Texas Acquisition. Goodwill is
amortized over a fifteen year period.
(3) Represents additional interest expense recorded in connection with the
long-term debt recorded in connection with the Texas Acquisition.
(4) Represents interest expense reduction recorded in connection with the
anticipated use of net proceeds to repay $4.8 million of long-term debt.
(5) Represents a provision for income taxes as the Texas Acquisition operated as
subchapter S Corporations and all federal income taxes were the
responsibility of the individual stockholders.
(6) Represents increase in provision for income taxes due to a reduction in
interest expense in connection with the anticipated use of net proceeds to
repay $4.8 million of long-term debt.
(7) Upon consummation of the Offering, approximately $480,000 of long-term debt
discount and approximately $77,000 of deferred debt issuance costs will be
written off and be reported as an extraordinary loss.
(8) Historical income before extraordinary loss per share was computed by
dividing income before extraordinary loss by the weighted average number of
shares of common stock and common stock equivalents outstanding plus cheap
stock using the treasury stock method at the estimated market prices at each
applicable date.
(9) Pro forma as adjusted income before extraordinary loss per share was
computed by dividing income before extraordinary loss by the weighted
average number of shares of Common Stock outstanding after giving
retroactive effect to the mandatory conversion of all of the Company's
Convertible Preferred Stock into 1,705,082 shares and the exercise of
warrants to purchase 1,141,667 shares, all of which will occur upon the
consummation of the Offering, plus cheap stock and the issuance of 2,200,000
shares of Common Stock upon the consummation of the Offering. Retroactive
restatement has been made to share and per share amounts for a
five-for-three stock split. Pursuant to the Securities and Exchange
Commission Staff Accounting Bulletin No. 83, common stock and common stock
equivalents issued at prices below the assumed initial public offering price
per share ("cheap stock") during the twelve month period immediately
preceding the initial filing date of the Company's Registration Statement
for its public offering have been included as outstanding for all periods
presented (using the treasury stock method at the assumed initial public
offering price) even though the effect is to reduce the loss per share.

20
<PAGE> 23

UNAUDITED PRO FORMA AS ADJUSTED CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
EDUCATIONAL
EDUCATIONAL MEDICAL,
MEDICAL, TEXAS INC.
INC. ACQUISITION EDUCATIONAL PRO FORMA THREE MONTHS
THREE MONTHS THREE MONTHS MEDICAL, INC. OFFERING ENDED
ENDED ENDED PRO JUNE 30, 1996 AND JUNE 30,
JUNE 30, JUNE 30, FORMA PRO FORMA FOR OFFERING 1996
1996 1996 ACQUISITION TEXAS TRANSACTION PRO FORMA
ACTUAL ACTUAL ADJUSTMENTS ACQUISITION ADJUSTMENTS AS ADJUSTED
------------ ------------ ----------- ------------- ----------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net revenues............... $ 9,203 $ 1,195 $ -- $10,398 -- $ 10,398
Cost of education and
facilities............... 4,644 588 (16)(1) 5,216 -- 5,216
Selling and promotional
expenses................. 1,419 116 -- 1,535 -- 1,535
Administrative expenses.... 2,658 373 -- 3,031 -- 3,031
Amortization of goodwill
and intangibles.......... 176 -- 49(2) 225 -- 225
------- ------- ------- ------- ----- -------
Income (loss) from
operations before other
expenses................. 306 118 (33) 391 -- 391
Other expenses............. -- -- -- -- -- --
------- ------- ------- ------- ----- -------
Income (loss) from
operations............... 306 118 (33) 391 -- 391
Interest expense (income),
net...................... 196 (10) 25(3) 211 (208)(4) 3
------- ------- ------- ------- ----- -------
Income (loss) before income
taxes and extraordinary
loss..................... 110 128 (58) 180 208 388
Provision for income
taxes.................... 44 -- 22(5) 66 89(6) 155
------- ------- ------- ------- ----- -------
Income (loss) before
extraordinary loss(7).... $ 66 $ 128 $ (80) $ 114 $ 119 $ 233
======= ======= ======= ======= ===== =======
Income before extraordinary
loss per share(8)........ $ .01
=======
Weighted average number of
shares used in computing
income before
extraordinary loss per
share.................... 4,801,095
=========
Pro forma as adjusted
income before
extraordinary loss per
share(9)................. $ .03
=======
Pro forma as adjusted
weighted average number
of shares used in
computing pro forma as
adjusted income before
extraordinary loss per
share.................... 6,988,263
=========
</TABLE>

- ---------------

(1) Represents a negotiated reduction in lease expense for property leased from
the former owner.
(2) Represents additional amortization of goodwill recorded in connection with
the purchase price allocation of the Texas Acquisition. Goodwill is
amortized over a fifteen year period.
(3) Represents additional interest expense recorded in connection with the
long-term debt recorded in connection with the Texas Acquisition.
(4) Represents interest expense reduction recorded in connection with the
anticipated use of proceeds to repay $4.8 million of debt.
(5) Represents a provision for income taxes as the Texas Acquisition operated as
subchapter S corporations and all federal income taxes were the
responsibility of the individual stockholders.
(6) Represents increase in provision for income taxes due to a reduction in
interest expense in connection with the anticipated use of net proceeds to
repay $4.8 million of long-term debt.
(7) Upon consummation of the Offering, approximately $480,000 of long-term debt
discount and approximately $77,000 of deferred debt issuance costs will be
written off and be reported as an extraordinary loss.
(8) Historical income before extraordinary loss per share was computed by
dividing income before extraordinary loss by the weighted average number of
shares of common stock and common stock equivalents outstanding plus cheap
stock using the treasury stock method at the estimated market prices at each
applicable date.
(9) Pro forma as adjusted per share was computed by dividing income before
extraordinary loss by the weighted average number of shares of Common Stock
outstanding after giving retroactive effect to the mandatory conversion of
all of the Company's Convertible Preferred Stock into 1,705,082 shares and
the exercise of warrants to purchase 1,141,667 shares, all of which will
occur upon the consummation of the Offering, plus cheap stock and the
issuance of 2,200,000 shares of Common Stock upon the consummation of the
Offering. Retroactive restatement has been made to share and per share
amounts for a five-for-three stock split. Pursuant to the Securities and
Exchange Commission Staff Accounting Bulletin No. 83, common stock and
common stock equivalents issued at prices below the assumed initial public
offering price per share ("cheap stock") during the twelve month period
immediately preceding the initial filing date of the Company's Registration
Statement for its public offering have been included as outstanding for all
periods presented (using the treasury stock method at the assumed initial
public offering price) even though the effect is to reduce the loss per
share.

21
<PAGE> 24

UNAUDITED PRO FORMA AS ADJUSTED CONDENSED CONSOLIDATED BALANCE SHEET

<TABLE>
<CAPTION>
EDUCATIONAL PRO FORMA
MEDICAL, INC. OFFERING EDUCATIONAL
EDUCATIONAL TEXAS JUNE 30, 1996 AND MEDICAL, INC.
MEDICAL, INC. ACQUISITION PRO FORMA PRO FORMA FOR OFFERING JUNE 30, 1996
JUNE 30, 1996 JUNE 30, 1996 ACQUISITION TEXAS TRANSACTIONS PRO FORMA
ACTUAL ACTUAL ADJUSTMENTS ACQUISITION ADJUSTMENTS AS ADJUSTED
------------- ------------- ----------- ------------- ----------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash
equivalents............ $ 2,027,990 $ 1,835,459 $ (50,000)(1) $ 1,977,990 $ 850(4) $ 21,130,840
(1,835,459)(2) 19,152,000(5)
Restricted cash.......... 617,428 -- -- 617,428 -- 617,428
Trade accounts
receivable, net........ 2,962,930 -- -- 2,962,930 -- 2,962,930
Prepaid expenses......... 997,333 66,404 (49,695)(2) 1,014,042 -- 1,014,042
----------- ---------- -------- ------------ ---------- ------------
Total current
assets........... 6,605,681 1,901,863 (1,935,154) 6,572,390 19,152,850 25,725,240
Property and equipment,
net.................... 4,348,380 180,036 -- 4,528,416 -- 4,528,416
Deferred debt issuance
costs, net............. 76,918 -- -- 76,918 (76,918)(5) --
Covenants not to compete,
net.................... 913,497 -- -- 913,497 -- 913,497
Goodwill and other
intangibles, net....... 4,944,613 11,516 2,939,074(3) 7,895,203 -- 7,895,203
Other assets............. 229,213 9,942 -- 239,155 -- 239,155
----------- ---------- -------- ------------ ---------- ------------
Total Assets....... $17,118,302 $ 2,103,357 $ 1,003,920 $20,225,579 $19,075,932 $ 39,301,511
=========== ========== ======== ============ ========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable......... $ 230,571 $ 108,544 $ (108,544)(2) $ 230,571 -- $ 230,571
Accrued compensation..... 591,211 -- -- 591,211 -- 591,211
Accrued income taxes..... 85,182 -- -- 85,182 -- 85,182
Accrued expenses......... 655,427 265,920 (265,920)(2) 655,427 -- 655,427
Deferred tuition
income................. 2,141,247 657,277 -- 2,798,524 -- 2,798,524
Current portion of
long-term debt......... 1,059,277 -- 1,450,000(1) 2,509,277 (400,000)(5) 2,109,277
----------- ---------- -------- ------------ ---------- ------------
Total current
liabilities...... 4,762,915 1,031,741 1,075,536 6,870,192 (400,000) 6,470,192
Long-term debt........... 5,678,640 -- 1,000,000(1) 6,678,640 (4,400,000)(5) 2,758,339
479,699(5)
Other liabilities........ 1,081,675 -- -- 1,081,675 -- 1,081,675
----------- ---------- -------- ------------ ---------- ------------
Total
liabilities...... 11,523,230 1,031,741 2,075,536 14,630,507 (4,320,301) 10,310,206
Stockholders' Equity:
Preferred stock.......... -- -- -- -- -- --
Convertible preferred
stock.................. 10,230 -- -- 10,230 (10,230)(6)
Additional paid-in
capital on convertible
preferred stock........ 6,732,160 -- -- 6,732,160 (6,732,160)(6) --
Common stock............. 16,768 11,000 (11,000)(3) 16,768 17,050(6) 67,235
10,000(7)
1,417(4)
22,000(5)
Additional paid-in
capital on common
stock.................. 35 104,074 (104,074)(3) 35 6,725,340(6) 33,584,542
2,561,584(7)
367,583(4)
23,930,000(5)
Common stock purchase
warrants............... 2,939,734 -- -- 2,939,734 (2,571,584)(7) --
(368,150)(4)
Retained earnings
(accumulated
deficit)............... (4,068,855) 1,442,219 (1,442,219)(3) (4,068,855) (556,617)(8) (4,625,472)
Less treasury stock...... (35,000) (485,677) 485,677(3) (35,000) -- (35,000)
----------- ---------- -------- ------------ ---------- ------------
Total stockholders'
equity........... 5,595,072 1,071,616 (1,071,616) 5,595,072 23,396,233 28,991,305
----------- ---------- -------- ------------ ---------- ------------
Total liabilities
and stockholders'
equity........... $17,118,302 $ 2,103,357 $ 1,003,920 $20,225,579 $19,075,932 $ 39,301,511
=========== ========== ======== ============ ========== ============
</TABLE>

- ---------------

(1) To reflect the purchase of the Texas Acquisition and related financing.
(2) The terms of the Texas Acquisition excluded these assets and liabilities.
(3) To reflect the Company's purchase price allocation of the Texas Acquisition.
(4) To reflect the exercise of stock purchase warrants to purchase 141,667
shares.
(5) To reflect the sale of 2,200,000 shares of Common Stock by the Company and
the resulting use of the net proceeds of the Offering.
(6) To reflect the mandatory conversion of the convertible preferred stock upon
consummation of the Offering Transactions.
(7) To reflect the cashless exercise of certain stock purchase warrants to
purchase 1,000,000 shares.
(8) Upon consummation of the Offering, approximately $480,000 of long-term debt
discount and approximately $77,000 of deferred debt issuance costs will be
written off and be reported as an extraordinary loss.

22
<PAGE> 25

SELECTED CONSOLIDATED FINANCIAL AND OTHER OPERATING DATA

The following selected consolidated and other operating data of the Company
are qualified by reference to, and should be read in conjunction with, the
Consolidated Financial Statements and Notes thereto and other financial data
included elsewhere in this Prospectus. The financial data set forth below for
each of the three years in the period ended March 31, 1996 and as of March 31,
1996 and 1995, have been derived from the audited Consolidated Financial
Statements of the Company included elsewhere in this Prospectus. The financial
data for each of the two years in the period ended March 31, 1993 and as of
March 31, 1994, 1993, and 1992 have been derived from audited consolidated
financial statements of the Company not included in this Prospectus. The
information at June 30, 1996 and June 30, 1995 and for the three month periods
then ended is unaudited, but in the opinion of the Company reflects all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of the results of operations for such periods. These
historical results are not necessarily indicative of the results that may be
expected in the future. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED MARCH 31, JUNE 30,
-------------------------------------------------- --------------------
1992 1993 1994 1995 1996 1995 1996
------- ------- ------- ------- ---------- ------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net revenues............... $13,256 $19,113 $26,475 $32,065 $ 38,652 $ 8,762 $ 9,203
Cost of education and
facilities............... 4,624 7,596 12,308 15,081 17,639 4,236 4,644
Selling and promotional
expenses................. 1,764 2,593 4,059 5,400 5,569 1,352 1,419
Administrative expenses.... 4,489 5,501 8,680 10,030 11,110 2,720 2,658
Amortization of goodwill
and intangibles.......... 821 1,072 1,235 1,255 883 256 176
------- ------- ------- -------- ------- -------- ----------
Income from operations
before other expenses.... 1,558 2,351 193 299 3,451 198 306
Other expenses(1):
Legal defense and
settlement costs...... -- -- -- 600 1,115 -- --
Loss on closure or
relocation of
school................ -- -- 1,126 -- 50 -- --
Impairment of goodwill
and intangibles....... -- -- -- 176 764 -- --
------- ------- ------- -------- ------- -------- ----------
Total other
expenses....... -- -- 1,126 776 1,929 -- --
------- ------- ------- -------- ------- -------- ----------
Income (loss) from
operations............... 1,558 2,351 (933) (477) 1,522 198 306
Interest expense, net...... 389 574 798 923 811 249 196
------- ------- ------- -------- ------- -------- ----------
Income (loss) before income
taxes and extraordinary
credit................... 1,169 1,777 (1,731) (1,400) 711 (51) 110
Provision (benefit) for
income taxes (2)......... 519 749 (170) 28 632 11 44
------- ------- ------- -------- ------- -------- ----------
Income (loss) before
extraordinary credit..... 650 1,028 (1,561) (1,428) 79 (62) 66
Extraordinary credit --
utilization of net
operating loss
carryforward(2).......... 435 -- -- -- -- -- --
------- ------- ------- -------- ------- -------- ----------
Net income (loss).......... $ 1,085 $ 1,028 $(1,561) $(1,428) $ 79 $ (62) $ 66
======= ======= ======= ========== ======= ======== ==========
Pro forma net income per
share (unaudited)(3)(4).. $ .02 $ .01
========== ==========
Pro forma shares
outstanding
(unaudited)(3)........... 4,788,263 4,788,263
========= ==========
</TABLE>

23
<PAGE> 26

<TABLE>
<CAPTION> THREE MONTHS ENDED
JUNE 30,
YEAR ENDED MARCH 31, ------------------
1992 1993 1994 1995 1996 1995 1996
------- ------- ------- ------- ------- ----- -----
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER OPERATING DATA(5):
Number of schools at end of
period................... 8 9 14 14 14 14 14
Number of students at end
of period................ 2,181 2,374 3,480 4,095 4,318 3,673 3,796
Number of new student
starts during period..... 2,589 3,667 4,668 5,536 5,893 1,171 1,129
Monthly withdrawal rate
during period(6)......... 4.9% 4.8% 4.7% 3.8% 3.8% 4.0% 4.0%
</TABLE>

<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
--------------------------------------------------- ---------------------
1992 1993 1994 1995 1996 1995 1996
------- ------- ------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents............. $ 4,850 $ 6,533 $ 2,745 $ 2,480 $ 3,033 $ 1,603 $ 2,028
Total current assets...... 6,521 8,784 6,394 7,151 7,636 5,448 6,606
Total assets.............. 13,151 16,300 18,441 19,253 18,360 17,219 17,118
Long-term debt, including
current portion......... 3,447 4,609 7,302 8,525 7,140 7,550 6,738
Total liabilities......... 6,128 8,228 11,931 13,803 12,831 11,831 11,523
Total stockholders'
equity.................. 7,023 8,072 6,510 5,450 5,529 5,388 5,595
</TABLE>

- ---------------

(1) Other expenses consist of (i) a charge in fiscal 1994 of $1,126 in
connection with the closing of a school purchased in 1989, (ii) charges in
fiscal 1995 of $600 for legal costs associated with the defense of the
class action lawsuit, and $176 for the impairment of other intangible
assets, and (iii) charges in fiscal 1996 of $1,115 for the settlement of
the class action lawsuit (see "Business -- Litigation"), $50 for the cost
of relocating a school, and $764 for the impairment of goodwill and other
intangible assets.
(2) Effective April 1, 1992, the Company adopted the liability method of
accounting for income taxes. Previously, the deferred method was used. The
effect of this change in accounting principle on the 1993 financial
statements was not material.
(3) Computed on the basis described in Note 2 to the Consolidated Financial
Statements of the Company and reflects only the Offering Transactions.
Historical losses per share are not presented here as they are not
meaningful due to the conversion of all outstanding shares of convertible
preferred stock to Common Stock and the exercise of certain Common Stock
purchase warrants, to occur upon consummation of the Offering.
(4) Of the net proceeds from the sale of Common Stock offered by the Company
hereby, approximately $4,800 will be used to repay indebtedness. Assuming
the issuance and sale of 2.2 million shares of Common Stock by the Company
at an initial public offering price of $12.00 per share and assuming that
such indebtedness had been repaid rather than outstanding during fiscal
year 1996, pro forma supplemental net income per share of Common Stock
would have been $0.11 for the year ended March 31, 1996 and $.04 for the
three months ended June 30, 1996.
(5) 1994 Other Operating Data excludes the Company's school located in Albany,
Georgia, which the Company decided to close in fiscal 1994. See Note 1
above.
(6) Represents the percentage calculated by dividing (i) the number of students
who withdrew from the Company's schools in the period by (ii) the sum of
the number of students at each month-end in the period and the number of
students who withdrew in the period.

24
<PAGE> 27

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS)

The following discussion of the Company's results of operations and
financial condition should be read in conjunction with "Selected Consolidated
Financial and Other Operating Data" and the Consolidated Financial Statements of
the Company and the Notes thereto appearing elsewhere in this Prospectus.

GENERAL

The Company owns and operates 14 schools in six states which together
provide diversified career oriented postsecondary education to over 4,300
students. The Company derives its revenue almost entirely from tuition, fees and
charges paid by, or on behalf of, its students. Most students at the Company's
schools rely on funds received under various government-sponsored student
financial aid programs, especially Title IV Programs, to pay a substantial
portion of their tuition and other education-related expenses. During fiscal
1996, approximately 75.9% of the Company's cash receipts were indirectly derived
from Title IV Programs. Cash receipts represented approximately 96.5% of the
Company's net revenue in fiscal 1996. See "Financial Aid and Regulation."

The Company's revenue varies based on the aggregate student population,
which is influenced by the number of students attending the Company's schools at
the beginning of a fiscal period, by the number of new students entering the
Company's schools during such period, and by student retention rates. New
students enter the Company's schools' degree granting programs four times a year
and diploma courses every four-to-six weeks. The Company believes that the size
of its student population is affected to some extent by general economic
conditions, and that, in the absence of countervailing factors, student
enrollments and retention rates would tend to increase as opportunities for
immediate employment for high school graduates decline and decrease as such
opportunities increase. The purchase of new Company schools and the introduction
of additional program offerings at existing Company schools have been
significant factors in increasing the aggregate student population in recent
years.

In fiscal 1996, the Company derived approximately 87.7% of its net revenue
from tuition. The Company recognizes tuition revenue on each student contract as
earned on a pro rata monthly basis over the term of the contract. Refunds are
due if a student withdraws from school prior to completion of the program and
are computed using methods required by accrediting agencies or state and federal
regulations. As of the time of withdrawal, the total earnings on the contract
mandated by the applicable formula are compared to the revenue previously
recognized by the Company. This comparison can result in either an increase or
decrease in final revenue recognition, which is recorded for accounting purposes
at the time of the applicable student's withdrawal. Historically, these net
adjustments have not been material. Other educational revenue is comprised of
fees and textbook sales.

The Company incurs expenses throughout a fiscal period in connection with
the operation of its schools. The cost of education and facilities includes
faculty salaries and benefits, cost of books sold, occupancy costs, depreciation
and amortization of equipment costs and leasehold improvements, and certain
other educational and facility costs incurred by the Company's schools.

Selling and promotional expenses include admission representatives'
salaries and benefits, direct and indirect marketing expenses and advertising
expenses.

Administrative expenses include schools', regional offices' and home
office's salaries and benefits, an allowance for doubtful accounts, and other
direct and indirect costs of the schools, regional offices, and home office.

Since its inception, the Company has pursued a strategy of growth through
acquisition. All of the Company's schools have been acquired. The Company
records as goodwill and intangibles the difference between the purchase price of
a school and its tangible net assets. Since inception, the Company has allocated
approximately $15.1 million of its purchase prices of acquired schools to
goodwill and intangibles. Goodwill is amortized over 15 years. Other intangibles
are amortized over two to 15 years. The Company also frequently

25
<PAGE> 28

enters into non-competition agreements with the owners or employees of the
schools it acquires and generally records the cost of such non-competition
agreements as intangible assets which are amortized over their respective lives
which range from two to ten years. Effective July 1993, such amortization is tax
deductible; however, amortization related to acquisitions consummated prior to
that date is only partially tax deductible on a current basis.

VARIATIONS IN QUARTERLY RESULTS OF OPERATIONS

The following table sets forth unaudited quarterly financial data for each
of the eight fiscal quarters in the two years ended March 31, 1996 and the first
quarter of the fiscal year ending March 31, 1997 and such data expressed as a
percentage of the Company's totals with respect to such information for the
applicable fiscal year. The Company believes that this information includes all
adjustments (consisting solely of normal recurring adjustments) necessary for a
fair presentation of such quarterly information when read in conjunction with
the consolidated financial statements included elsewhere herein. The operating
results for any quarter are not necessarily indicative of the results for any
future period.

<TABLE>
<CAPTION>
FISCAL YEAR
ENDED MARCH
FISCAL YEAR ENDED MARCH 31, 1995 FISCAL YEAR ENDED MARCH 31, 1996 31, 1997
----------------------------------------- ------------------------------------- --------------
1ST QTR 2ND QTR 3RD QTR 4TH QTR 1ST QTR 2ND QTR 3RD QTR 4TH QTR 1ST QTR
------- ------- ------- ------- ------- ------- ------- ------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenue:
Amount............... $ 6,927 $ 7,434 $ 8,397 $ 9,307 $ 8,762 $ 9,167 $10,164 $10,559 $9,203
Percentage of fiscal
year total......... 21.6% 23.2% 26.2% 29.0% 22.7% 23.7% 26.3% 27.3% --
Income (loss) from
operations before
other expenses:
Amount............... $ (271) $ (142) $ (152) $ 864 $ 198 $ 704 $ 1,238 $ 1,311 $ 306
Percentage of fiscal
year total......... (90.6)% (47.5)% (50.8)% 288.9% 5.7% 20.4% 35.9% 38.0% --
</TABLE>

The Company's quarterly revenues have fluctuated in the past and may
fluctuate significantly in the future as a result of a number of factors,
principally due to the number and timing of new students enrolling in the
Company's programs. New enrollments in the Company's schools tend to be higher
in the third and fourth fiscal quarters because the third and fourth quarters
cover periods traditionally associated with the beginning of school semesters.
The Company believes it is less affected by this seasonal pattern than many
other educational institutions because it permits students to enroll in and
begin programs in any month of the year at most of its schools. In addition, the
impact of seasonality in new enrollments on results of operations has been
moderated to some extent by growth in the number of students attending programs
and the varying lengths of those programs. In addition, other factors affecting
quarterly revenue include student withdrawals, the termination of programs, the
introduction of new programs, the upgrading or lengthening of programs, changes
in tuition rates (including changes in response to pricing actions by
competitors), changes in government-supported financial aid programs,
modification of applicable government regulations or interpretations, regulatory
audits or other actions by regulatory authorities. The Company has not
experienced any material resistance to raising its tuition rates in the past
and, based on such prior experience, anticipates that tuition increases will
keep pace with inflation for the foreseeable future. Because certain of the
Company's expenses do not vary with student enrollment, quarterly variations in
net revenue are amplified at the income (loss) from operations level.

26
<PAGE> 29

RESULTS OF OPERATIONS

The following table sets forth the percentage relationship of certain
statement of operations data to net revenue for the periods indicated.

<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED MARCH 31, ENDED JUNE 30,
----------------------- --------------
1994 1995 1996 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net revenue............................................ 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of education and facilities....................... 46.5 47.0 45.6 48.4 50.5
Selling and promotional expenses....................... 15.3 16.8 14.4 15.4 15.4
Administrative expenses................................ 32.8 31.3 28.8 31.0 28.9
Amortization of goodwill and intangibles............... 4.7 3.9 2.3 3.1 1.9
----- ----- ----- ----- -----
Income before other expenses......................... .7 1.0 8.9 2.1 3.3
Other expenses......................................... 4.3 2.5 5.0 -- --
----- ----- ----- ----- -----
Income (loss) from operations........................ (3.6) (1.5) 3.9 2.1 3.3
Interest expense, net.................................. 3.0 2.9 2.1 2.7 2.1
----- ----- ----- ----- -----
Income (loss) before income taxes.................... (6.6) (4.4) 1.8 (.6) 1.2
Provision (benefit) for income taxes................... (.6) .1 1.6 .1 .5
----- ----- ----- ----- -----
Net income (loss).................................... (6.0)% (4.5)% .2% (.7)% .7%
===== ===== ===== ===== =====
</TABLE>

Three Months Ended June 30, 1996 Compared With Three Months Ended June 30, 1995

Net Revenue. Net revenue increased by $441, or 5.0%, to $9,203 for the
three months ended June 30, 1996 from $8,762 for the three months ended June 30,
1995. Factors contributing to revenue growth included an increase in the number
of students attending the Company's schools and an approximate 4.0% increase in
tuition rates. The number of students attending the Company's schools at the
beginning of fiscal 1997 increased 5.4% from the beginning of fiscal 1996. The
number of new student starts at the Company's schools during the three months
ended June 30, 1996 decreased to 1,129 from 1,171 for the corresponding three
months of the prior year, a 3.6% decrease. This decrease in new student starts
is due to the reduction in starts in the Company's medical assistant and medical
administration programs in the three San Diego area schools from 417 to 265 for
the three months ended June 30, 1996. The Company believes the decline in starts
is attributable to several factors in the San Diego area, including a shift in
employer requirements for medical assistants, a continued decline in military
personnel, and an increase in employment opportunities. The Company believes
that these factors may continue to adversely impact the Company's operations in
the San Diego area. These reductions were offset by an increasing number of new
student starts in other schools and the introduction of two new programs,
Patient Care Services and Occupational Therapy Assistant at the San Diego
school, which accounted for 52 new starts for the three months ended June 30,
1996. These new programs were developed during the 1996 fiscal year in response
to the above mentioned shift in employer requirements for medical assistants. In
addition, the Company recently determined to relocate its Staunton, Virginia
school and has discontinued new student starts at this location. As a result,
there were no new student starts at Staunton for the three month period ended
June 30, 1996 compared to 32 in the corresponding prior period. Student
withdrawal rates did not change materially compared to withdrawal rates
experienced by the Company during the corresponding three months of the prior
year.

Cost of Education and Facilities. Cost of education and facilities
increased by $408, or 9.6%, to $4,644 for the three months ended June 30, 1996
from $4,236 for the three months ended June 30, 1995 principally as a result of
increased student count at the Company's schools, the introduction of new
programs, and facility expansions. The cost of education and facilities as a
percentage of net revenue was 50.5% in 1996 compared with 48.4% in 1995,
principally as a result of costs associated with the addition of the new
programs in 1996 at the Company's San Diego, California location.

27
<PAGE> 30

Selling and Promotional. Selling and promotional expenses increased by
$67, or 5.0%, to $1,419 for the three months ended June 30, 1996 from $1,352 for
the three months ended June 30, 1995. Selling and promotional expenses as a
percentage of net revenue was 15.4% in 1996 compared with 15.4% in 1995.

Administrative. Administrative expenses decreased by $62, or 2.3%, to
$2,658 for the three months ended June 30, 1996 from $2,720 for the three months
ended June 30, 1995 principally as a result of improved collections which
reduced the Company's bad debt expense. Administrative expense as a percentage
of net revenue declined to 28.9% in 1996 compared with 31.0% in 1995 as a result
of the reduction in bad debt expense.

Amortization of Goodwill and Intangibles. Amortization of goodwill and
intangibles declined $80, or 31.3%, to $176 for the three months ended June 30,
1996 from $256 for the three months ended June 30, 1995. The decline was a
result of fully amortizing certain intangible assets acquired in connection with
the purchase of schools in fiscal 1992 and prior.

Interest Expense, Net. Net interest expense decreased $53, or 21.3%, to
$196 for the three months ended June 30, 1996 from $249 for the three months
ended June 30, 1995 principally as a result of lower debt levels during the
three months ended June 30, 1996.

Income Taxes. Income taxes increased by $33 to $44 for the three months
ended June 30, 1996 from $11 for the three months ended June 30, 1995 due to the
increase in income before income taxes of $161. The effective income tax rate
for the three months ended June 30, 1996 was 40.0%.

Net Income. Net income increased to $66 for the three months ended June
30, 1996 from a loss of $62 for the three months ended June 30, 1995 principally
as a result of increased net revenues and reduced expenses as a percentage of
revenue.

Year Ended March 31, 1996 Compared With Year Ended March 31, 1995

Net Revenue. Net revenue increased by $6,587, or 20.5%, to $38,652 for the
year ended March 31, 1996 from $32,065 for the year ended March 31, 1995.
Factors contributing to revenue growth included an increase in the number of
students attending the Company's schools and an approximate 5% increase in
tuition rates during fiscal 1996. The number of students attending the Company's
schools increased 17.7% from the beginning of fiscal 1995 to the beginning of
fiscal 1996. The number of new student starts at the Company's schools during
the year increased to 5,893 in fiscal 1996 from 5,536 in fiscal 1995, a 6.4%
increase. The seven new schools acquired in fiscal 1994 accounted for 2,032 new
student starts in fiscal 1996 compared with 1,798 in fiscal 1995 representing a
13.0% increase. Student withdrawal rates did not change materially compared to
withdrawal rates experienced by the Company during fiscal 1995.

Cost of Education and Facilities. Cost of education and facilities
increased by $2,558, or 17.0%, to $17,639 in fiscal 1996 from $15,081 in fiscal
1995 principally as a result of increased student count at the Company's
schools. The cost of education and facilities as a percentage of net revenue was
45.6% in fiscal 1996 compared with 47.0% in fiscal 1995, reflecting the
Company's ability to serve a greater student population without a corresponding
proportional increase in faculty and facilities costs.

Selling and Promotional. Selling and promotional expenses increased by
$169, or 3.1%, to $5,569 in fiscal 1996 from $5,400 in fiscal 1995. Selling and
promotional expense as a percentage of net revenue was 14.4% in fiscal 1996
compared with 16.8% in fiscal 1995, due to an increased percentage of new
student starts resulting from student referrals.

Administrative. Administrative expenses increased by $1,080, or 10.8%, to
$11,110 in fiscal 1996 from $10,030 in fiscal 1995 principally as a result of an
increase in the number of administrative personnel at the schools. Such increase
in personnel was necessary to service the increased student population.
Administrative expense as a percentage of net revenue declined to 28.8% in
fiscal 1996 compared with 31.3% in fiscal 1995 resulting from the Company's
ability to leverage fixed costs at the home office, regional and school level.

28
<PAGE> 31

Amortization of Goodwill and Intangibles. Amortization of goodwill and
intangibles declined $372, or 29.6%, to $883 in fiscal 1996 from $1,255 in
fiscal 1995. The decline was a result of fully amortizing certain intangible
assets acquired in connection with the purchase of schools in fiscal 1992 and
prior.

Other Expenses. Other expenses in fiscal 1996 consisted of a charge of
$1,115 for the settlement of a class action lawsuit and a $50 charge related to
the relocation of one of the Company's schools, and $764 for the impairment of
goodwill and intangibles due to operating losses at the Company's Roanoke,
Virginia school. See "Business -- Litigation."

Interest Expense, Net. Net interest expense decreased $112, or 12.1%, to
$811 in fiscal 1996 from $923 in fiscal 1995 principally as a result of lower
debt levels during fiscal 1996.

Income Taxes. Income taxes increased by $604 to $632 in fiscal 1996 from
$28 in fiscal 1995 due principally to not recognizing a tax benefit for the
impairment of goodwill and intangibles and a portion of the legal settlement. As
a result, the effective income tax rate in fiscal 1996 was substantially higher
than in fiscal 1995.

Net Income. Net income increased to $79 in fiscal 1996 from a loss of
$1,428 in fiscal 1995 principally as a result of increased net revenues and
reduced expenses as a percentage of revenue.

Year Ended March 31, 1995 Compared With Year Ended March 31, 1994

During the period from March 1993 to August 1994, the Company acquired
seven schools (the "Acquired Schools") whose results are included in the
Company's financial statements from the dates of acquisition. As a result, net
revenue and expenses for the fiscal year ended March 31, 1995 compared with the
fiscal year ended March 31, 1994 are significantly impacted by the Acquired
Schools' results which do not reflect a full year's results in fiscal 1994.

Net Revenue. Net revenue increased by $5,590, or 21.1%, to $32,065 for the
year ended March 31, 1995 from $26,475 for the year ended March 31, 1994.
Factors contributing to revenue growth included the impact of the Acquired
Schools, an increase in the number of students at existing Company schools and
an approximate 5% increase in tuition rates. The Acquired Schools' revenue was
$10,630 in fiscal 1995 compared to a partial year amount of $7,189 in fiscal
1994. The existing seven schools showed revenue growth of 11.1% to $21,435 in
fiscal 1995 compared to $19,286 in fiscal 1994. Student population at the seven
existing schools grew 15.7% to 2,649 at March 31, 1995 from 2,289 at March 31,
1994 as a result of an 8.6% increase in new student starts (which included the
transfer of 127 students to the Company's San Diego school from a competing
school that ceased operations) and a 19.2% improvement in student retention as
the monthly withdrawal rate declined from 4.7% to 3.8%. Retention improved as a
result of a company-wide initiative to reduce student withdrawal rates by
improving student counseling, revising curriculum, and improving school
facilities and equipment.

Cost of Education and Facilities. Cost of education and facilities
increased by $2,773, or 22.5%, to $15,081 in fiscal 1995 from $12,308 in fiscal
1994 principally as a result of the acquisition of the Acquired Schools whose
education and facility costs totaled $5,920 compared to $4,134 for fiscal 1994,
a 43.2% increase. The remainder of the cost increase occurred as a result of
increased student count and facility expansions at the existing schools. These
costs as a percentage of net revenue increased from 46.5% in fiscal 1994 to
47.0% in fiscal 1995.

Selling and Promotional. Selling and promotional expenses increased by
$1,341, or 33.0%, to $5,400 in fiscal 1995 from $4,059 in fiscal 1994
principally due to the Acquired Schools. The Acquired Schools' selling and
promotional expenses increased by $1,000 to $2,364 in fiscal 1995 compared to
$1,364 in fiscal 1994. Selling and promotional expenses increased as a
percentage of net revenue from 15.3% in fiscal 1994 to 16.8% in fiscal 1995 due
to the addition of directors of admissions to seven schools which previously did
not have such a position and an increase in advertising expenditures at the
Acquired Schools as a strategy to increase their enrollments.

29
<PAGE> 32

Administrative. Administrative expenses increased by $1,350, or $15.6%, to
$10,030 in fiscal 1995 from $8,680 in fiscal 1994 principally as a result of the
acquisition of the Acquired Schools whose school administration expenses
increased by $641, or 34.0%, to $2,524 in fiscal 1995 compared to $1,883 in
fiscal 1994. Home office and regional costs increased $390 to $3,298 in fiscal
1995 from $2,908 in fiscal 1994 as a result of establishing internal MIS and
accreditation departments and expansion of the Company's regional management
structure. Administrative expenses as a percentage of net revenue declined from
32.8% in fiscal 1994 to 31.3% in fiscal 1995 as the Company recognized certain
economies of scale.

Amortization of Goodwill and Intangibles. Amortization of goodwill and
intangibles increased as a result of a full year's amortization of goodwill and
intangible costs for the Acquired Schools compared to a partial year in fiscal
1994.

Other Expenses. Other expenses in fiscal 1995 consisted of a $600 charge
for legal costs associated with the defense of the class action lawsuit and $176
for the write down of intangibles due to changes in governmental regulations
related to student referrals. Other expenses in fiscal 1994 consisted of a
$1,126 charge for closing costs and writing off goodwill and intangibles of the
Company's Albany, Georgia school which was closed due to operating losses and
management's assessment of the future prospects in the Albany, Georgia market.

Interest Expense, Net. Net interest expense increased by $125 to $923 in
fiscal 1995 from $798 in fiscal 1994 as a result of the full year effect of the
increase in debt incurred to purchase the Acquired Schools, and reduced interest
income as a result of less cash on hand.

Income Taxes. Income taxes increased by $198 to $28 in fiscal 1995 from a
benefit of $170 in fiscal 1994 due to the carryback of net operating losses
incurred in fiscal 1994; net operating losses in fiscal 1995 created
carryforwards.

Net Loss. Net loss decreased from $1,561 to $1,428, a $133 decrease, as a
result of an improvement in existing schools' operations of $502, and a
reduction in other expenses of $350, offset by an increase in home office and
regional costs of $390, an increase in amortization of goodwill and intangibles
of $20, and an increase in interest expense of $125.

LIQUIDITY AND CAPITAL RESOURCES

During the last three fiscal years, the Company financed its operating
activities and capital requirements, including debt repayments, principally from
cash provided by operating activities and by a $2.2 million subordinated debt
borrowing in March, 1995. Cash provided by (used in) operating activities for
the quarters ended June 30, 1995 and 1996 was $287 and $(358), respectively, and
for fiscal 1995 and fiscal 1996 was $511 and $3,281, respectively. The use of
cash experienced for the quarter ended June 30, 1996 was as a result of
seasonality in the first quarter combined with federal and state income tax
payments and larger payments of employee bonuses as compared to the first
quarter of the previous year. In fiscal 1994 the Company's net cash used in
operations was $94, principally as a result of the operating losses before other
expenses at the Acquired Schools. The Company's principal sources of funds at
June 30, 1996 were cash and cash equivalents of $2,028 and accounts receivable
of $2,963.

Historically, the Company's investment activity has primarily consisted of
capital asset purchases and the purchase of schools. Capital expenditures,
excluding capital leases, totaled $109 and $234 for the quarters ended June 30,
1995 and 1996, respectively, and $678, $2,090, $785 for fiscal 1994, 1995, and
1996, respectively, as a result of purchasing additional equipment and upgrading
and replacing existing equipment such as computers and medical equipment, for
school programs, and expanding facilities at five schools. Purchases of
businesses, including goodwill and intangibles, totaled $1,047 in fiscal 1994.

The Company's capital assets consist primarily of classroom and laboratory
equipment (such as computers and medical devices), classroom and office
furniture, and leasehold improvements. All building facilities are leased, with
the exception of the land and building owned by the Company in Dayton, Ohio. The
Company plans to continue to expand current facilities, upgrade and replace
equipment, and open new schools. The Company expects fiscal 1997 capital
expenditures for its existing schools to be approximately

30
<PAGE> 33

$1.7 million. The Company expects that its fiscal 1997 operations and planned
capital expenditures can be funded through cash to be generated from existing
operations.

Cash flow from operations on a long-term basis is highly dependent on the
receipt of funds from Title IV Programs, and presently a majority of the
Company's net revenues are derived from Title IV programs. Disbursement of Title
IV Program funds is dictated by federal regulations. For students enrolled in
"non-term" programs, (i.e., not divided into quarters or semesters), payments
are generally made in two equal installments, one in the first 30 days following
the student's first day of class and the second when the student reaches the
midpoint of the program. For students enrolled in term programs (i.e., quarters
or semesters) payments are made at the beginning of each term, with the
exception of the initial disbursement which is made 30 days following the
student's first day of class. In addition, the Title IV regulations set forth
other financial standards for the Company and its schools including restrictions
for (i) positive tangible net worth, (ii) an "acid" test ratio of at least
1-to-1, (iii) a 10% limitation on losses as a percentage of tangible net worth
and (iv) the maintenance of a minimum cash reserve equal to 25% of prior year
school refunds. Except with respect to the operating losses incurred at the
Company's Roanoke school, the Company believes each of its schools satisfies the
financial responsibility standards. Because the HEA and the Regulations are
subject to amendment, and because the Department of Education may change its
interpretation of the HEA and the Regulations, there can be no assurance that
the Department of Education will agree in the future with the Company's
interpretation of each such requirement or that such requirements will not
change in the future. See "Financial Aid and Regulation."

In connection with the Texas Acquisition, the Company will make payments of
approximately $1,250,000 to the sellers in fiscal 1996 and note payments of
approximately $250,000 in fiscal 1997. In addition, the Company's Title IV
funding from its Texas Acquisition will be suspended pending Department of
Education recertification.

The Company anticipates that it will need additional debt or equity
financing, in addition to the proceeds of this Offering, in order to carry out
its strategy of growth through acquisitions. The amount of financing which the
Company may need will vary depending on the timing and size of acquisitions and
the sellers' willingness to provide financing. In August, 1996 the Company
received a loan commitment from a major U.S. bank for $17.5 million of which $5
million is for a three year revolving line of credit and the remainder a three
year term loan (the "Proposed Bank Line of Credit"). Subject to certain
financial conditions of the Company and the use of all the net proceeds received
by the Company from this Offering, the term loan commitment begins at $5 million
in the first year, increasing to $7.5 million in the second year and then to
$12.5 million in the third year. Interest will be charged on borrowings at
different floating rates above LIBOR depending on certain financial conditions
of the Company and depending on whether drawn under the revolving line of credit
or the term loan. In addition, the Proposed Bank Line of Credit requires fees
for the borrowing commitment. The commitment contains restrictions on the
payment of dividends and incurrence of additional debt, contains various
financial covenants and is subject to the successful completion of the Offering
and signing of a definitive agreement thereafter. The loan will be secured by
substantially all of the assets of the Company. In addition, the Company must
pay a $200,000 fee to a third party for securing the commitment, when the
definitive agreement is signed. To the extent that the Company requires
additional financing in the future and is unable to obtain such additional
financing, it may not be able to implement fully its growth strategy. The
Company believes this Proposed Bank Line of Credit will be adequate to financing
needs for at least the next twelve months. However, the commitment is subject to
the execution of definitive agreements. There can be no assurance that such
agreements will be entered into. If the Proposed Bank Line of Credit is not
available, there can be no assurance that any necessary additional financing,
whether debt or equity, will be obtainable on terms favorable to, or affordable
by, the Company.

Effect of Inflation. The Company does not believe its operations have been
materially affected by inflation.

31
<PAGE> 34

BUSINESS

OVERVIEW

The Company provides diversified career oriented postsecondary education to
more than 4,300 students in 14 schools located in six states. The Company's 14
schools offer diploma and/or associate degree programs designed to provide
students with the knowledge and skills necessary to qualify them for entry level
employment in the fields of healthcare (offered in twelve schools), business
(offered in five schools), fashion and design (offered in three schools), and
photography (offered in one school). The Company's curricula include programs
leading to employment in nine of the 15 fastest growing occupations (measured by
percentage growth from 1994 through 2005) as projected by the U.S. Department of
Labor. At March 31, 1996, approximately 70% of the Company's students were
enrolled in programs in the healthcare field. As of the same date, approximately
27% of the Company's students were enrolled in associate degree programs and the
remainder were enrolled in diploma programs. Nine of the Company's schools award
only diplomas, three of the Company's schools award both diplomas and associate
degrees and two of the Company's fashion and design schools award only associate
degrees. In addition, three of the Company's schools currently awarding only
diplomas have been approved to offer associate degree programs. Due to the
diversity of the programs offered by the Company's schools, graduates of the
Company's programs are employed by a wide variety of employers, including
hospitals, physicians, insurance companies, retailers, corporate graphics
departments, photographic studios and other businesses.

According to the Department of Education, there were approximately 2,355
accredited, proprietary postsecondary schools that participate in Title IV
programs as of June 1996. The ownership of these schools is highly fragmented.
Management believes that no organization either holds a significant national
market share or owns or operates more than 80 schools.

Acquisition Strategy

The Company has acquired all of its schools. The Company intends to acquire
additional schools and integrate them into its existing school system. The
Company believes that the fragmentation of the postsecondary education market
provides significant opportunities to consolidate existing independently owned
schools. The Company expects to utilize a majority of the proceeds of this
Offering in connection with such acquisitions. See "Use of Proceeds."

In general, the Company's principal acquisition criteria are: historical
profitability; acceptable default rates with respect to federally guaranteed or
funded student loans; established and marketable curricula; and locations with
populations in excess of 100,000. The Company intends to concentrate its
acquisition efforts on schools which satisfy its general eligibility criteria
regardless of whether they offer programs in the fields of study in which
programs are currently being offered at the Company's schools. However, the
Company will consider other school acquisitions which it believes will further
its long-term goals. The Company believes that newly acquired schools can
benefit from its marketing analysis, accounting, information systems, financial
aid and regulatory compliance systems to increase enrollment and enhance
operating efficiencies. The Company

32
<PAGE> 35

also believes that both new and existing schools will benefit from the ability
to replicate successful programs among the schools.

The Company believes its acquisition strategy and the increased liquidity
provided by the proceeds of this Offering will encourage acquisition candidates
to consider the Company as a leading potential acquirer. The Company's
experience with acquiring and integrating schools offering diverse curricula
provides it with the ability to consider a wide variety of potential school
candidates. The Company believes that its decentralized management strategy,
which in many cases will enable existing management to remain involved in the
operations of acquired schools, also will enhance its ability to attract
acquisition candidates.

Internal Growth Strategy

The Company's ability to increase enrollment is limited by the capacity of
its facilities and its ability to attract teachers to maintain appropriate
student/teacher ratios. In the past, the Company has not had any difficulty in
expanding its facilities to accommodate increased enrollment or relocating
facilities if expansion was not feasible. The Company has also been able to
maintain appropriate student/teacher ratios by offering its existing teachers
the opportunity to work additional hours and by recruiting additional teachers.
Based on its experience, the Company anticipates that neither facilities nor
faculty will constitute a significant barrier to increasing enrollment.

The Company's decentralized marketing strategy makes use of centralized
marketing data which tracks among other things, lead sources, media expenditures
and individual school enrollments on a weekly basis. Individual schools utilize
these statistics to monitor their own marketing efforts. These statistics,
combined with placement statistics, allow the individual schools to respond
quickly to changing employment markets by developing new programs or changing
the emphasis placed on existing programs, and to identify new populations of
student candidates. The constant monitoring of enrollment activity also allows
the Company to determine whether it is appropriate to increase its capital
commitment to additional marketing efforts either to improve unsatisfactory
performance or to take advantage of successfully marketed programs.

The Company intends to continue to increase the number and variety of
programs offered at its schools by (i) developing new diploma and degree
programs, (ii) replicating existing programs at schools where such programs were
not previously offered, and (iii) introducing associate degree granting programs
at all of its schools currently offering only diploma programs. These programs
are developed and replicated internally at the Company's schools and at the
regional offices. The Company does not anticipate that it will incur significant
additional costs or third party expenses in the near future in executing this
strategy.

33
<PAGE> 36

During the two years ended June 30, 1996, the Company's schools have
implemented newly developed programs and replicated such programs as follows:

<TABLE>
<CAPTION>
DEVELOPING SCHOOL REPLICATING SCHOOL
NEW PROGRAM AWARD LOCATION LOCATION
- ---------------------- ---------------------- ---------------------- ----------------------
<S> <C> <C> <C>
Professional Image Diploma Dayton, OH
Technology
Professional Image Associate Degree Dayton, OH
Technology
Professional Image Diploma Dayton, OH
Technology --
Desktop Media
Paralegal Diploma Roanoke, VA
Nursing (RN) Associate Degree San Diego, CA
Medical Insurance Diploma San Diego, CA San Marcos Campus --
Coding Vista, CA
Occupational Therapy Associate Degree San Diego, CA
Assistant
Patient Care Diploma San Diego, CA San Marcos Campus --
Vista, CA
</TABLE>

In addition, the following existing programs have been replicated by other
Company schools as follows:

<TABLE>
<CAPTION>
PROGRAM AWARD REPLICATING SCHOOL
- ------------------------------ ------------------------------ ------------------------------
<S> <C> <C>
Business Administration Associate Degree Atlanta, GA
Medical Assistant Diploma Dayton, OH
Staunton, VA
Medical Assistant Associate Degree Dayton, OH
</TABLE>

The Company intends to continue to create new programs at individual
schools and to replicate its new and existing programs for introduction into
additional schools on a market-selected basis to increase student enrollment and
revenue at its existing schools.

The Company intends to continue to increase the number of associate degree
programs at those schools already approved to grant degrees and to introduce
degree granting programs at all of its other schools. Associate degree programs
generally generate greater revenue to the Company on a per student basis than
diploma programs because generally they take longer to complete and are more
expensive than diploma programs. In addition, the Company believes the ability
of its individual schools to offer one or more associate degree programs enables
the schools to attract additional students from market segments with different
academic goals. The Company also believes such programs attract diploma students
because of the increased prestige the associate degree programs bring to the
diploma programs. Furthermore, the continued participation in the schools'
associate degree program by students desiring to continue their studies beyond
the diploma level has the same economic impact as a newly enrolled degree
student. In order to introduce additional degree programs, the Company must
secure approval from relevant state and accrediting agencies. After receiving
such approval, in order to receive Title IV funding, the schools must apply to
the Department of Education for certification of the new degree program for
eligibility under Title IV. The time to complete this process varies from state
to state, and the entire process has taken the Company up to one year to
complete.

Operating Strategy

The Company provides each of its schools with certain services which the
Company believes can be performed most efficiently and cost effectively by a
centralized office. Such services include marketing analysis, accounting,
information systems, financial aid and regulatory compliance. The Company
believes this will enable it to achieve significant economies of scale during
its planned expansion by combining a number of general and administrative
functions at the home office and regional levels. The Company believes that this
leaves local management the flexibility to react to the needs of its students
and changing job markets both

34
<PAGE> 37

promptly and effectively. The Company has implemented a program to enhance its
existing management information systems, which includes the planned addition of
an in-house program design staff and increased utilization of systems networking
among the schools and the home office, the costs of which the Company does not
believe will be material.

Although the Company provides centralized services to its schools, it
operates through a decentralized management structure to manage them. The
Company manages its schools with experienced local managers that have a valuable
understanding of their respective local markets and businesses. The Company
intends to continue its strategy of operating with a decentralized management
structure in which local school management is empowered to make most of the
day-to-day operating decisions at each school and are primarily responsible for
the profitability and growth of that school.

COMPANY HISTORY

The Company was founded and incorporated in Delaware in 1988 by Gary D.
Kerber, the Chairman of the Board and President of the Company. The Company
began business by acquiring seven schools in fiscal 1989 and 1990, all of which
offered programs solely in the healthcare field. In fiscal 1992 the Company
continued to grow by acquisition and implemented a new strategy to diversify
outside of the healthcare field by acquiring a fashion and design school. In
fiscal 1993 and 1994, the Company acquired seven additional schools which
included schools offering programs in the fields of healthcare, business,
fashion and design, and photography. As a result of its fiscal 1992, 1993 and
1994 acquisitions (1,646 students were attending such schools at the date of
their respective acquisitions) and increasing enrollment at its existing and
newly acquired schools, the number of students attending the Company's schools
rose 288% from 1,112 at March 31, 1991 to 4,318 at March 31, 1996. During the
same period, the Company's revenue increased 345% from $8.7 million for the year
ended March 31, 1991 to $38.7 million for the year ended March 31, 1996.

SCHOOLS

The following table shows the location of each of the Company's schools,
the name under which it operates, the date of its acquisition, the fields of
study in which it offers its programs, its degree granting status, and the
number of students attending the school at March 31, 1996, and at the time of
its acquisition.

<TABLE>
<CAPTION>
APPROXIMATE STUDENT
STUDENT POPULATION
ASSOCIATE INSTITUTIONAL POPULATION AT
DEGREE ACCREDITING AT DATE OF MARCH 31,
INSTITUTION DATE ACQUIRED CURRICULUM GRANTING(1) AGENCY(2) ACQUISITION 1996
--------------------------------------------------------------- ------------ ------------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Maric College of Medical Careers 4/88 Healthcare Yes ACCSCT 135 909
San Diego, California
Maric College of Medical Careers -- 4/88 Healthcare Yes(3) ACCSCT 91 245
San Marcos Campus
Vista, California
Maric College of Medical Careers 4/88 Healthcare Yes(3) ACCSCT 14 311
Vista, California(4)
Long Medical Institute 4/88 Healthcare Yes(5) ACCSCT 129 233
Phoenix, Arizona
Andon College 11/89 Healthcare No ABHES 150 332
Stockton, California
Andon College 11/89 Healthcare Preliminary ABHES 123 242
Modesto, California Approval(5)
Bauder College 3/92 Fashion and Yes ACCSCT 440 429
Atlanta, Georgia Design/Business SACS/COC
Modern Technology School 3/93 Healthcare Preliminary ACCSCT 221 359
of X-ray Approval(5)
North Hollywood, California
Dominion Business School 5/93 Business/ Preliminary ACICS 129 155
Roanoke, Virginia Healthcare Approval(5)
</TABLE>

35
<PAGE> 38

Dominion Business School 5/93 Business/ Yes(3) ACICS 154 95
Staunton, Virginia(6) Healthcare

ICM School of Business 7/93 Business/ Yes ACICS 376 422
Pittsburgh, Pennsylvania Healthcare/
Fashion and
Design

Ohio Institute of Photography 7/93 Photography/ Yes ACCSCT 67 273
& Technology Healthcare
Dayton, Ohio

California Institute of 8/93 Fashion and Yes ACICS 5 109
Merchandising, Art, & Design Design
Sacramento, California
----- -----
Total 2,288 4,318
========== ========
</TABLE>

- ---------------

(1) In order for a school to grant associate degrees, it must be accredited by
the applicable accrediting agency and approved by the relevant state
agency. After receiving accreditation and state authorization, the
institution, with certain exceptions, must apply to the Department of
Education for designation of its degree program as an eligible program in
order for Title IV funding to be available for the new degree programs.

(2) Accrediting Commission of Career Schools and Colleges of Technology
("ACCSCT"), Accrediting Council for Independent Colleges and Schools
("ACICS"), Accrediting Bureau of Health Education Schools ("ABHES"),
Southern Association of Colleges and Schools/Commission on Colleges
("SACS/COC"). All schools were accredited at their time of acquisition
other than Maric College of Medical Careers in Vista, California, which was
accredited in fiscal 1989. See "Financial Aid and Regulation -- State
Authorization and Accreditation."
(3) Degree granting status has been approved; however, programs have not yet
been implemented.
(4) This school is an additional location of the San Marcos main campus.
(5) These schools have received approval from the relevant accrediting agency
and state for authorization to grant associate degrees. Each school is in
the process of preparing applications for recertification which will be
submitted to the Department of Education for final approval with respect to
their associate degree status.
(6) The Company recently determined that there is a substantial overlap in the
Harrisonburg and Staunton, Virginia markets, and decided to relocate its
Staunton school. The Company has ceased enrolling new students at the
Staunton school and is considering various rental facilities in which to
relocate. The relocated school will teach substantially the same curriculum
as the existing school. Depending on its location, it may utilize some of
the existing school's faculty, but the Company anticipates it will be
necessary to hire new faculty and administrative personnel to operate the
relocated school. The Company anticipates relocating the Staunton school
within the next twelve months.

TEXAS ACQUISITION

On September 6, 1996, the Company entered into an acquisition agreement
providing for the purchase of three schools located in Texas for $2.5 million
(the "Texas Acquisition") subject to approval by the Texas Workforce Commission.
As of June 30, 1996, approximately 626 students attended the schools, which
offer healthcare diploma programs and are located in San Antonio, McAllen and El
Paso, Texas. The McAllen school is a branch of the San Antonio school. The
schools had combined net revenues of approximately $4.7 million and combined
income from operations of approximately $630,000 for the year ended December 31,
1995. For the six month period ended June 30, 1996, the schools had combined net
revenues of approximately $2.5 million and combined income from operations of
approximately $247,000.

36
<PAGE> 39

The following table sets forth information with respect to the programs
offered by the three Texas schools, as of June 30, 1996:

<TABLE>
<CAPTION>
NUMBER NUMBER LENGTH OF
OF OF PROGRAMS
HEALTH CARE DIPLOMA PROGRAMS SCHOOLS STUDENTS (IN MONTHS)
---------------------------------------------------------- ------- -------- -----------
<S> <C> <C> <C>
Medical Assistant....................................... 3 344 8-15
Dental Assistant........................................ 3 108 8-15
All Others(1)........................................... 2 174 6-15
</TABLE>

- ---------------

(1) Includes the following programs: Medical Administrative Assistant, Medical
Computer Specialist, Phlebotomy/EKG Technician, Insurance Processor,
Ophthalmic Technician, and Insurance Coding Specialist.

The Texas schools are accredited by two agencies, one of which also
accredits certain of the Company's other schools. These two agencies are the
Accrediting Commission of Career Schools and Colleges of Technology ("ACCSCT")
and the Council on Occupational Educational Institutions ("COEI"). Each of the
Texas schools participates in the following Title IV programs: Pell and FSEOG
Grants, Federal Direct Loans, including Stafford and PLUS Loans, and Federal
Work-Study. None of the Texas schools had cohort default rates of 25% or greater
for the 1991, 1992 and 1993 and preliminary 1994 federal fiscal years, and are
therefore not vulnerable to termination of the Title IV eligibility based on
three consecutive years of cohort default rates of 25% or more. Approximately
83.7% and 73.9% of cash receipts are derived from Title IV programs for the San
Antonio Campus and its McAllen branch combined, and the El Paso school,
respectively. The schools have not received any notification of non-compliance
from the Department of Education under the Title IV programs.

The Company financed the purchase of the Texas schools as follows: $50,000
was paid on September 6, 1996, $50,000 will be paid upon approval by the Texas
Workforce Commission, $1,150,000 will be paid upon approval by the Department of
Education and the remaining $1,250,000 is payable in the form of a five-year
promissory note bearing interest at 8% per annum and due in five equal annual
principal payments. The state and federal approvals are required due to the
change in ownership resulting in a change in control, as defined by applicable
regulations. The Company expects to receive the approval of the Texas Workforce
Commission by November 1996 and does not expect any difficulty in receiving
Department of Education approval. In the Company's past experience, such federal
approval has been obtained within three to six months. If the Department of
Education does not approve the Texas Acquisition within six months following
receipt of the Texas Workforce Commission approval because of actions taken by
the sellers in violation of applicable regulations or laws, the acquisition may
be rescinded by the Company. The acquisition agreement provides for the sellers
to indemnify the Company for any liabilities imposed on the Company with respect
to any instances of regulatory non-compliance on the part of the sellers prior
to the acquisition of the schools by the Company. In addition to the Company's
right to set off any payments due to the seller against any such liabilities,
the seller has deposited $250,000 in escrow for the purpose of satisfying any
such liabilities.

Based on the Company's experience in obtaining state regulatory approvals
with respect to its prior acquisitions, the Company believes that it will obtain
regulatory approval from the Texas Workforce Commission. The Company intends to
account for the business combination as a purchase, effective September 6, 1996.
Therefore the results of operations after this date will be included in the
consolidated results of operations of the Company.

PROGRAMS OF STUDY

The Company's programs are intended to provide students with the specific
knowledge and job skills required to prepare them for entry-level positions in a
chosen career field. The Company's programs, which generally provide for
internships or include business simulation instruction, are designed after
consultation with employers and advisory committees, which are composed of
business and educational professionals that assist the Company in assessing and
updating curricula and other aspects of relevant programs.

37
<PAGE> 40

The Company offers both associate degree and diploma programs in three
areas: healthcare, business and photography and offers associate degree programs
in fashion and design. The healthcare programs are designed to prepare students
for occupations associated with the medical and healthcare industry, such as
nursing, medical and dental assisting, home health aid, patient care services
and medical and dental office management. Fashion and design programs prepare
students for positions associated with fashion merchandising, fashion design and
interior design, such as buyers, display directors, fashion coordinators,
pattern makers, fashion designers and interior designers. The photography
programs provide education in photography, video, desktop media and computer
graphics and are designed to prepare students for such occupations as
professional photographer, videographer, photographic laboratory technician,
computer graphic technician and desktop publisher. The business programs provide
education in areas such as accounting, business management, computer operations,
secretarial skills, paralegal skills and travel and are designed to prepare
students for entry level positions in such areas.

The Company provides healthcare programs at twelve of its schools, business
programs at five of its schools, fashion and design at three of its schools and
photography at one of its schools. Tuition and fees vary depending on the
program offered and the location of the school. As of March 31, 1996, tuition
and fees for an entire program for a new student entering the Company's diploma
programs ranged from a high of $17,656 for an 18 month photography program, to a
low of $4,155 for a five month medical administration program. As of March 31,
1996, tuition and fees for an entire program for a student entering a degree
granting program ranged from a high of $23,779 for a 24 month fashion
merchandising program, to a low of $13,054 for a 15 month computer management
program. As of March 31, 1996, the average student program cost (tuition and
fees) for the Company's diploma and degree programs on an academic year basis
(i.e., a nine month basis) were as follows: healthcare -- $6,310 for diploma
programs, $8,690 for degree programs; business -- $5,197 for diploma programs,
$9,006 for degree programs; fashion and design -- $7,707 for degree programs;
photography -- $8,682 for diploma programs, $7,502 for degree programs.

The following table provides information at March 31, 1996 with respect to
the programs offered by the Company's schools in each of the four major fields
described above:

<TABLE>
<CAPTION>
DIPLOMA DEGREE
-------------------------------- -----------------------------------
LENGTH OF LENGTH OF
NO. OF NO. OF PROGRAM NO. OF NO. OF PROGRAM TOTAL NO.
SCHOOLS STUDENTS (IN MONTHS) SCHOOLS STUDENTS (IN MONTHS)(1) OF STUDENTS
------- -------- ----------- ------- -------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
HEALTHCARE PROGRAMS
Medical Assistant......... 10 1,145 8-14 1 42 18-20 1,187
Medical Administration.... 9 716 5-21 1 82 15 798
Patient Care.............. 2 144 8-10 -- -- -- 144
Nursing................... 2 260 12-18 1 107 12 367
X-Ray Technician.......... 1 249 10-15 -- -- -- 249
All Others(2)............. 3 291 8-12 -- -- -- 291
----- ----- -----
Total.............. 2,805 231 3,036
BUSINESS PROGRAMS
Accounting................ 4 84 9-15 1 55 15 139
Computer Management....... 1 35 9-12 1 81 15 116
Computer Ops.
Specialist.............. 3 64 12-15 -- -- -- 64
Paralegal................. 1 52 18-24 -- -- -- 52
All Others(3)............. 4 78 7-21 2 139 15-18 217
----- ----- -----
Total.............. 313 275 588
</TABLE>

38
<PAGE> 41

<TABLE>
<CAPTION>
DIPLOMA DEGREE
-------------------------------- ---------------------------------
LENGTH OF LENGTH OF
NO. OF NO. OF PROGRAM NO. OF NO. OF PROGRAM (IN TOTAL NO.
SCHOOLS STUDENTS IN MONTHS) SCHOOLS STUDENTS MONTHS)(1) OF STUDENTS
------- ----- --------- -------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
FASHION AND DESIGN PROGRAMS
Fashion Design............ -- -- -- 1 135 18 135
Fashion Merchandising..... -- -- -- 2 230 18-24 230
Interior Design........... -- -- -- 2 127 18-24 127
All Others(4)............. -- -- -- 1 18 18-24 18
----- -----
Total.............. 510 510
PHOTOGRAPHY PROGRAMS
All(5).................... 1 42 12-18 1 142 24-27 184
----- ----- -----
Company Total...... 3,160 1,158 4,318
===== ===== =====
</TABLE>

- ---------------

(1) In certain instances assumes completion of prerequisite programs.
(2) Includes the following programs: Dental Assistant, Pharmacy Technician,
Physical Therapy Technician, Respiratory Therapy Technician, Sports
Medicine, Veterinary Assistant and Ultrasound.
(3) Includes the following programs: Diploma Programs -- Automated Office
Systems, Business Management, Computer Programming, Legal Secretary,
Secretarial Sciences and Travel; Degree Programs -- Business
Administration -- Marketing, Business Fashion, Business Management,
Secretarial Sciences and Travel.
(4) Includes the following programs: Fine Arts, Management Merchandising and
Visual Merchandising.
(5) Includes the following programs: Biomedical Photography, Commercial
Photography, General Applied Photography, Portraiture, Professional Image
Technology and Professional Image Technology -- Desktop Media.

As of March 31, 1996, approximately 70%, 14%, 12% and 4% of students were
enrolled in programs in the fields of healthcare, business, fashion and design,
and photography, respectively. All of the Company's programs are designed to
prepare graduates to perform effectively in a variety of entry-level positions
by providing the student with practical experience both in the classroom and, in
the case of most programs in the healthcare and fashion and design fields,
through the use of internships. The internships constitute a graded portion of
the curricula and provide hands-on experience in the work place as well as a
source of job opportunities. In addition, most of the Company's business
programs provide for a significant amount of education in a simulated business
environment with a view toward preparing the student for participation in actual
business situations.

The academic schedule of the Company's schools varies depending on the
programs offered by the individual schools. Degree programs, which currently are
offered at five of the Company's schools, begin four times a year. Diploma
programs, which are offered at twelve of the Company's schools, begin every four
to six weeks. Diploma courses are typically offered mornings, afternoons, and
evenings, and degree programs are principally offered during day-time hours. The
schools generally have classes operating year round and are generally open five
days per week. The Company believes that its diversified curricula provide it
with an extensive library of programs and experience in various fields enabling
it to meet changing demands in the areas served by each of its schools and to
expand offerings at each of the schools when justified by student and employer
demand.

Programs which lead to similar occupational outcomes have the same general
content. However, modifications are made to conform each program to the
requirements of the particular market as well as to state and accrediting
regulations. In addition to courses directly related to a student's program of
study, degree programs may also include general education courses such as
English, Psychology or Mathematics. The programs in each field are reviewed
periodically by the regional managers and the schools' directors in order to
respond to changes in the job market and technology. Each school also has
established advisory committees, comprised of local business executives and
academics, to assist it in assessing and updating curricula and other aspects of
the relevant programs.

39
<PAGE> 42

STUDENT RECRUITMENT

The Company endeavors to recruit motivated students with the ability to
complete the programs offered by the Company's schools and to secure entry-level
employment in the field for which their program is designed to prepare them. To
attract potential students, the Company engages in several activities to inform
them, and in some instances their parents, about the Company's programs. In
fiscal 1996, the Company incurred approximately $2.2 million in advertising
expenses. These expenditures vary from school to school, depending on the
desired audience, and include television advertising, direct mailings, newspaper
advertising and yellow pages advertising, which accounted for approximately 40%,
18%, 15% and 8%, respectively, of total advertising costs during fiscal 1996.
The Company also engages in high school visits to attract potential students.

The Company's television advertising is coordinated and developed locally,
and budgeted on a centralized basis. It is tailored to and directed at the local
market in which each school is located and is intended to create recognition for
the name under which the applicable school operates. Responses to direct mail
campaigns are received and followed up on a local basis; however, all marketing
activities are tracked and analyzed on a centralized system and the results
forwarded to the individual schools for use in evaluating the effectiveness of
their marketing programs.

Each of the Company's schools, other than the Sacramento school, employs a
director of admissions who generally reports to the school director. The
director of admissions for each school is responsible for, among other things,
coordinating the efforts of the school to recruit qualified students to the
school. The director of admissions also determines recruiting policies and
procedures and standards for hiring and training admissions representatives;
however, such policies, procedures and standards are reviewed at the regional or
national level.

Admissions representatives contact potential students who have indicated an
interest in the schools' programs and arrange for interviews which generally
take place at the school, although occasionally such interviews take place at
the prospective student's home. The interview is designed to establish the
student's qualifications, academic background and employment goals. Prospective
students are generally given a school catalogue which describes the applicable
school's programs, a tour of the campus and an explanation of the programs
offered and the types of employment opportunities typically available to
graduates of the Company's schools. The Company employs approximately 55
admissions representatives who generally perform their services in recruitment
offices located at each school, but who, in some instances, make visits and
presentations at high schools or other sources from which students may likely be
recruited.

The Company's central marketing system monitors the effectiveness of each
school's marketing efforts to gauge the extent to which such efforts result in
student enrollment. The results of such monitoring are communicated to each of
the Company's schools allowing each school to more efficiently utilize its
marketing resources. Also, when a particular school has developed a successful
marketing program, the Company makes such program available to the other schools
for incorporation into such other schools' marketing programs as appropriate. In
the year ended March 31, 1996, the Company estimates that referrals, television
advertising, newspaper advertising and yellow pages advertising accounted for
approximately 46%, 15%, 9% and 9%, respectively, of new student starts.

ADMISSION AND RETENTION

In order to apply for admission to any of the Company's programs, a
candidate is required to have a high school diploma, a recognized equivalent, or
pass an admissions test specifically approved by the Department of Education. At
March 31, 1996, 88% of the students were high school graduates or held
recognized equivalent certification. Approximately 20% of enrolled students were
under 20 years of age, 39% were between 20 and 24 years of age, and 41% were 25
years of age or older. At March 31, 1996, 84% of the students attending the
Company's schools were women.

In an attempt to minimize student withdrawals prior to the completion of
their program, each of the Company's schools provides staff and other resources
to assist and advise its students regarding academic and financial matters, and
employment. Each of the schools also provides tutoring, and encourages help
sessions

40
<PAGE> 43

between individual students and instructors when students are experiencing
academic difficulties. For those students who were scheduled to graduate in
calendar years 1994 and 1995, 68.4% and 65.1%, respectively, completed their
course of study. The Company is obligated to provide refunds to those students
who withdraw from school prior to completion of the program based on formulas
required by applicable accrediting agencies or by state and federal regulations.
The refund formula in California, where the Company's largest schools are
located, provides for pro rata refunds based on the number of days a student is
in attendance compared to the total number of days in the program. In other
states, the Company is generally allowed to retain a greater percentage of
tuition than that provided for by the California formula.

GRADUATE PLACEMENT

Each of the Company's schools employs placement personnel to provide
placement assistance services to students and graduates and to solicit
appropriate employment opportunities from employers. In addition, the Company's
schools utilize their externship programs to develop job opportunities and
referrals. During the course of each program, students receive instruction on
job-search and interviewing skills and have available reference materials and
assistance with the composition of resumes.

Since their respective acquisition by the Company, the Company's schools
have graduated approximately 17,000 students. Based on data obtained by the
Company from its students and their employers, the Company believes that
students graduating from programs offered by the Company's schools during the
prior two calendar years who did not go on to further education obtained
employment in a field related to their program of study as of June 30 or earlier
of the calendar year following graduation as follows:

<TABLE>
<CAPTION>
PERCENT OF GRADUATES WHO
OBTAINED EMPLOYMENT
GRADUATING CLASSES NUMBER OF GRADUATES RELATED TO PROGRAM OF STUDY
- ------------------ ------------------- ---------------------------
<S> <C> <C>
1994 2,816 71%
1995 3,069 77%
</TABLE>

Although the Company provides substantial assistance to its students with
respect to job placement, it cannot guarantee that each graduating student will
find employment in the student's chosen field, or at all, and the student
remains ultimately responsible for his or her success.

The Company markets its programs based on the ability to provide students
with the knowledge and skills necessary to qualify them for a wide variety of
entry level positions in their chosen field. The Company believes that
broad-based training maximizes the student's opportunity to find employment in
their chosen field. Possible occupational outcomes in any field vary from state
to state and from school to school. The variety of occupational outcomes is
illustrated at the Company's San Diego, California school. It is the largest of
the Company's schools. At March, 1996, its student population totalled 909
compared to a total population of 4,318 students at all of the Company's
schools. Among other programs, it offers a Medical Assistant Program (which is
similar to that offered in nine of the Company's other schools), and a Medical
Administrative Assistant program (which is similar to that offered at eight of
the Company's other schools). It also offers a Vocational Nursing program which,
although only offered at one other school, the Company believes is
representative of programs offered at the Company's schools requiring generally
higher levels of skill. The San Diego School lists 22 occupational outcomes for
its Medical Assistant Program, 45 occupational outcomes for its Medical
Administrative Assistant programs and 16 occupational outcomes for its
Vocational Nursing programs. Because of the variety of possible occupational
outcomes and variations in starting salaries within each outcome, starting wages
vary widely among students graduating in any field. For example, at the same
California school starting monthly salaries (which are calculated in $200
intervals) ranged from $800 to $999 per month (8.7% of graduates) to $2,400 to
$2.599 per month (0.3% of graduates) for students graduating from its Medical
Assistant program; from $1,000 to $1,199 per month (10.7% of graduates) to
$2,000 to $2,199 per month (4.7% of graduates) for students graduating from its
Medical Administrative Assistant program; and from $800 to $999 per month (8.3%
of graduates) to $2,200 to $2,399 per month (0.8% of graduates) for students
graduating from its Vocational Nursing program in calendar year 1995. the most
recent period for which statistics are available under the relevant California
regulations, as calculated in accordance with such regulations.

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<PAGE> 44

Until the first quarter of fiscal 1997 the Company's data base did not
include comparable statistics relating to salaries for its schools outside of
California, which requires the compilation of such statistics to comply with
applicable regulations. During fiscal 1997 the Company expects its management
information systems to be expanded to provide comparable statistics for its
other schools. However, the Company believes that the same wide variation in
possible occupational outcomes and starting salaries exists with respect to all
of its programs wherever offered.

FACULTY

Faculty members are hired locally in accordance with criteria established
by the school, applicable accreditation organizations, and applicable state
regulatory authorities. Members of a school's faculty are hired based on
academic background, prior educational experience, and prior work experience. A
significant portion of the Company's faculty were previously employed in fields
related to their area of instruction. The Company believes that such faculty
members provide a "real world" perspective to the students. At most of the
Company's schools, instructors are supervised by the school director and an
academic dean. At the remaining schools, faculty members are supervised by lead
instructors with respect to particular areas of instruction, subject to review
by the school director. As of June 30, 1996, the Company's schools employed
approximately 238 full-time faculty members (defined as those faculty members
spending at least 20 hours per week teaching classes at the Company's schools)
and 250 part-time faculty members.

ADMINISTRATION AND EMPLOYEES

Each of the Company's schools is managed by a school director.
Additionally, the staff of each school includes a director of placement, a
financial aid administrator, and a director or assistant director of admissions
(except for the Sacramento school where the school director performs certain of
these functions). Seven schools also employ a director of education. In the
other schools, lead instructors are appointed to oversee instruction in their
areas of expertise, subject to the overall supervision of the school director.
As of June 30, 1996 the Company had approximately 882 full and part-time
employees, including 35 people employed at its home office in Roswell, Georgia
and its regional offices in Tampa, Florida and San Diego, California and the 488
full and part-time faculty members. It also employed 56 students under the
federal Work-Study program. None of the Company's employees is represented by a
labor union or is subject to a collective bargaining agreement. The Company has
never experienced a work stoppage and believes that its employee relations are
satisfactory.

From its home office and its two regional offices, the Company provides
each of its schools with financial aid services, oversees regulatory compliance,
assists in the development and addition of programs to existing curricula,
implements and supports management information systems and provides accounting
services and financial resources. The Company's eastern and western region
offices, each with a regional manager and staff who manage the individual school
directors and provide expertise in the area of operations, curriculum
development, and sales and marketing. These centralized services relieve the
local school management of tasks which the Company believes can be performed
most efficiently and cost effectively by a centralized office. However, because
of the Company's belief that each of the markets served by its schools is
unique, and that by offering programs specifically targeted at each market it
can maximize its long-term ability to enroll and place students in an
appropriate outcome, local school management has the responsibility and
authority to schedule the school's programs, hire its teachers, and originate
new program development or propose the addition of programs from the existing
curricula library.

COMPETITION

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<PAGE> 45

based on the quality of the program, perceived reputation of the institution,
the cost of the program, and the employability of graduates. Public and private
colleges may offer programs similar to those offered by the Company's schools at
lower tuition costs due in part to government subsidies, foundation grants, tax
deductible contributions, or other financial resources not available to
proprietary institutions. Certain of the Company's competitors in both the
public and private sector have greater financial and other resources than the
Company.

FACILITIES

All of the Company's facilities are leased by the Company, except for the
facility in Dayton, Ohio, which is owned by the Company. The table below sets
forth certain information regarding these facilities as of June 30, 1996.

<TABLE>
<CAPTION>
APPROXIMATE
OFFICE/SCHOOL LOCATION SQUARE FOOTAGE
- -------------------------------------------------------- -------------------- --------------
<S> <C> <C>
Home Office Roswell, GA 8,850
Western Region Office San Diego, CA 2,001
Eastern Region Office Tampa, FL 715
WEST REGION SCHOOLS
Andon College Modesto, CA 6,136
Andon College Stockton, CA 8,532
California Academy of Merchandising, Art, and Design Sacramento, CA 5,080
Long Medical Institute Phoenix, AZ 11,423
Maric College of Medical Careers San Diego, CA 39,092
Maric College of Medical Careers, San Marcos Campus Vista, CA 14,600
Maric College of Medical Careers Vista, CA 13,500
Modern Technology School of X-ray North Hollywood, CA 13,377
EAST REGION SCHOOLS
Bauder College Atlanta, GA 26,722
Dominion Business School Harrisonburg, VA 9,400
Dominion Business School Roanoke, VA 12,500
Dominion Business School(1) Staunton, VA 9,000
ICM School of Business Pittsburgh, PA 47,833
Ohio Institute of Photography and Technology(2) Dayton, OH 24,200
</TABLE>

- ---------------

(1) The Company recently determined that there was a substantial overlap in its
markets in Harrisonburg and Staunton, Virginia, and decided to relocate its
Staunton school. Consequently, it has ceased enrolling new students at the
Staunton school and is considering various rental facilities in which to
relocate.
(2) The Dayton, Ohio facility was purchased in connection with the acquisition
of the school in fiscal 1994. It is owned subject to a mortgage with an
aggregate principal amount outstanding of $646,695 at June 30, 1996.

LITIGATION

In September 1995, the Company filed suit in the California Superior Court
in connection with its 1993 purchase of its North Hollywood, California school.
The suit alleges that the sellers made significant financial and operational
misrepresentations to the Company, principally with respect to the number of
active earning students enrolled at the school and that these misrepresentations
inflated the perceived value of the school. The Company is seeking damages from
the sellers, and, pending the resolution of the case, is making payments due to
the sellers in connection with the acquisition into an escrow account. The
Sellers have denied the Company's allegations and filed a Cross-Complaint
against the Company seeking an indeterminate amount of damages and alleging
among other things, breach of contract and fraud. The matter is in the initial
stages of discovery and is expected to be set for trial in the first calendar
quarter of 1997. The Company is unable to predict the outcome of this matter at
this time.

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<PAGE> 46

On June 24, 1994, eight students enrolled in one of the Company's programs
at its schools in the San Diego, California area filed a class action lawsuit
against the Company in state court in San Diego, California. In substance, the
suit alleged that there were material misrepresentations made with respect to
the context of the program and the potential jobs available to the students who
graduated from it. The suit was certified as a class action in the fall of 1994.
Although the Company believes that it accurately described the course content
and the jobs to which the course could lead, in order to avoid further legal
expense and because of the uncertainty and risks inherent in any litigation, the
Company settled the lawsuit in March 1996. Pursuant to the terms of the
settlement, the Company will pay the plaintiffs $1,000,000, of which $600,000
has been paid, and $400,000 of which is payable on April 1, 1997. In addition,
the Company made available tuition credits of $1,150,000 to class members of
which $25,725 has been claimed. The remaining $1,124,275 of tuition credits will
be redeemed by the Company for $112,427. The involved program was discontinued
in the summer of 1994 for reasons unrelated to the lawsuit.

In order to reduce the risk of any similar actions, the Company has
reviewed all of its catalogs and admission materials and, where the Company
believes appropriate, taken steps to further disclose to students in writing
that placement rates are based on multiple outcomes and the course is not
represented to lead to any one particular outcome, including the course title.

The Company is also a party to routine litigation incidental to its
business, including ordinary course employment litigation. Management does not
believe that the resolution of any or all of such routine litigation is likely
to have a material adverse effect on the Company's financial condition or
results of operations.

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<PAGE> 47

FINANCIAL AID AND REGULATION

TITLE IV STUDENT FINANCIAL ASSISTANCE PROGRAMS

A substantial majority of the students attending the Company's schools
finance all or a part of their education through grants or loans under Title IV
Programs. Revenues from Title IV funding provide most of the Company's tuition
revenues (approximately 75.9% of cash receipts in fiscal 1996). The maximum
amount of a student's available Title IV program assistance is generally based
on the student's financial need. The Company determines a student's financial
need based on the national standard need analysis system established by the HEA.
If there is a difference between the amount of Title IV program funding a
student is entitled to receive (combined with other outside assistance) and the
student's tuition, the student is responsible for the difference.

Students at the Company's schools participate in the following Title IV
Programs:

Pell and FSEOG Grants

The Federal Pell Grant Program provides for grants to help financially
needy undergraduate students meet the costs of their postsecondary education.
The amount of an eligible student's Pell grant award currently ranges from $400
to $2,470 annually, depending on the student's financial need, as determined by
a formula set by the HEA and the Regulations. The HEA guarantees that all of the
eligible students at a school receive Pell grants in the amounts to which they
are entitled. In fiscal 1996, the average Pell award per student enrolled in the
Company's schools receiving such awards was approximately $1,400. Pell grants to
students represented approximately $7 million, or 17.4%, of the Company's
revenues, in fiscal 1996.

The Federal Supplemental Educational Opportunity Grant program ("FSEOG")
provides for awards to exceptionally needy undergraduate students. The amount of
an FSEOG award currently ranges from $100 to $4,000, depending on the student's
financial need and the availability of funds. The availability of federal
funding for FSEOG awards is restricted. In fiscal 1996, the average FSEOG award
to students enrolled in the Company's schools receiving such grants was $350.
The Company, or another outside source, is required to make a 25% matching
contribution for FSEOG program funds it disburses. The Company made matching
contributions of approximately $110,000 in fiscal 1996. FSEOG awards made to the
Company's students (net of matching contributions) amounted to approximately
$544,000 and represented approximately 1.4% of the Company's revenues in fiscal
1996.

Federal Family Education Loans and Federal Direct Student Loans

The Federal Family Education Loan ("FFEL") programs include the Federal
Stafford Loan Program ("Stafford Loan"), and the Federal PLUS Program ("PLUS"),
pursuant to which private lenders make loans to enable a student or his or her
parents to pay the cost of attendance at a postsecondary school.

The FFEL Program is administered through state and private nonprofit
guarantee agencies that insure loans directly, collect defaulted loans and
provide various services to lenders. The federal government provides interest
subsidies in some cases and reinsurance payments for borrower default, death,
disability, and bankruptcy.

The Federal Direct Student Loan Program ("FDSLP") is substantially the same
as the FFEL program in providing Stafford and PLUS loans. Under the FDSLP,
however, funds are provided directly by the federal government to the students,
and the loans are administered through the school. For schools electing to
participate, the FDSLP replaces the FFEL program, although loans are made on the
same general terms and conditions. The Company was one of the initial
participants in the FDSLP.

Stafford Loan Program

Students may borrow an aggregate of $2,625 for their first undergraduate
academic year and $3,500 for their second academic year under the FFEL Stafford
Loan or FDSLP Stafford Loan program. If the student qualifies for a subsidized
loan, based on financial need, the federal government pays interest on the loan
while

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<PAGE> 48

the student is attending school and during certain grace and deferment periods.
If the student does not qualify for a subsidized Stafford Loan, the interest
accruing on the loans must be paid by the student. In addition, independent
students may qualify for an additional $4,000 a year in unsubsidized Stafford
loans.

In fiscal 1996, all but one of the Company's schools participated
exclusively in the FDSLP program, and the remaining school has been recently
approved to participate. FDSLP and FFEL Stafford loans amounted to approximately
$17.7 million, or approximately 45.7% of the Company's revenues, in fiscal 1996.

PLUS Loan Program

Parents of dependent students may receive loans under the FFEL PLUS Program
or the FDSLP PLUS Program on an academic year basis. The maximum amount of any
PLUS loan is the total cost of a student's education for each relevant academic
year less other financial aid received by the student attributable to such year.
PLUS loans carry a maximum interest rate of 9%. These loans are repayable
commencing 60 days following the last disbursement made with respect to the
relevant academic year, with flexible payment schedules over a 10 year period.
The FFEL PLUS loans are made by lending institutions and guaranteed by the
federal government. The FDSLP PLUS Program, which has replaced the FFEL PLUS
loan program at all of the Company's schools, provides PLUS loans by the federal
government on the same general terms as the FFEL PLUS loans. FDSLP PLUS loans
and FFEL PLUS loans amounted to approximately $3.2 million, or approximately
8.2% of the Company's revenues, in fiscal 1996.

Perkins Loans

Students who demonstrate financial need may borrow up to $3,000 per
academic year under the Federal Perkins Loan ("Perkins") program, subject to the
availability of Perkins funds at the institution. Repayment of loans under the
Perkins program is delayed until nine months after graduation or the termination
of studies. Funding for a school's Perkins program is made by the Department of
Education into a fund maintained by the participating school for that purpose.
The participating school is required to make a matching contribution into the
fund of 25% of the total loans made from the fund and to deposit all repayments
into the fund.

Only two of the Company's schools participate in the Perkins program. The
Company made no matching contributions in fiscal 1996 because the Company did
not receive any Perkins funding from the Department of Education and utilized
only funds received from borrower repayments. A school will not receive
continued federal funding for Perkins loans if the school's Cohort Default Rate
for Perkins loans rate exceeds 30%. One of the Company's schools receiving
Perkins loan funding had a cohort default rate in excess of 30% in the last
fiscal year and is therefore ineligible to receive additional funds from the
government for the subsequent fiscal year. The school will, however, remain able
to make Perkins loans to students through funds repaid by previous borrowers.
Perkins loans amounted to approximately $144,000, or approximately 0.4% of the
Company's revenues, in fiscal 1996.

Federal Work-Study

Pursuant to the Federal Work-Study ("FWS") program, federal funds are made
available to provide part-time employment to eligible students based on
financial need. The Company's schools provide a limited number of on-campus and
off-campus jobs to eligible students participating in the FWS program. During
the 1995-96 award year, the Company's schools employed 141 students pursuant to
this program. The Company, or another outside source, is required to pay 25% of
the gross earnings for each participant in the FWS program.

TITLE IV REGULATION

To obtain and maintain eligibility to participate in the programs described
above, the Company's schools must comply with the rules and regulations set
forth in the HEA and the Regulations thereunder. An institution must obtain
certification by the Department of Education as an "eligible institution" to
participate in Title IV Programs. Certification as an "eligible institution"
requires, among other things, that the institution

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<PAGE> 49

be authorized to offer its educational programs by the state in which it
operates. It must also be accredited by an accrediting agency recognized by the
Department of Education.

The HEA provides standards for institutional eligibility to participate in
the Title IV Programs. The standards are designed, among other things, to limit
dependence on Title IV funds, prevent schools with unacceptable student loan
default rates from participating in Title IV Programs and, in general, require
institutions to satisfy certain criteria intended to protect the integrity of
the federal programs, including criteria regarding administrative capability and
financial responsibility.

Generally, a school (a main campus and any additional locations for
purposes of the Regulations) is considered separately for compliance with the
Regulations. Thirteen of the Company's schools are main campuses. One school,
located in Vista, California, is an additional location of the San Marcos,
California main campus.

A school that has been certified as eligible to participate in the Title IV
Programs continues to remain eligible for the period of its certification, which
is generally four years. A school must apply for a renewal of its certification
prior to its expiration, and must demonstrate compliance with the eligibility
requirements in its application.

Under certain circumstances, the Department of Education may provisionally
certify a school to participate in Title IV programs. Provisional certification
may be imposed, when a school is reapplying for certification or when a school
undergoes a change of ownership resulting in a change in control, if the school
(i) does not satisfy all the financial responsibility standards, (ii) has a
Cohort Default Rate of 25% or more in any single fiscal year of the three most
recent federal fiscal years for which data is available, and (iii) under other
circumstances determined by the Secretary of Education. Provisional
certification may last no longer than three years. Provisional certification
differs from certification in that a provisionally certified school may be
terminated from eligibility to participate in the Title IV Programs without the
same opportunity for a hearing before an independent hearing officer and an
appeal to the Secretary of Education as is afforded to a fully certified school
faced with termination, suspension, or limitation of eligibility prior to
expiration of its certification. Additionally, the Department of Education may
impose additional conditions on a provisionally certified institution's
eligibility to continue participating in the Title IV Programs.

Student Loan Defaults

Under the HEA, an institution may lose its eligibility to participate in
some or all Title IV Programs if student defaults on the repayment of federally
guaranteed student loans exceed specified Cohort Default Rates. Similar rules
regarding default rates apply to Federal Direct Loans made pursuant to the
FDSLP, commencing with those loans entering into repayment for the first time in
the 12 month period ending September 30, 1995. Under existing regulations these
rates are based on the repayment history of current and former students for
loans provided under the Stafford Loan program and the SLS program. A Cohort
Default Rate is calculated for each school on a federal fiscal year basis by
determining the rate at which the school's students entering repayment in that
federal fiscal year default by the end of the following federal fiscal year.
Cohort Default Rates are subject to revision by the Department of Education if
new data becomes available and is subject to appeal by schools contesting the
accuracy of the data or the adequacy of the servicing of the loans by the loan
servicer.

An institution whose Cohort Default Rate exceeds 40% for any single federal
fiscal year may have its eligibility to participate in all Title IV Programs
limited, suspended or terminated. If the Department of Education elects to take
such action due to a single-year Cohort Default Rate in excess of the regulatory
level, it must afford the institution a hearing before an independent Department
of Education hearing officer and an opportunity to appeal any decision to the
Secretary of Education before the limitation, suspension, or termination may
take effect. Except for its school located in Albany, Georgia, which was closed
in fiscal 1995, none of the Company's schools has, or has had, a Cohort Default
Rate in excess of 40%.

An institution whose Cohort Default Rate is 25% or more for the three most
recent federal fiscal years for which data is available is subject to immediate
loss of eligibility to participate in Title IV Programs, subject to an appeal
(on the bases stated in the next prior paragraph) of the determination,
including an appeal based on

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<PAGE> 50

a claim of exemption from the Cohort Default Rate requirements by virtue of
exceptional mitigating circumstances. The loss of eligibility lasts for the
duration of the fiscal year in which the determination of ineligibility is made,
plus the two succeeding fiscal years. However, an institution remains eligible
for Title IV funding while the appeal is pending.

The federal fiscal 1991, 1992 and 1993 Cohort Default Rates for all of the
students at the Company's schools averaged 19.3%, 20.6% and 19.9%, respectively,
and ranged from highs of 31.2%, 30.9% and 23.5% to lows of 7.8%, 7.3% and 2.3%
for the respective periods. The federal fiscal 1994 Cohort Default Rates for all
of the students at the Company's schools, which have been preliminarily
announced, averaged 19.7% and ranged from a high of 27.5% to a low of 3.0%. For
the Cohort Default Rates for each of the Company's schools for federal fiscal
years 1991 to 1994, the most recent years for which data is available, see
"-- Selected Data Regarding Cohort Default Rates, Title IV Funds Received and
Net Operating Losses. " The average Cohort Default Rate for students at all
postsecondary proprietary institutions in the United States for federal fiscal
1992 and 1993 were 30.2% and 23.9%, respectively. The average rate for federal
fiscal 1994 is not available.

None of the Company's schools had Cohort Default Rates of 25% or more for
either each of the three consecutive federal fiscal years ending 1993, or those
ending with federal fiscal 1994 based on 1994 data released by the Department of
Education in May 1996. The Department of Education has designated this 1994 data
as preliminary, reserving the right to issue final 1994 Cohort Default Rates in
or about November 1996. The Company does not expect its final 1994 Cohort
Default Rates to differ materially from the preliminary data. Accordingly, the
Company believes that none of the schools is currently vulnerable to termination
of Title IV eligibility based on three consecutive years of excess default
rates. The Company's schools in Harrisonburg and Staunton, Virginia, had Cohort
Default Rates in excess of 25% for the two consecutive federal fiscal years
ending 1993; however both schools had preliminary Cohort Default Rates of less
than 25% for the federal fiscal year ending in 1994. Only the Company's school
located in Stockton, California had a Cohort Default Rate of 25% or more for
federal fiscal 1994 (based on the preliminary data). Although that school had a
Cohort Default rate of 27.5% in federal fiscal 1994, it had a Cohort Default
Rate of 19.9% for federal fiscal 1993 and therefore is not vulnerable to
termination of Title IV eligibility unless its rates for the next two federal
fiscal years are 25% or more. The Company's other schools must have Cohort
Default Rates of 25% or more for consecutive three year periods beginning with
federal fiscal 1995 and thereafter in order to become vulnerable to termination
of Title IV eligibility.

The Regulations require that any school which experiences a Cohort Default
Rate in excess of 20% must establish a default management plan in compliance
with the federally mandated plan included in the Regulations. This plan includes
measures to reduce student withdrawal rates, improve student employment rates
and counseling of students on their responsibility to repay their loans. The
Company has instituted default reduction programs in each of its schools;
however, economic and other factors outside of the Company's control could
adversely effect default rates.

The 85/15 Rule

The "85/15" rule, which applies to for-profit institutions such as the
schools owned and operated by the Company, became applicable to the Company's
schools beginning with the fiscal year ending March 31, 1996. It requires that
no more than 85% of the school's applicable cash receipts may be derived from
Title IV Programs. A school whose annual certified financial statement or Title
IV compliance audit report to the Department of Education does not reflect
compliance with the 85/15 rule is subject to immediate termination of its Title
IV eligibility. The Company believes that each of its schools was in compliance
with the 85/15 rule with respect to fiscal 1995 and 1996, and has taken steps to
help ensure on-going compliance with the 85/15 Rule.

Change in Control

Upon a change in ownership resulting in a change in control of the Company,
as defined in the HEA and Regulations, each of the Company's schools would lose
its eligibility to participate in Title IV Programs for an indeterminate period
of time during which it applies to regain eligibility. A change of control also
could have

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<PAGE> 51

significant regulatory consequences for the Company at the state level and could
affect the accreditation of the Company's schools. If a corporation, such as the
Company prior to the consummation of the Offering, is neither publicly traded
nor closely held, the Regulations provide that a change in ownership resulting
in a change of control occurs when a person's legal or beneficial ownership
either rises above or falls below 25% of the voting stock of the corporation and
that person gains or loses control of the corporation. The Company has been
advised by the Department of Education that, based on the facts pertaining to
the Company's ownership and control which are set forth in this Prospectus, the
consummation of this Offering will not constitute a change in ownership
resulting in a change of control within the meaning of the HEA and the
Regulations.

Administrative Capability

The Regulations set certain standards of "administrative capability" which
a school must satisfy to participate in the Title IV Programs. These criteria
require, among other things, that the school comply with all applicable Title IV
Regulations, have capable and sufficient personnel to administer the Title IV
Programs, have acceptable methods of defining and measuring the satisfactory
academic progress of its students, provide financial aid counselling to its
students, timely submit all reports and financial statements required by the
Regulations, and that the school's Cohort Default Rate not equal or exceed 25%
for any single fiscal year.

Failure to satisfy any of the criteria may lead the Department of Education
to determine that the school lacks the requisite administrative capability and
may subject the school to provisional certification when it seeks to renew its
certification as an eligible institution, or may subject it to a fine or to a
proceeding for the limitation, suspension, or termination of its participation
in Title IV Programs. Proceedings to fine, limit, suspend, or terminate an
institution are conducted before an independent hearing officer of the
Department of Education and are subject to appeal to the Secretary of Education,
prior to any sanction taking effect. Thereafter, judicial review may be sought
in the federal courts pursuant to the federal Administrative Procedures Act.

Six of the Company's schools are provisionally certified to participate in
the Title IV Programs. The conditions imposed on them as a result of such
provisional certification include reporting requirements relating to each
school. The material violation of such requirements, or any of the requirements
of the HEA or the Regulations, would subject the school to a loss of its
provisional eligibility.

A school also may be found to lack administrative capability if its cohort
default rate for Perkins loans exceeds 15% for any federal award year (i.e.,
July 1 through June 30). The Company's schools in Atlanta, Georgia and
Pittsburgh, Pennsylvania (the only two schools participating in the Perkins loan
program) had published Cohort Default Rates for Perkins loans of 28.6% and
23.3%, respectively, for the 1994-1995 award year and 23.1% and 33.0%,
respectively, in the prior year. Perkins loans amounted to approximately $72,000
at each of the schools for the fiscal year ended March 31, 1996, and were funded
from repayments of prior Perkins loans. Based on the modest level of the
schools' participation in the Perkins program and inability to request funding
in excess of repayments, the Company does not believe that the Perkins Cohort
Default Rate will have a material effect on the Department of Education's
assessment of administrative capacity.

Financial Responsibility Requirements

The HEA and the Regulations prescribe specific standards of financial
responsibility which the Department of Education must consider with respect to
qualification for participation in the Title IV Programs

49
<PAGE> 52

("Financial Responsibility Standards"). These standards are generally applied on
an individual school basis. However, there can be no assurance that the
Department of Education will not apply such standards on a consolidated basis.
If the Department of Education determines that any of the Company's schools
fails to satisfy the Financial Responsibility Standards, the Department may
require that such school post an irrevocable letter of credit (a "Financial
Responsibility Bond") in favor of the Secretary of Education in an amount equal
to not less than one-half of Title IV Program funds received by the school
during the last complete award year or, in the Department of Education's
discretion, require some other less onerous demonstration of financial
responsibility (a "Demonstration of Financial Responsibility"). One-half of
Title IV funds received by the Company's individual schools in the most recent
award year ranged from $0.2 million to $3.9 million, and one-half of the total
Title IV funds received by all the Company's schools in the most recent award
year was $14.1 million. Pursuant to the Regulations, the Company submits annual
audited consolidated financial statements and unaudited consolidating financial
statements to the Department of Education. For the amount of Title IV funds
received by each of the Company's schools, along with other data relevant to the
financial responsibility requirements, see "-- Selected Data Regarding Cohort
Default Rates, Title IV Funds Received and Net Operating Losses".

Among the principal Financial Responsibility Standards which a school must
satisfy are: (i) an "acid test" ratio (defined as the ratio of the total of
cash, cash equivalents and current accounts receivable to current liabilities)
of at least 1-to-1 at the end of the most recent fiscal year, (ii) a positive
tangible net worth, as defined by the applicable Regulations, at the end of the
most recent fiscal year (the "Tangible Net Worth Standard") and (iii) net
operating results for the two most recent fiscal years, excluding extraordinary
losses or losses from discontinued operations, which do not show an aggregate
net loss in excess of 10% of tangible net worth at the beginning of the two year
period. Primarily because a large portion of the Company's assets consists of
goodwill and other intangibles related to school acquisitions, the Company has
had a negative tangible net worth on a consolidated basis for each of the
Company's three most recent fiscal years, although none of the Company's schools
had a negative tangible net worth on an individual school basis during that
period. For the Company's fiscal year ended March 31, 1996, the Company's
consolidated negative tangible net worth was $581,000. The Company has filed
audited consolidated financial statements with the Department of Education for
each of the last three fiscal years, along with unaudited consolidating
statements. Although the Department of Education has not cited any of the
Company's schools for violation of the Tangible Net Worth Standard, there can be
no assurance that the Department of Education will not attempt to apply the
Tangible Net Worth Standard on a consolidated basis. Assuming completion of this
Offering, the Offering Transactions and consummation of the Texas Acquisition,
the Company will have a positive tangible net worth on a pro forma as adjusted
consolidated basis of approximately $20.2 million as of June 30, 1996. However,
no assurance can be given that the Department of Education may not make a
request for the Company to post a Financial Responsibility Bond (which, if done
on a consolidated basis for all of the Company's schools, could aggregate $14.1
million) or otherwise make a request for a Demonstration of Financial
Responsibility based on the consolidated negative tangible net worth at March
31, 1996, the end of its most recent fiscal year. If such a request were to be
made, there is no assurance that the Company (i) would be successful in
persuading the Department of Education or a court that such a request is
contrary to law, (ii) could secure the funds to post the Financial
Responsibility Bond which the Department of Education may request, or (iii) that
the Company would be successful in negotiating a more favorable Demonstration of
Financial Responsibility. If the Company were unable to post a Financial
Responsibility Bond or make a satisfactory Demonstration of Financial
Responsibility, it could become ineligible to receive Title IV funding in some
or all of its schools. Ineligibility for Title IV funding would have an
immediate material adverse effect on the Company's operations.

The Company's school located in Roanoke, Virginia (which accounted for 2.7%
of the Company's total net revenue in fiscal 1996) experienced losses in each of
the last two fiscal years, which may result in the Department of Education
requiring the posting of a Financial Responsibility Bond in the approximate
amount of $355,000 or otherwise request a Demonstration of Financial
Responsibility with respect to such school. In May 1995, the Department of
Education notified the Company (the "Fiscal 1994 Notice") that, based upon a
review of the audited consolidated and unaudited consolidating fiscal 1994
financial statements of the Company, it determined that (i) the Company's
schools located in Staunton and Harrisonburg, Virginia, did

50
<PAGE> 53

not meet, for fiscal year 1994, the acid test ratio and the Tangible Net Worth
Standard, and (ii) the Company's school located in Pittsburgh, Pennsylvania did
not meet the acid test ratio. The Department of Education requested that the
Company provide letters of credit with regard to these three schools in the
aggregate amount of $2,065,000. In July 1995, after a meeting with Department of
Education officials, the Company submitted its fiscal 1995 audited consolidated
financial statements and unaudited consolidating financial statements (the "1995
Financials") for review by the Department of Education. The Department of
Education agreed to suspend its request for letters of credit subject to their
review of the 1995 Financials. The Company believes that the 1995 Financials
demonstrated compliance by the relevant schools with all of the applicable
financial criteria for fiscal year ended March 31, 1995. As of the date of this
Prospectus, the Department of Education has neither confirmed nor contested the
Company's belief.

Based on its audited consolidated and unaudited consolidating financial
statements for fiscal 1996, which have been submitted to the Department of
Education, except with respect to the operating losses incurred by the Company's
school in Roanoke, the Company believes each of its schools satisfies the
Financial Responsibility Standards. However, because the Department of Education
periodically revises its regulations and changes its interpretation of existing
laws and regulations, there can be no assurance that the Department of Education
will agree in the future with the Company's interpretation of each such
requirement or that such requirements will not change in the future.

Selected Data Regarding Cohort Default Rates, Title IV Funds Received and Net
Operating Losses

The table below sets forth certain detailed information relative to the
Company's schools with respect to certain of the regulatory criteria discussed
above.

<TABLE>
<CAPTION>
COHORT DEFAULT RATE(1)
-------------------------------------- TITLE IV FUNDS
1994 RECEIVED
SCHOOL LOCATION 1991 1992 1993 PRELIMINARY FISCAL 1996
- ----------------------------------------------- ---- ---- ---- ----------- --------------
(DOLLARS IN
THOUSANDS)
<S> <C> <C> <C> <C> <C>
Vista, CA...................................... 18.7% 21.6% 21.8% 20.1% $2,615
San Diego, CA.................................. 17.3 19.5 23.0 20.2 7,845
San Marcos Campus -- Vista, CA................. 18.7 21.6 21.8 20.1 1,732
Phoenix, AZ.................................... 29.9 24.9 19.5 24.3 1,533
Stockton, CA................................... 31.2 30.9 19.9 27.5 1,534
Modesto, CA.................................... 23.8 27.0 23.5 19.3 1,110
Atlanta, GA.................................... 12.1 8.6 14.2 15.4 3,147
North Hollywood, CA............................ 19.0 17.4 14.5 18.9 2,328
Roanoke, VA.................................... 22.0 23.3 22.9(2) 23.0 710
Harrisonburg, VA............................... 22.0 23.3 25.2(2) 13.9 999
Staunton, VA................................... 22.0 23.3 25.0(2) 20.6 376
Pittsburgh, VA................................. 13.4 16.2 18.5 13.7 2,463
Dayton, OH..................................... 7.8 7.3 2.3 3.0 1,503
Sacramento, CA................................. 9.4 11.4 7.8(2) N/A(3) 528
</TABLE>

- ---------------

(1) The Company has filed appeals with the Department of Education challenging
the accuracy of the underlying data with regard to many of these Cohort
Default Rates.
(2) The Department of Education has informed the Company that it is continuing
to review these preliminary rates.
(3) Such data is not available.

None of the Company's schools had operating losses in fiscal 1995 or fiscal
1996, except for the Company's school in Roanoke which had operating losses of
approximately $341,000 and $400,000 in fiscal 1995 and 1996, respectively, and
the Company's school in Sacramento which had an operating loss of approximately
$179,000 in fiscal 1995.

51
<PAGE> 54

Incentive Compensation

Schools participating in Title IV Programs are prohibited from providing
any commission, bonus or other incentive payment based directly or indirectly on
success in securing enrollments or financial aid to persons engaged in any
student recruitment, admission or financial aid awarding activity (the
"Incentive Compensation Rule"). The Department of Education has not provided
specific regulations with respect to this requirement. If the Department of
Education were to determine that the Company's methods of compensation do not
comply with the Incentive Compensation Rule, the Company could be required to
modify its compensation system, repay certain previously disbursed Title IV
Program funds, pay administrative fines or lose its eligibility to participate
in Title IV Programs. The Company believes its compensation policies do not
violate the Incentive Compensation Rule.

Restrictions on Adding Locations and Educational Programs

Proprietary educational institutions must be in full operation for two
years before they can be certified by the Department of Education to participate
in Title IV Programs. However, an institution that is already qualified to
participate in Title IV Programs may establish, with approval of the Department
of Education, an additional location that immediately qualifies for
participation in such programs without satisfying the two-year requirement if
such location satisfies all other applicable requirements for institutional
eligibility, including approval of the additional location by the applicable
accrediting agency and the relevant state authorizing agency.

Generally, if a school which is eligible to participate in Title IV
Programs adds an educational program, it must apply to the Department of
Education to have such program designated as eligible. However, if it adds an
additional degree program or a program which prepares students for employment in
the same or related occupations as those which have previously been designated
as eligible, it is not obligated to obtain the Department of Education's
approval of such program. The Company does not believe that the Department of
Education requirements will hinder its ability to plan and add new degree and
diploma programs to its schools' curricula.

STATE AUTHORIZATION AND ACCREDITATION

The Company's schools must be authorized by the applicable agency or
agencies of the state in which they are located to operate and grant degrees or
diplomas. State authorization is also required for eligibility to participate in
Title IV Programs. Each of the Company's schools is authorized to operate its
educational programs in the state where it is located. Each of the six states in
which the Company operates is subject to extensive and varying regulation, which
may parallel or exceed federal regulations.

All of the Company's schools are accredited by at least one accrediting
body recognized by the Department of Education. Accreditation signifies that the
schools have been reviewed and determined to meet minimum criteria in terms of
administration, faculty, curriculum, physical plant, facilities and equipment,
and financial stability. Accreditation by an accrediting body recognized by the
Department of Education is a requirement for participation in Title IV Programs.
Seven of the Company's schools are accredited by the Accrediting Commission of
Career Schools and Colleges of Technology ("ACCSCT"), five by the Accrediting
Council for Independent Colleges and Schools ("ACICS"), two by the Accrediting
Bureau of Health Education Schools ("ABHES") and one by the Southern Association
of Colleges and Schools/Commission on Colleges ("SACS/COC"). The Atlanta,
Georgia school is accredited by both ACCSCT and SACS/COC. See the table at
"Business -- Schools" for information with respect to specific accreditations
for each of the Company's schools.

52
<PAGE> 55

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The following table provides information regarding the executive officers
and directors of the Company. Biographical information for each of the persons
set forth in the table is presented below.

<TABLE>
<CAPTION>
NAME AGE TITLE
- ---------------------------------- --- ------------------------------------------------------------
<S> <C> <C>
Gary D. Kerber.................... 57 Chairman, President, Chief Executive Officer and a Director
Vince Pisano...................... 42 Vice President and Chief Financial Officer
Gerry M. Taylor................... 52 Director of Operations -- Western Region
Ellen L. Bernhardt................ 45 Director of Operations -- Eastern Region
Elaine Neely-Eacona............... 43 Director of Financial Aid
K. Terry Guthrie.................. 53 Director of Accreditation
A. William Benham, Jr............. 34 Controller
Robert T. Cresci.................. 52 Director
Carl S. Hutman.................... 62 Director
W. Patrick Ortale, III............ 43 Director
Richard E. Kroon.................. 54 Director
</TABLE>

Gary D. Kerber has been President, Chief Executive Officer and a Director
of the Company since March 1988. From 1971 to 1983 he was employed by American
Hospital Supply Company in various sales and executive positions. From 1983 to
1986, Mr. Kerber was the chief executive officer for Kimberly Services, Inc.

Vince Pisano has been Vice President of Finance and Chief Financial Officer
of the Company since March 1990. From 1978 to 1990 he was employed by National
Education Corporation, a provider of postsecondary education, as corporate
controller and subsequently as the vice president of finance of its educational
centers division.

Gerry M. Taylor has been Director of Operations -- Western Region of the
Company since July 1991. From 1989 to 1991 she was employed as Executive
Director of the Company's three schools in the San Diego, California area.

Ellen L. Bernhardt has been Director of Operations -- Eastern Region of the
Company since August 1993. From 1985 to 1993 she was employed by National
Education Corporation, a provider of postsecondary education, most recently as
southeast regional director of operations.

Elaine Neely-Eacona has been Director of Financial Aid of the Company since
March 1990. From 1976 to 1990 she was employed in various financial aid
positions by Education Management Corporation, a provider of postsecondary
education.

K. Terry Guthrie has been Director of Accreditation of the Company since
July 1993. From 1971 to July 1993 he was employed as president of Ohio Institute
of Photography and Technology, which he co-founded. The school was acquired by
the Company in July 1993.

A. William Benham, Jr. has been Controller of the Company since May 1995.
From 1989 to May 1995, Mr. Benham was Assistant Controller of the Company. On
December 16, 1992, Mr. Benham filed for protection under Chapter VII of the
Federal Bankruptcy Act in the United States Bankruptcy Court for the Northern
District of Georgia (Atlanta Division) and was discharged on May 18, 1993.

Carl S. Hutman has been a Director of the Company since 1988. Since 1996,
he has also been managing director of Fundamental Management Corporation, an
investment management firm. Since 1981, he has been president of Anlyn Advisers,
Inc., an investment advisory company. From 1981 to 1991 he was a general partner
of Investech, L.P., a venture capital partnership which purchased convertible
preferred stock and Common Stock of the Company in 1988 and 1989 and distributed
all of its holdings to its general and limited partners in 1991. Mr. Hutman is a
member of the Board of Directors of Canadian General Investments,

53
<PAGE> 56

Limited, Canadian World Fund Limited and Third Canadian General Investment Trust
Limited, all of which are investment funds.

W. Patrick Ortale, III has been a Director of the Company since 1988. Since
1985, Mr. Ortale has been a general partner of Lawrence Venture Partners, the
general partner of Lawrence, Tyrrell, Ortale & Smith, a private venture capital
limited partnership, which is a principal stockholder of the Company. Since 1990
and 1994, respectively, Mr. Ortale has been a general partner of the general
partnerships which control Lawrence, Tyrrell, Ortale & Smith II, L.P., and
Richland Ventures, L.P., private venture capital limited partnerships.

Robert T. Cresci has been a Director of the Company since 1991. Since
September 1990, Mr. Cresci has been a managing director of Pecks Management
Partners Ltd., an investment management firm. Mr. Cresci is a member of the
boards of directors of Bridgeport Machines, Inc., Serv-Tech, Inc., EIS
International, Inc., Sepracor, Inc., Vestro Natural Foods, Inc., Olympic
Financial, Ltd., Geo Waste, Inc., Hitox, Inc., Natures Elements, Inc., Garnet
Resources Corporation, HarCor Energy, Inc., Meris Laboratories, Inc. and several
private companies.

Richard E. Kroon has been a Director of the Company since 1994. Since 1981,
Mr. Kroon has been managing partner of the Sprout Group and President and Chief
Executive Officer of DLJ Capital Corp. Mr. Kroon is a director of Loehmann's,
Inc., a clothing retailer, and other private companies.

BOARD OF DIRECTORS

Pursuant to the Restated Certificate of Incorporation, as amended (the
"Certificate of Incorporation"), and the Bylaws (the "Bylaws") of the Company,
the Company's Board of Directors consists of five directors or such greater or
lesser number as may be fixed from time to time by a majority of the total
number of directors which the Company would have if there were no vacancies on
the Company's Board of Directors.

The Company's Board of Directors has a Compensation Committee and an Audit
Committee. The responsibilities and membership requirements of each of the
Committees after the Offering are described below.

The Compensation Committee consists of three directors. The Compensation
Committee is responsible for policies, procedures and other matters relating to
employee benefit and compensation plans, including compensation of the executive
officers as a group and the chief executive officer individually. The
Compensation Committee is also responsible for administering and making awards
under the stock based compensation plans, policies, procedures and other matters
relating to management development and for reviewing, monitoring and
recommending (for approval by the Company's Board of Directors) plans with
respect to succession of the chief executive officer.

The Audit Committee consists of two directors. The Audit Committee will be
responsible for policies, procedures and other matters relating to accounting,
internal financial controls and financial reporting, including the engagement of
independent auditors and the planning, scope, timing and cost of any audit and
any other services they may be asked to perform, and will review with the
auditors their report on the financial statements following completion of each
such audit. In addition, the Audit Committee will be responsible for policies,
procedures and other matters relating to business integrity, ethics and
conflicts of interests.

The members of the Compensation Committee are Messrs. Kroon (Chairman),
Cresci and Ortale, and the members of the Audit Committee are Messrs. Cresci
(Chairman) and Hutman.

COMPENSATION OF THE BOARD OF DIRECTORS

Directors who are not employees of the Company will receive an annual
directors' fee of $6,000 and directors' fees of $1,000 for each Board meeting
attended and $500 for each Committee meeting attended. In addition, such
directors will also be granted options to purchase shares of Common Stock of the
Company as described below. The Company will also reimburse directors for their
expenses incurred in connection with their activities as directors of the
Company. Directors who are also employees of the Company receive no compensation
for serving on the Board of Directors.

54
<PAGE> 57

Non-employee Director Stock Option Plan

On June 20, 1996, the Company adopted and its stockholders approved a
Non-employee Director Stock Option Plan (the "Directors' Plan") to attract and
retain the services of non-employee members of the Board of Directors and to
provide them with increased motivation and incentive to exert their best efforts
on behalf of the Company by enlarging their personal stake in the Company. The
maximum number of shares of Common Stock with respect to which options may be
granted under the Directors' Plan is 200,000 shares.

Each member of the Board of Directors of the Company who otherwise (i) is
not currently an employee of the Company, (ii) is not a former employee still
receiving compensation for prior services (other than benefits under a
tax-qualified pension plan), and (iii) is not currently receiving remuneration
from the Company in any capacity other than as a director shall be eligible for
the grant of stock options under the Directors' Plan ("Participant"). Currently,
all directors other than Mr. Kerber are eligible to participate in the
Directors' Plan.

On the date the Directors' Plan was adopted, each of the four existing
non-employee directors were each granted contingent upon completion of the
Offering options to purchase 25,000 shares of Common Stock of the Company at the
per share initial public offering price. These options vest immediately upon
consummation of the Offering. Upon the election of any new member to the Board
of Directors, such member will be granted an option to purchase 25,000 shares of
Common Stock at the fair market value at date of grant, vesting in five equal
annual installments beginning on the first anniversary of the date of grant.
Beginning with the next annual meeting of the stockholders of the Company and
provided that a sufficient number of shares remain available under the
Directors' Plan, each year immediately following the date of the annual meeting
of the Company there automatically will be granted to each non-employee director
who is then serving on the Board an option to purchase 3,000 shares of the
Common Stock of the Company, which options will be immediately vested. The
options to be granted under the Directors' Plan shall be nonqualified stock
options (stock options which do not constitute "incentive stock options" within
the meaning of Section 422A of the Code).

EXECUTIVE COMPENSATION

Set forth below is information for the fiscal year ended March 31, 1996
concerning the services of the Chief Executive Officer and the Company's
executive officers who earned compensation greater than $100,000 in such year.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION (1) ------------
---------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION(S) SALARY BONUS COMPENSATION OPTIONS COMPENSATION
- -------------------------------------- -------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Gary D. Kerber........................ $187,124 $155,606 -- 16,667 $4,720(2)
Chairman, President and Chief
Executive Officer
Vince Pisano.......................... $140,595 $116,915 -- 13,333 --
Vice President of Finance and Chief
Financial Officer
Gerry M. Taylor....................... $109,283 $101,615 -- 25,000 --
Director of Operations -- Western
Region
Ellen L. Bernhardt.................... $107,744 $ 66,006 -- 10,000 --
Director of Operations -- Eastern
Region
</TABLE>

- ---------------

(1) Does not include the dollar value of perquisites and other personal
benefits.
(2) Consists solely of premiums paid by the Company for a life insurance policy
for Mr. Kerber. Upon Mr. Kerber's death, the Company will receive no
proceeds from such policy.

55
<PAGE> 58

The following table discloses options granted during fiscal 1996, to each
of the named executive officers.

OPTION/SAR GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
POTENTIAL
INDIVIDUAL GRANTS REALIZABLE VALUE AT
---------------------------------------------------- ASSUMED ANNUAL
NUMBER OF % OF TOTAL RATES OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE OR FOR OPTION TERM
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION -------------------
NAME/TITLE GRANTED(1) FISCAL YEAR (PER SHARE) DATE 5%(2) 10%(2)
- ------------------------------- ---------- ------------ ----------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Gary D. Kerber................. 16,667 9.5% $3.60 12/13/05 $225,335 $354,879
President and Chief Executive
Officer
Vince Pisano................... 13,333 7.6% $3.60 12/13/05 $180,260 $283,889
Vice President of Finance and
Chief Financial Officer
Gerry M. Taylor................ 25,000 14.3% $3.60 12/13/05 $337,996 $532,307
Director of Operations --
Western Region
Ellen L. Bernhardt............. 10,000 5.7% $3.60 12/13/05 $135,198 $212,923
Director of
Operations -- Eastern Region
</TABLE>

- ---------------

(1) These options will become exercisable in four equal annual installments,
commencing December 13, 1996.

(2) The dollar amounts under these columns represent the potential tangible
value, before income taxes, of each option assuming that the market price
of the Common Stock appreciates in value from fair market value at the date
of grant to the end of the option term at 5% and 10% annual rates and
therefore are not intended to forecast possible future appreciation, if
any, of the price of the Common Stock. All grants of options have been made
with exercise prices equal to fair market value at date of grant.

STOCK OPTION PLAN

In June 1996, the Board of Directors of the Company (the "Board")
authorized, and the stockholders of the Company approved, the 1996 Stock
Incentive Plan for executive and other employees of the Company, including a
limited number of outside consultants and advisors, effective as of the
completion of the Offering (the "Stock Option Plan"). Under the Stock Option
Plan, employees, outside consultants and advisors (the "Participants") of the
Company (as defined in the Stock Option Plan) may receive awards of stock
options (both Nonqualified Options and Incentive Options, as defined in the
Stock Option Plan), stock appreciation rights or restricted stock. A maximum of
961,666 shares of Common Stock will be subject to the Stock Option Plan. The
Company intends to exchange stock options covering an aggregate of 361,666
shares of Common Stock previously granted to certain executive officers of the
Company and others for similar stock options to be granted under the Stock
Option Plan. The Company has granted stock options contingent upon completion of
the offering covering an aggregate of 275,000 shares of Common Stock to certain
executive officers and other employees of the Company at the per share initial
public offering price. The purpose of the Stock Option Plan is to provide
employees (including officers and directors who are also employees) and
non-employee consultants and advisors of the Company ("employees") with an
increased incentive to make significant and extraordinary contributions to the
long-term performance and growth of the Company, to join their interests with
the interests of the shareholders of the Company, and to facilitate attracting
and retaining employees of exceptional ability.

Administration. The Stock Option plan may be administered by the Board, or
in the Board's sole discretion by the Compensation Committee of the Board (the
"Committee", and with the Board "the Administrator") or such other committee as
may be specified by the Board to perform the functions and duties of the
Committee under the Stock Option Plan. Subject to the provisions of the Stock
Option Plan, the Administrator shall determine, from those eligible to be
Participants, the persons to be granted stock options, stock appreciation rights
and restricted stock, the amount of stock or rights to be optioned or granted to
each such person, and the terms and conditions of any stock option, stock
appreciation rights and restricted stock.

56
<PAGE> 59

Subject to the provisions of the Stock Option Plan, the Administrator is
authorized to interpret the Stock Option Plan, to make, amend and rescind rules
and regulations relating to the Stock Option Plan and to make all the
determinations necessary or advisable for the Stock Option Plan's
administration.

Participants. The Participants in the Stock Option Plan are those
employees, consultants and advisors of the Company who in the judgment of the
Administrator are or will become responsible for the direction and financial
success of the Company. Employees include officers and directors who are also
employees of the Company.

Shares Subject to Plan. The maximum number of shares with respect to which
stock options or stock appreciation rights may be granted or which may be
awarded as restricted stock under the Stock Option Plan is 961,666 shares of
Common Stock. Shares covered by expired or terminated stock options or stock
appreciation rights or forfeited restricted stock awards will again become
available for grant or award under the Stock Option Plan. The number of shares
subject to each outstanding stock option, stock appreciation right or restricted
stock award, the option price with respect to outstanding stock options, the
grant value with respect to outstanding stock appreciation rights and the
aggregate number of shares remaining available under the Stock Option Plan will
be subject to such adjustment as the Administrator, in its discretion, deems
appropriate to reflect such events as stock dividends, stock splits,
recapitalizations, mergers, consolidations or reorganizations of or by the
Company.

Stock Options and Stock Appreciation Rights. Subject to the terms of the
Stock Option Plan, the Administrator may grant to Participants either Incentive
Options meeting the definition of an incentive stock option under Section 422 of
the Code or Nonqualified Options not meeting such definition, or any combination
thereof. The exercise price for an Incentive Option may not be less than 100% of
the fair market value of the stock on the date of grant; however, the exercise
price for an Incentive Option granted to an employee who owns more than 10% of
the voting stock of the Company or any subsidiary may not be less than 110% of
the fair market value of the stock on the date of grant.

Subject to the terms of the Stock Option Plan, the Administrator may grant
stock appreciation rights to Participants either in conjunction with, or
independently of, any stock options. Stock appreciation rights may be granted in
conjunction with stock options as an alternative right or as an additional
right. Upon exercise of a stock appreciation right, a Participant will generally
be entitled to receive an amount equal to the difference between the fair market
value of the shares at the time of grant and the fair market value of the shares
at the time of exercise. This amount may be payable in cash, shares of Common
Stock or a promissory note from the Participant, or any combination thereof, as
determined in the discretion of the Administrator.

The exercise period for stock options and stock appreciation rights will be
determined by the Administrator, but no stock option or stock appreciation right
may be exercisable prior to the expiration of six months from the date of grant
or after 10 years from the date of grant, subject to certain conditions and
limitations.

Incentive options and related stock appreciation rights are not
transferable by a Participant other than by will or by the laws of descent and
distribution, and incentive options and related stock appreciation rights are
exercisable, during the lifetime of the Participant, only by the Participant.

If the employment or consultancy of a Participant by the Company
terminates, the Administrator may, in its discretion, permit the exercise of
stock options and stock appreciation rights granted to such Participant (i) for
a period not to exceed three months following termination of employment with
respect to Incentive Options or related stock appreciation rights if termination
of employment is not due to death or permanent disability of the Participant,
(ii) for a period not to exceed one year following termination of employment
with respect to Incentive Options or related stock appreciation rights if
termination of employment is due to the death or permanent disability of the
Participant, and (iii) for a period not to extend beyond the expiration date
with respect to Nonqualified Options or related or independently granted stock
appreciation rights.

Restricted Stock Awards. Subject to the terms of the Stock Option Plan,
the Administrator may award shares of restricted stock to Participants. All
shares of restricted stock will be subject to the following terms and
conditions, among others: (i) at the time of each award of restricted shares, a
restricted period of no less than six months and no greater than five years,
will be established for the shares. The restricted period may

57
<PAGE> 60

differ among Participants and may have different expiration dates with respect
to portions of shares covered by the same award; (ii) shares of restricted stock
awarded to Participants may not be sold, assigned, transferred, pledged,
hypothecated or otherwise encumbered during the restricted period applicable to
such shares. Except for such restrictions on transfer, a Participant will have
all of the rights of a shareholder in respect of restricted shares awarded to
him or her including the right to receive any dividends on, and the right to
vote, the shares; and (iii) if a Participant ceases to be an employee or
consultant of the Company for any reason other than death or permanent
disability, all shares theretofore awarded to the Participant which are still
subject to the restrictions imposed by provision (ii) above will upon such
termination of employment or consultancy be forfeited and transferred back to
the Company. If such employment or consultancy is terminated by action of the
Company without cause or by agreement between the Company and the Participant,
the Administrator may, in its discretion, release some or all of the shares from
the restrictions; (iv) if a Participant ceases to be an employee or consultant
of the Company by reason of death or permanent disability, the restrictions will
lapse with respect to shares then subject to such restrictions, unless otherwise
determined by the Administrator.

Termination, Duration and Amendments of Plan. The Stock Option Plan may be
abandoned or terminated at any time by the Board. Unless sooner terminated, the
Stock Option Plan will terminate on the date ten years after its adoption by the
Board. The termination of the Stock Option Plan will not affect the validity of
any stock option, stock appreciation right or restricted stock outstanding on
the date of termination.

For the purpose of conforming to any changes in applicable law or
governmental regulation, or for any other lawful purpose, the Board will have
the right, with or without approval of the shareholders of the Company, to amend
or revise the terms of the Stock Option Plan at any time, however, no such
amendment or revision will, without the consent of the holder thereof, change
the stock option price (other than anti-dilution adjustments) or alter or impair
any stock option, stock appreciation right or restricted stock which has been
previously granted or awarded under the Stock Option Plan.

Federal Income Tax Consequences. The rules governing the tax treatment of
stock options, stock appreciation rights, restricted stock and shares acquired
upon the exercise of stock options and stock appreciation rights are technical.
Therefore, the description of federal income tax consequences set forth below is
necessarily general in nature and does not purport to be complete. Moreover,
statutory provisions are subject to change, as are their interpretations, and
their application may vary in individual circumstances. Finally, the tax
consequences under applicable state and local income tax laws may not be the
same as under the federal income tax laws.

Incentive Options. Incentive Options granted pursuant to the Plan are
intended to qualify as "Incentive Options" within the meaning of Section 422 of
the Code. If the Participant makes no disposition of the shares acquired
pursuant to exercise of an Incentive Option within one year after the transfer
of shares to such Participant and within two years from grant of the option,
such Participant will realize no taxable income as a result of the grant or
exercise of such option, and any gain or loss that is subsequently realized may
be treated as long-term capital gain or loss, as the case may be. Under these
circumstances, the Company will not be entitled to a deduction for federal
income tax purposes with respect to either the issuance of such Incentive
Options or the transfer of shares upon their exercise. However, the exercise of
an Incentive Option is an item of tax preference and a Participant may have
alternative minimum tax liability.

If shares acquired upon exercise of Incentive Options are disposed of prior
to the expiration of the above time periods, the Participant will recognize
ordinary income in the year in which the disqualifying disposition occurs, the
amount of which will generally be the lesser of (i) the excess of the market
value of the shares on the date of exercise over the option price, or (ii) the
gain recognized on such disposition. Such amount will ordinarily be deductible
by the Company for federal income tax purposes in the same year, provided that
the amount constitutes reasonable compensation. In addition, the excess, if any,
of the amount realized on a disqualifying disposition over the market value of
the shares on the date of exercise will be treated as capital gain.

Nonqualified Options. A Participant who acquires shares by exercise of a
Nonqualified Option generally realizes as taxable ordinary income, at the time
of exercise, the difference between the exercise price and the

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<PAGE> 61

fair market value of the shares on the date of exercise. Such amount will
ordinarily be deductible by the Company in the same year, provided that the
amount constitutes reasonable compensation. Subsequent appreciation or decline
in the value of the shares on the sale or other disposition of the shares will
generally be treated as capital gain or loss.

Stock Appreciation Rights. A Participant generally will recognize income
upon the exercise of a stock appreciation right in an amount equal to the amount
of cash received and the fair market value of any shares received at the time of
exercise, plus the amount of any taxes withheld. Such amount will ordinarily be
deductible by the Company in the same year, provided that the amount constitutes
reasonable compensation.

Restricted Stock. A Participant granted shares of restricted stock under
the Plan is not required to include the value of such shares in ordinary income
until the first time such Participant's rights in the shares are transferable or
are not subject to substantial risk of forfeiture, whichever occurs earlier,
unless such Participant timely files an election under Section 83(b) of the Code
to be taxed on the receipt of the shares. In either case, the amount of such
income will be equal to the excess of the fair market value of the stock at the
time the income is recognized over the amount (if any) paid for the stock. The
Company will ordinarily be entitled to a deduction, in the amount of the
ordinary income recognized by the Participant, for the Company's taxable year in
which the Participant recognizes such income, provided that the amount
constitutes reasonable compensation.

Withholding Payments. If, upon exercise of a Nonqualified Option or stock
appreciation right, or upon the award of restricted stock or the expiration of
restrictions applicable to restricted stock, or upon a disqualifying disposition
of shares acquired upon exercise of an Incentive Option, the Company must pay
amounts for income tax withholding, then in the Committee's sole discretion,
either the Company will appropriately reduce the amount of stock or cash to be
delivered or paid to the Participant or the Participant must pay such amount to
the Company to reimburse the Company for such payment. The Committee may permit
a Participant to satisfy such withholding obligations by electing to reduce the
number of shares of Common Stock delivered or deliverable to the Participant
upon exercise of a stock option or stock appreciation right or award of
restricted stock or by electing to tender an appropriate number of shares of
Common Stock back to the Company subsequent to exercise of a stock option or
stock appreciation right or award of restricted stock (with such restrictions as
the Committee may adopt).

EMPLOYMENT AGREEMENTS

On December 31, 1992, the Company entered into an Employment Agreement with
Gary D. Kerber as President and Chief Executive Officer. The Employment
Agreement provides for a base salary of $160,000 per year as of March 21, 1992,
which salary is reviewed on an annual basis by the Board of Directors of the
Company prior to the end of each fiscal year. The Employment Agreement also
provides that Mr. Kerber will prepare, on an annual basis for each fiscal year,
an appropriate incentive compensation plan for himself and other executive
officers of the Company, which plan may be implemented only with the consent of
the Board of Directors of the Company. In reviewing such plans, the Compensation
Committee of the Board of Directors has considered the appropriateness of the
goals presented in light of the Company's past performance and prospects and the
reasonableness of the projected compensation in light of the Company's size and
potential income levels. The term of the Employment Agreement continues until
terminated by either Mr. Kerber or the Company, with or without cause; provided,
however, that if the Company terminates the Employment Agreement without cause,
the Company will be obligated to pay Mr. Kerber termination pay equal to the
greater of $160,000 or an amount based upon a specified fraction of Mr. Kerber's
most recent annual fiscal year base compensation (net of incentive or bonus
compensation), as determined under the Employment Agreement.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

In July 1991, the Company entered into a Securities Purchase Agreement,
dated July 21, 1991, as amended (the "Securities Purchase Agreement"), among the
Company and the Pecks Managed Entities, pursuant to which the Delaware Plan, the
ICI Trust and the Zeneca Trust loaned $2,900,000, $603,000 and

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<PAGE> 62

$497,000, respectively, to the Company on a senior subordinated basis in
exchange for 13% Senior Subordinated Notes (the "Notes") originally due July 23,
1996 issued by the Company in the aggregate principal face amount of $4,000,000
and warrants (the "Warrants") to purchase an aggregate of 1,333,333 shares of
Common Stock at a purchase price equal to the lesser of (i) $3.00 per share or
(ii) 70% of the cash purchase price per share of Common Stock in an initial
public offering without regard to deductions for underwriting discounts and
commissions. In May 1996, the terms of the Warrants were amended to provide for
a cashless exercise based on the initial public offering price in the event of a
public offering of the Company's Common Stock. In return, the holders agreed to
exercise the Warrants simultaneously with the commencement of this Offering and
to terminate certain "put" provisions originally contained in the Warrants. The
modifications were approved by all of the members of the Company's Board of
Directors, with Mr. Cressi abstaining. Assuming completion of the Offering, the
Pecks Managed Entities beneficially own more than five percent of the issued and
outstanding Common Stock of the Company. In addition, Robert T. Cresci, who is a
director of the Company, is a managing director of Pecks, which serves as
investment advisor for each of the Pecks Managed Entities. In fiscal 1996, Mr.
Cresci served as a member of the Compensation Committee of the Board of
Directors of the Company. In connection with this Offering, the Pecks Managed
Entities will exercise, on a cashless basis, the Warrants to purchase 1,333,333
shares of Common Stock at $3.00 per share, which will result in the issuance of
1,000,000 shares of Common Stock in respect of such Warrants. In fiscal years
1994, 1995 and 1996, the Company incurred interest expense on the Notes to the
Delaware Plan in the amounts of $362,901, $253,610 and $364,941, respectively,
to the ICI Trust in the amounts of $75,458, $52,733 and $75,883, respectively,
and to the Zeneca Trust in the amounts of $62,194, $43,464 and $62,543,
respectively. At June 30, 1996, approximately $2.7 million of principal remained
outstanding on the Notes. Upon consummation of the Offering, the Company intends
to use $2.7 million of the proceeds of this Offering to repay the entire
outstanding amount of principal and accrued interest on the Notes. See "Use of
Proceeds."

In connection with the transactions contemplated by the Securities Purchase
Agreement, the Company, the Pecks Managed Entities, the Sprout Group, LTOS and
Gary D. Kerber entered into a Coinvestors Agreement (the "Coinvestors
Agreement"), dated July 23, 1991, pursuant to which the parties thereto agreed
to vote their respective shares of Common Stock of the Company for the election
to the Board of Directors of the Company of one person designated by the Pecks
Managed Entities, so long as the Pecks Managed Entities collectively hold or
beneficially own (i) $750,000 aggregate principal amount of Notes or (ii)
250,000 shares of Common Stock issued or issuable upon exercise of the Warrants.

In addition, pursuant to a Registration Rights Agreement, dated as of July
23, 1991, as amended (the "Registration Rights Agreement"), the Pecks Managed
Entities have been granted certain demand registration rights with respect to
shares of Common Stock issued or issuable to them upon exercise of the Warrants.
Pursuant thereto, upon request of Pecks Managed Entities holding at least 50%
(by voting power) of the Warrants (assuming conversion of the Warrants into
shares of Common Stock), the Company shall use its best efforts to effect the
registration under the Securities Act of Common Stock at such holders' request.
The Company is only required to undertake two such registrations. In the event
of a registration initiated by the Company or by any other stockholder of the
Company holding registration rights, the Company has granted certain
"piggy-back" registration rights to the Pecks Managed Entities and must notify
the Pecks Managed Entities of such registration and permit the inclusion of any
of the Pecks Managed Entities' Common Stock in any such registration if so
requested. The number of shares of Common Stock held by the Pecks Managed
Entities that must be included in a registration will be determined by the
managing underwriter selected by the Company, and Pecks Managed Entities'
participation will be subject to a priority cut-back as provided for in the
Registration Rights Agreement. The Company has agreed to pay all expenses in
connection with such registrations. The Company has been advised that Pecks
Managed Entities have waived their registration rights with regard to the
Offering.

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<PAGE> 63

CERTAIN TRANSACTIONS

For information regarding transactions among the Company, the Pecks Managed
Entities and Robert T. Cresci, who is a director of the Company, see "Management
- -- Compensation Committee Interlocks and Insider Participation."

In March 1995, the Company entered into a Loan Agreement with Sirrom
Capital Corporation ("Sirrom"), pursuant to which Sirrom loaned $2,200,000 to
the Company, less expenses of the transaction and a processing fee of $44,000.
Upon completion of the Offering, Sirrom will own less than one percent of the
Company's outstanding Common Stock. The loan is evidenced by a secured
promissory note (the "Secured Note") which matures on March 31, 2000, bears
interest at a rate of 14.0% per annum on the unpaid principal amount, and is
secured by a blanket security interest in the Company's assets. In fiscal 1996,
the Company incurred interest expense on the Secured Note of approximately
$309,771. The Secured Note is expected to be paid with a portion of the net
proceeds of the Offering. See "Use of Proceeds."

In connection with the issuance of the Secured Note, the Company issued
warrants (the "Sirrom Warrants") to Sirrom to acquire up to 141,667 shares of
Common Stock, for a purchase price of $.006 per share. If the Secured Note is
not repaid before March 30, 1999, or March 31, 2000, the number of shares
purchasable under the Sirrom Warrants will be increased to 225,000 and 308,333
shares of Common Stock, respectively. The Sirrom Warrants expire on April 30,
2000. In connection with this Offering, the Sirrom Warrants will be exercised
for 141,667 shares of Common Stock. Pursuant to the Loan Agreement, Sirrom was
also made a party to the Registration Rights Agreement, and was granted rights
pari passu with the Pecks Managed Entities for purposes of determining its
registration rights under such Registration Rights Agreement. The Company has
been advised that Sirrom has waived its registration rights with regard to the
Offering.

In July 1993, the Company acquired the Ohio Institute of Photography and
Technology, which was previously partially-owned by K. Terry Guthrie, who is an
executive officer of the Company. The purchase price for the school was
$1,236,000, including amounts paid for covenants not to compete and real estate.
Mr. Guthrie received cash of $132,127. In addition, Mr. Guthrie and the Company
entered into a three year consulting agreement pursuant to which Mr. Guthrie
receives a consulting fee of $23,807 per year. Mr. Guthrie also entered into a
noncompetition agreement pursuant to which Mr. Guthrie receives $35,000 per year
for a five year term. Pursuant to the consulting agreement and the
noncompetition agreement, the Company paid Mr. Guthrie $29,403, $58,806 and
$58,806 in fiscal years 1994, 1995 and 1996, respectively.

In September 1991, the Company made a loan to Vince Pisano and Mr. Pisano's
wife, Gail Pisano, in the amount of $75,000 pursuant to an Employee Loan
Agreement, as amended. The loan does not bear interest and must be repaid upon
the earlier to occur of (a) December 31, 1996, (b) the tenth business day
following the date Mr. Pisano's employment with the Company is terminated,
provided Mr. Pisano terminates such employment, (c) 180 days following the date
Mr. Pisano's employment with the Company is terminated, provided the Company
terminates such employment or (d) upon the sale of certain property owned by Mr.
Pisano, which secures the loan. The loan is secured by certain real property
owned by Mr. Pisano and Gail Pisano. If the loan is paid at or prior to its
stated maturity, $10,000 of the loan will be cancelled. Mr. Pisano is a Vice
President and Chief Financial Officer of the Company. The Company and Mr. Pisano
have entered into an agreement that will permit Mr. Pisano to repay the loan on
its maturity date with Common Stock of the Company owned by Mr. Pisano which
will be valued at its fair market value on the date of repayment.

In connection with its acquisition of its three schools in Virginia and its
school in North Hollywood, California, the Company pledged the stock of its
acquiring subsidiaries to secure related indebtedness. As of September 30, 1996,
the principal amount outstanding of such indebtedness was $900,000.

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<PAGE> 64

PRINCIPAL AND SELLING STOCKHOLDERS

The following tables sets forth, as of September 1, 1996, certain
information regarding beneficial ownership of the shares of Common Stock of the
Company (assuming consummation of the Offering Transactions) and as adjusted to
reflect the sale of the Shares offered hereby, (i) by each person who is known
by the Company to own beneficially more than 5% of the shares of Common Stock
(including the Selling Stockholders), (ii) by each of the Company's directors,
(iii) by each of the executive officers of the Company named in the table
contained in "Executive Compensation" above, (iv) by all executive officers and
directors, as a group and (v) by each of the Selling Stockholders:

<TABLE>
<CAPTION>
SHARES TO BE OWNED
AFTER THE OFFERING
NUMBER OF ASSUMING EXERCISE
SHARES TO BE OF THE
SHARES OWNED SOLD PURSUANT OVER-ALLOTMENT
PRIOR TO OFFERING NUMBER OF TO THE OPTION
------------------- SHARES TO BE OVER-ALLOTMENT -------------------
NAME(1) NUMBER PERCENT SOLD IN OFFERING OPTION NUMBER PERCENT
- --------------------------------------- --------- ------- ---------------- -------------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Sprout Capital V(2)(3)(17)............. 977,215 21.7% -- 108,499 868,716 13.0%
Sprout Technology Fund(2)(3)(17)....... 21,126 * -- 2,346 18,780 *
DLJ Venture Capital Fund II,
L.P.(2)(3)(17)....................... 58,336 1.3 -- 6,477 51,859 *
Lawrence, Tyrrell, Ortale &
Smith(3)(4)(16)...................... 1,057,200 23.5 -- 117,379 939,821 14.0
Delaware State Employees' Retirement
Fund(3)(5)(6)........................ 725,000 16.1 -- 80,495 644,505 9.6
Declaration of Trust for Defined
Benefit Plans of ICI American
Holdings Inc.(3)(5)(6)............... 150,750 3.4 -- 16,737 134,013 2.0
Declaration of Trust for Defined
Benefit Plans of Zeneca Holding
Inc.(3)(5)(6)........................ 124,250 2.8 -- 13,795 110,455 1.6
Pecks Management Partners Ltd.(5)(6)... 1,000,000 22.2 -- 111,027 888,973 13.3
Sirrom Capital Corporation(7).......... 141,667 3.2 83,674 -- 57,993 *
Gary D. Kerber(3)(8)................... 349,845 7.7 -- 38,843 311,002 4.6
Vince Pisano(9)........................ 184,001 4.1 -- 20,429 163,572 2.4
Gerry M. Taylor(10).................... 35,416 * -- -- 35,416 *
Ellen L. Bernhardt(11)................. 25,000 * -- -- 25,000 *
Elaine Neely-Eacona(12)................ 12,500 * -- -- 12,500 *
K. Terry Guthrie....................... -- -- -- -- -- --
A. William Benham, Jr.(13)............. 4,166 * -- -- 4,166 *
Robert T. Cresci(6)(14)................ -- -- -- -- 25,000(15) *
Carl S. Hutman......................... 135 * -- -- 25,135(15) *
W. Patrick Ortale, III(16)............. -- -- -- -- 25,000(15) *
Richard E. Kroon(17)................... -- -- -- -- 25,000(15) *
Investech Distributees(18)............. 704,873 15.7 416,326 288,547 4.3
All directors and executive officers as
a group (11 persons)................. 611,063 13.2% -- 59,272 651,791 9.4%
</TABLE>

- ---------------

* Less than one percent.

(1) Unless otherwise noted, the Company believes that all persons and entities
named in the table have sole voting and investment power over the shares of
Common Stock listed opposite his, her or its name.
(2) The address of such entity is 277 Park Avenue, 21st Floor, New York, New
York 10172.
(3) Pursuant to a Coinvestors Agreement, such entity has agreed to vote its
shares of Common Stock along with the other parties to such agreement for
the election of one director jointly designated by the Pecks Managed
Entities.
(4) The address of such entity is 3100 West End Avenue, Suite 400, Nashville,
Tennessee 37203.
(5) The address of such entity is c/o Pecks Management Partners Ltd., 1
Rockefeller Plaza, New York, New York 10020.

(6) Pecks Management Partners Ltd. ("Pecks") is an investment advisor to
Delaware State Employees' Retirement Fund, Declaration of Trust for Defined
Benefit Plans of ICI American Holdings Inc. and Declaration of Trust for
Defined Benefit Plans of Zeneca Holding Inc. As such, Pecks has sole

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investment and voting power with respect to the shares beneficially owned
by such entities. Mr. Cresci, a director of the Company, is a managing
partner of Pecks. Pecks disclaims beneficial ownership of such shares.

(7) The address of such entity is 500 Church Street, Suite 200, Nashville,
Tennessee 37219.

(8) Includes 41,666 shares of Common Stock which may be purchased upon the
exercise of options which are exercisable within 60 days from the date of
this table.
(9) Includes 25,000 shares of Common Stock which may be purchased upon the
exercise of options which are exercisable within 60 days from the date of
this table.
(10) Includes 33,333 shares of Common Stock which may be purchased upon the
exercise of options which are exercisable within 60 days from the date of
this table.
(11) Includes 25,000 shares of Common Stock which may be purchased upon the
exercise of options which are exercisable within 60 days from the date of
this table.
(12) Includes 12,500 shares of Common Stock which may be purchased upon the
exercise of options which are exercisable within 60 days from the date of
this table.
(13) Includes 4,166 shares of Common Stock which may be purchased upon the
exercise of options which are exercisable within 60 days from the date of
this table.
(14) Excludes 1,000,000 shares of Common Stock held by pension trusts and a
pension fund which are managed by Pecks and for which Mr. Cresci disclaims
any beneficial ownership.
(15) Includes 25,000 shares of Common Stock which may be purchased upon the
exercise of options which have been granted contingent upon completion of
this Offering and are exerciseable within 60 days from the date of
completion of this Offering.
(16) Mr. Ortale is a general partner of Lawrence Venture Partners, the general
partner of Lawrence, Tyrrell, Ortale & Smith ("LTOS"). Excludes 1,057,200
shares of Common Stock beneficially owned by LTOS and for which Mr. Ortale
disclaims any beneficial ownership.
(17) Mr. Kroon is the general partner of the general partner of Sprout Capital
V, Sprout Technology Fund, and DLJ Venture Capital Fund II, L.P. Excludes
1,056,677 shares of Common Stock owned, in the aggregate, by such entities.
Mr. Kroon disclaims any beneficial ownership.

(18) Eighty-four individuals and entities who received shares of Common Stock
and convertible preferred stock upon the winding-up of Investech, L.P., one
of the original investors in the Company, of which 51, holding an aggregate
of 463,025 shares of Common Stock, are participating on a pro-rata basis in
the Offering.

Assuming the Over-allotment Option is exercised in full, the Over-allotment
Selling Stockholders, consisting of the Pecks Managed Entities, LTOS, the Sprout
Group, Gary D. Kerber and Vince Pisano, will sell an aggregate of 405,000 shares
of Common Stock in the Offering. Mr. Robert T. Cresci, a director of the
Company, is a principal of Pecks, an investment management firm which exercises
voting and investment control over the shares of Common Stock owned by the Pecks
Managed Entities. Mr. W. Patrick Ortale and Mr. Richard E. Kroon, both of whom
are directors of the Company, are principals of LTOS and the Sprout Group,
respectively. Mr. Kerber is a director and an executive officer of the Company
and Mr. Pisano is an executive officer of the Company. The beneficial ownership
of each of the Over-allotment Selling Stockholders assuming the exercise of the
Over-allotment Option is set forth on the Principal and Selling Stockholders
Table under the heading "Shares to be Owned After the Offering Assuming Exercise
of the Over-allotment Option."

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<PAGE> 66

DESCRIPTION OF CAPITAL STOCK

GENERAL

The authorized capital stock of the Company consists of 15 million shares
of Common Stock, par value $.01 per share, and five million shares of preferred
stock, par value $.01 per share (the "Preferred Stock"). As of the date of this
Prospectus and after giving effect to the Offering Transactions, there are 103
holders of record of the Common Stock, no holders of record of the Preferred
Stock and two holders of warrants to purchase Common Stock. Upon consummation of
the Offering, there will be 6,694,411 shares of Common Stock outstanding and no
shares of Preferred Stock outstanding.

The following summary description of the Company's capital stock does not
purport to be complete and is qualified in its entirety by this reference to the
Company's Certificate of Incorporation and By-laws, copies of which have been
filed as exhibits to the Registration Statement of which this Prospectus is a
part.

COMMON STOCK

The holders of the Common Stock are entitled to one vote per share of
record on all matters to be voted upon by stockholders. At a meeting of
stockholders at which a quorum is present, a majority of the votes cast decides
all questions, unless the matter is one upon which a different vote is required
by express provision of law or the Company's Certificate of Incorporation or
Bylaws. There is no cumulative voting with respect to the election of directors
(or any other matter).

The holders of Common Stock have no preemptive rights and have no rights to
convert their Common Stock into any other securities. Subject to the rights of
holders of Preferred Stock, if any, in the event of a liquidation, dissolution
or winding up of the Company, holders of Common Stock are entitled to
participate equally, share for share, in all assets remaining after payment of
liabilities.

The holders of Common Stock are entitled to receive ratably such dividends
as the Board of Directors may declare out of funds legally available therefor,
when and if so declared. The payment by the Company of dividends, if any, rests
within the discretion of its Board of Directors and will depend upon the
Company's results of operations, financial condition and capital expenditure
plans, as well as other factors considered relevant by the Board of Directors.

PREFERRED STOCK

Upon completion of the Offering, no shares of Preferred Stock will be
outstanding. The Company's Certificate of Incorporation authorizes the Board of
Directors to issue up to 5,000,000 shares of Preferred Stock in one or more
series and to establish such relative voting, dividend, redemption, liquidation,
conversion and other powers, preferences, rights, qualifications, limitations
and restrictions as the Board of Directors may determine without further
approval of the stockholders of the Company. The issuance of Preferred Stock by
the Board of Directors could, among other things, adversely affect the voting
power of the holders of Common Stock and, under certain circumstances, make it
more difficult for a person or group to gain control of the Company.

The issuance of any series of Preferred Stock, and the relative powers,
preferences, rights, qualifications, limitations and restrictions of such
series, if and when established, will depend upon, among other things, the
future capital needs of the Company, the then-existing market conditions and
other factors that, in the judgment of the Board of Directors, might warrant the
issuance of Preferred Stock. At the date of this Prospectus, there are no plans,
agreements or understandings relative to the issuance of any share of Preferred
Stock.

WARRANTS TO PURCHASE COMMON STOCK

In July 1991, the Company issued a warrant (the "Equitable Warrant") to
purchase 26,667 shares of Common Stock to Equitable Securities Corporation
("Equitable"). The Equitable Warrant has an exercise price of $3.60 per share
and expires on July 31, 1999. The Company issued the warrant to Equitable in

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<PAGE> 67

connection with assistance provided by Equitable to the Company in issuing
certain convertible preferred stock by the Company.

In November 1988, the Company granted an option to Robert L. Heidrick to
purchase 16,667 shares of Common Stock at a purchase price equal to the offering
price of the Company's Common Stock in an initial public offering. The option
becomes exercisable upon the effective date of an initial public offering of the
Company's Common Stock and expires on the tenth anniversary of such date. This
option was granted to Mr. Heidrick as partial compensation for certain executive
search services provided by Mr. Heidrick to the Company.

REGISTRATION RIGHTS

Following consummation of the Offering, 3,994,411 shares of Common Stock
will be "restricted" securities within the meaning of the Securities Act, and
may not be sold in the absence of registration under the Securities Act, or an
exemption therefrom, including the exemptions combined in Rule 144 under the
Securities Act. Pursuant to the Registration Rights Agreement, the Company has
granted the Sprout Group, LTOS, the Pecks Managed Entities and Sirrom demand
registration rights covering up to 3,240,286 shares of Common Stock and covering
up to a maximum of four demand registrations. In addition, such parties have
been granted "piggy-back" registration rights, pursuant to which the Company
must notify such parties of any registration of Common Stock under the
Securities Act, and must include shares of Common Stock held by such parties in
such registration. In addition, upon qualification for registration under the
Securities Act on Form S-2 and/or S-3, such parties have demand registration
rights; provided, that the amount of Common Stock proposed to be registered
pursuant to a demand registration must have an aggregate offering price of at
least $500,000. The Company has agreed to pay all expenses in connection with
the demand and "piggy-back" registrations described above. See "Certain
Transactions," and "Risk Factors-Shares Eligible for Future Sale."

DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS

Certain provisions of the General Corporation Law of the State of Delaware
and of the Company's Certificate of Incorporation and By-laws, summarized in the
following paragraphs, may be considered to have an anti-takeover effect and may
delay, deter or prevent a tender offer, proxy contest or other takeover attempt
that a stockholder might consider to be in such stockholder's best interest,
including such an attempt as might result in payment of a premium over the
market price for shares held by stockholders.

DELAWARE ANTI-TAKEOVER LAW

The Company, a Delaware corporation, is subject to the provisions of the
General Corporation Law of the State of Delaware, including Section 203 thereof.
In general, Section 203 prohibits a public Delaware corporation from engaging in
a "business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which such person became an
interested stockholder unless (i) prior to such date, the Board of Directors
approved either the business combination or the transaction which resulted in
the stockholder becoming an interested stockholder, or (ii) upon becoming an
interested stockholder the stockholder then owned at least 85% of the voting
stock, as defined in Section 203; or (iii) subsequent to such date, the business
combination is approved by both the Board of Directors and by at least 66 2/3%
of the corporation's outstanding voting stock, excluding shares owned by the
interested stockholder. For these purposes, the term "business combination"
includes mergers, asset sales and other similar transactions with an "interested
stockholder." An "interested stockholder" is a person who, together with
affiliates and associates, owns (or, within the prior three years, did own) 15%
or more of the corporation's voting stock. Although Section 203 permits a
corporation to elect not to be governed by its provisions, the Company to date
has not made this election.

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SPECIAL MEETINGS OF STOCKHOLDERS; NO ACTION WITHOUT MEETING

The Company's Bylaws provide that special meetings of stockholders may be
called only by the Chairman or by the Secretary or any Assistant Secretary at
the request in writing of a majority of the Board of Directors of the Company.
The Company's Certificate of Incorporation and Bylaws also provide that no
action required to be taken or that may be taken at any annual or special
meeting of stockholders may be taken without a meeting; the power of
stockholders to consent in writing, without a meeting, to the taking of any
action is specifically denied. These provisions may make it more difficult for
stockholders to take action opposed by the Board of Directors.

ADVANCE NOTICE REQUIREMENTS FOR STOCKHOLDERS PROPOSALS AND DIRECTOR NOMINATIONS

The Company's Bylaws provide that stockholders seeking to bring business
before an annual meeting of stockholders, or to nominate candidates for election
as directors at an annual or a special meeting of stockholders, must provide
timely notice thereof in writing. To be timely, a stockholder's notice must be
delivered to, or mailed and received at, the principal executive office of the
Company, (i) in the case of an annual meeting that is called for a date that is
within 30 days before or after the anniversary date of the immediately preceding
annual meeting of stockholders, not less than 60 days nor more than 90 days
prior to such anniversary date, and (ii) in the case of an annual meeting that
is called for a date that is not within 30 days before or after the anniversary
date of the immediately preceding annual meeting, or in the case of a special
meeting of stockholders called for the purpose of electing directors, not later
than the close of business on the tenth day following the day on which notice of
the date of the meeting was mailed or public disclosure of the date of the
meeting was made, whichever occurs first. The Bylaws also specify certain
requirements for a stockholder's notice to be in proper written form. These
provisions may preclude some stockholders from making nominations for directors
at an annual or special meeting or from bringing other matters before the
stockholders at a meeting.

TRANSFER AGENT

The transfer agent and registrar for the Common Stock is First Union
National Bank of North Carolina, N.A.

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of the Offering, the Company will have outstanding
6,694,411 shares of Common Stock. The Company has reserved an additional (i)
961,666 shares of Common Stock for issuance pursuant to the Stock Option Plan,
which shares will be registered under the Securities Act, (ii) 200,000 shares of
Common Stock for issuance pursuant to the Directors' Plan, which shares will be
registered under the Securities Act, and (iii) 43,334 shares of Common Stock
which may be purchased upon exercise of outstanding warrants to purchase Common
Stock. Any shares issued pursuant to the Stock Option Plan or the Director's
Plan will be freely transferable upon issuance without registration under the
Securities Act, subject to volume limitations contained in Rule 144 under the
Securities Act applicable to affiliates, as that term is defined in the
Securities Act. Of such outstanding shares, the 2,700,000 shares (3,105,000
shares if the over-allotment option is exercised in full) to be sold in the
Offering will be freely transferable without restriction under the Securities
Act by person other than "affiliates" of the Company, as that term is defined in
Rule 144 under the Securities Act. The remaining 3,994,411 shares of Common
Stock (the "Restricted Shares") were acquired in transactions exempt from
registration under the Securities Act and, accordingly, are "restricted
securities" as that term is defined in Rule 144. Restricted Shares may not be
resold unless they are registered under the Securities Act or are sold pursuant
to an applicable exemption from such registration, such as is contained in Rule
144.

In general, Rule 144 currently provides that a person (or persons whose
shares are aggregated) who satisfies a two-year holding period with respect to
"restricted securities" will be entitled to sell, in brokers' transactions and
within any three-month period, a number of shares that does not exceed the
greater of (i) 1% of the then outstanding shares of Common Stock or (ii) the
average weekly trading volume in Common Stock

66
<PAGE> 69

during the four calendar weeks preceding such sale. Sales under Rule 144 are
also subject to manner of sale and notice requirements and the availability of
current public information about the Company. After "restricted securities" that
are held by persons who are no longer "affiliates" of the Company have satisfied
a three-year holding period, such shares may be sold without regard to such
volume limitation, current public information, manner of sale or notice
requirements. However, under Rule 144, "restricted securities" held by
"affiliates" must continue, after the three-year holding period, to be sold in
brokers' transactions or to market makers subject to the volume limitations
described above. The requirements described above (except the holding period
requirements) also apply to non-restricted securities of the Company held by
affiliates of the Company. Such shares are required, under Rule 144, to be sold
in brokers' transactions subject to the volume limitations described above.
Shares properly sold in reliance upon Rule 144 to persons who are not
"affiliates" are thereafter freely tradeable without restrictions or
registration requirements under the Securities Act. The foregoing discussion is
only a summary of Rule 144 and is not intended to be a complete description of
the rule.

The Company, its officers and Directors, the Selling Stockholders and
certain other stockholders and warrantholders, holding in the aggregate
substantially all of the Company's currently outstanding equity securities, have
agreed not to sell, assign or transfer any of their shares of Common Stock for a
period of 180 days after the date of this Prospectus without the prior consent
of Smith Barney Inc. After expiration of this 180 day period, 3,994,411 shares
of Common Stock will be immediately eligible for sale under Rule 144, subject to
the volume and manner of sale restrictions imposed by that Rule. The Company is
unable to predict the effect that sales of Common stock may have on the then
prevailing market price of the shares of the Common Stock, but such sales may
have a substantial depressing effect on such market price.

The Company intends to file registration statements under the Securities
Act to register for offer and sale Common Stock reserved for issuance pursuant
to the award of restricted stock or the exercise of stock options granted under
the Company's Stock Option Plan and Directors' Plan. See
"Management -- Compensation of Board of Directors" and "-- Stock Option Plan."

67
<PAGE> 70

UNDERWRITING

Under the terms and subject to the conditions contained in the Underwriting
Agreement dated the date hereof, each Underwriter named below has severally
agreed to purchase, and the Company and the Selling Stockholders have agreed to
sell to such Underwriter, shares of Common Stock which equal the number of
shares set forth opposite the name of such Underwriter below.

<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
------------------------------------------------------------------- ---------
<S> <C>
Smith Barney Inc...................................................
Montgomery Securities..............................................

---------
TOTAL......................................................... 2,700,000
========
</TABLE>

The Underwriters are obligated to take and pay for all shares of Common
Stock offered hereby (other than those covered by the over-allotment option
described below) if any such shares are taken.

The Underwriters for whom Smith Barney Inc., and Montgomery Securities are
acting as Representatives, propose initially to offer part of the shares of
Common Stock directly to the public at the public offering price set forth on
the cover page hereof and part to certain dealers at a price that represents a
concession not in excess of $ per share under the public offering
price. The Underwriters may allow, and such dealers may reallow, a concession
not in excess of $ per share to other Underwriters or to certain other
dealers. After the initial public offering, the public offering price and such
concessions may be changed by the Underwriters. The Representatives have
informed the Company that the Underwriters do not intend to confirm sales to
accounts over which they exercise discretionary authority.

The Over-allotment Selling Stockholders have granted to the Underwriters an
option, exercisable for 30 days from the date of this Prospectus, to purchase up
to an aggregate of 405,000 additional shares of Common Stock at the public
offering price set forth on the cover page hereof less underwriting discounts
and commissions. Each of the respective Over-allotment Selling Shareholders
participating in the Over-allotment Option will participate on a pro rata basis
according to the number of shares held by each such Selling Shareholder as
compared to the aggregate number of shares of Common Stock held by all such
Over-allotment Selling Shareholders prior to the exercise of the Over-allotment
Option. The Underwriters may exercise such option to purchase additional shares
solely for the purpose of covering over-allotments, if any, incurred in
connection with the sale of the shares offered hereby. To the extent such option
is exercised, each Underwriter will become obligated, subject to certain
conditions, to purchase approximately the same percentage of such additional
shares as the number set forth next to such Underwriter's name in the preceding
table bears to the total number of shares in such table.

The Company, the Selling Stockholders and the Underwriters have agreed to
indemnify each other against certain liabilities, including liabilities under
the Securities Act.

The Company, its officers and Directors, the Selling Stockholders and
certain other stockholders and warrantholders, holding in the aggregate
substantially all of the Company's currently outstanding equity securities, have
agreed that for a period of 180 days after the date of this Prospectus, they
will not, without the prior written consent of Smith Barney Inc., offer, sell,
contract to sell or otherwise dispose of any shares of Common Stock or any
securities convertible into, or exercisable or exchangeable for Common Stock.

Prior to this Offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price for the Common Stock has
been determined by negotiations between the Company and the Representatives of
the Underwriters. Among the factors considered in determining the initial public
offering price were the history of, and the prospects for, the Company's
business and the industry in which it competes, an assessment of the Company's
management, its past and present operations, its past and present earnings and
the trend of such earnings, the prospects for earnings of the Company, the
present state of the Company's development, the general condition of the
securities market at the time of the offering and the market prices and earnings
of similar securities of comparable companies at the time of the offering.

68
<PAGE> 71

LEGAL MATTERS

The validity of the Common Stock being offered hereby will be passed upon
for the Company by Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A.,
West Palm Beach, Florida, and for the Underwriters by Dewey Ballantine, New
York, New York.

EXPERTS

The consolidated financial statements and schedule of Educational Medical,
Inc. at March 31, 1995 and 1996 and for each of the three years in the period
ended March 31, 1996 appearing in this Prospectus and Registration Statement
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their reports thereon also appearing elsewhere herein and the Registration
Statement and are included in reliance upon such reports given upon the
authority of such firm as experts in accounting and auditing.

The combined financial statements of the San Antonio College of Medical and
Dental Assistants, Inc. and Career Centers of Texas -- El Paso, Inc. at December
31, 1994 and 1995 and for the years then ended appearing in this Prospectus and
Registration Statement have been audited by Tsakopulos Brown Schott & Anchors,
independent auditors, as set forth in their report thereon also appearing
elsewhere herein and in the Registration Statement and are included in reliance
upon such report given upon the authority of such firm as experts in accounting
and auditing.

ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission"), in Washington, D.C., a Registration Statement on Form S-1,
together with all amendments and exhibits thereto (the "Registration Statement")
under the Securities Act, with respect to the Common Stock offered hereby. This
Prospectus does not contain all of the information set forth in the Registration
Statement, certain parts of which are omitted in accordance with the Rules and
Regulations of the Commission. Statements made in the Prospectus as to the
contents of any contract, agreement or other document referred to are not
necessarily complete; with respect to each such contract, agreement or other
document files as an exhibit to the Registration Statement, reference is made to
the exhibit for a more complete description of the matter involved, and each
such statement shall be deemed qualified in its entirely by such reference. The
Registration Statement, including exhibits and schedules filed therewith, may be
inspected and copies at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549; 1400 Citicorp
Center, 500 West Madison, Chicago, Illinois 60661; and 7 World Trade Center
(13th Floor), New York, New York 10048. Copies of such material may be obtained
at prescribed rates from the Public Reference Section of the Commission at 450
Fifth Street, N.W. Room 1024, Washington, D.C. 20549. The Commission also
maintains a Web site at http://www.sec.gov which contains reports, proxy
statements and other information regarding registrants that file electronically
with the Commission.

The Company is not currently subject to the information requirements of the
Security Exchange Act of 1934, as amended (the "Exchange Act"). As a result of
the Offering, the Company will become subject to the informational requirements
of the Exchange Act. The Company will fulfill its obligations with respect to
the requirements of the Exchange Act by filing periodic reports and other
information with the Commission.

69
<PAGE> 72

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
EDUCATIONAL MEDICAL, INC. AND SUBSIDIARIES
Report of Independent Auditors........................................................ F-2
Consolidated Financial Statements:
Consolidated Balance Sheets as of March 31, 1995 and 1996 and June 30, 1996
(unaudited) and June 30, 1996 Pro Forma (unaudited)................................. F-3
Consolidated Statements of Operations for the years ended March 31, 1994, 1995 and
1996 and the three month period ended June 30, 1995 (unaudited) and June 30, 1996
(unaudited)......................................................................... F-4
Consolidated Statements of Stockholders' Equity for the years ended March 31, 1994,
1995, 1996 and the three month period ended June 30, 1996 (unaudited)............... F-5
Consolidated Statements of Cash Flows for the years ended March 31, 1994, 1995, 1996
and the three month period ended June 30, 1995 (unaudited) and June 30, 1996
(unaudited)......................................................................... F-6
Notes to Consolidated Financial Statements............................................ F-7
SAN ANTONIO COLLEGE OF MEDICAL AND DENTAL ASSISTANTS, INC. AND CAREER CENTERS OF
TEXAS -- EL PASO, INC.
Independent Auditors' Report.......................................................... F-19
Combined Financial Statements:
Combined Balance Sheets as of December 31, 1994 and 1995 and June 30, 1996
(unaudited)......................................................................... F-20
Combined Statement of Operations for the year ended December 31, 1995................. F-21
Combined Statements of Operations for the year ended December 31, 1994 and the six
month periods ended June 30, 1995 (unaudited) and June 30, 1996 (unaudited)......... F-22
Combined Statement of Retained Earnings for the years ended December 31, 1994 and 1995
and for the six month period ended June 30, 1996 (unaudited)........................ F-23
Combined Statements of Cash Flows for the years ended December 31, 1994 and 1995...... F-24
Combined Statements of Cash Flows for the six month period ended June 30, 1995
(unaudited) and June 30, 1996 (unaudited)........................................... F-25
Notes to Combined Financial Statements................................................ F-26
</TABLE>

F-1
<PAGE> 73

REPORT OF INDEPENDENT AUDITORS

Board of Directors
Educational Medical, Inc. and Subsidiaries

We have audited the accompanying consolidated balance sheets of Educational
Medical, Inc. and subsidiaries as of March 31, 1996 and 1995 and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended March 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Educational
Medical, Inc. and subsidiaries at March 31, 1996 and 1995, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended March 31, 1996, in conformity with generally accepted
accounting principles.

/s/ Ernst & Young LLP
--------------------------------------

Atlanta, Georgia
May 24, 1996, except as to the first
paragraph in Note 7 as to which
the date is June 20, 1996.

F-2
<PAGE> 74

EDUCATIONAL MEDICAL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
------------------------- -------------------------
PRO FORMA
1995 1996 1996 1996
----------- ----------- ----------- ----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................... $ 2,479,676 $ 3,033,383 $ 2,027,990 $ 2,028,840
Restricted cash..................................... 375,000 610,000 617,428 617,428
Trade accounts receivable, less allowance for
doubtful accounts of $820,733, $784,381, $773,750
and $773,750, respectively........................ 3,431,444 3,051,266 2,962,930 2,962,930
Prepaid expenses.................................... 864,727 941,327 997,333 997,333
----------- ----------- ----------- -----------
Total current assets......................... 7,150,847 7,635,976 6,605,681 6,606,531
Property and equipment, net........................... 4,195,592 4,384,081 4,348,380 4,348,380
Deferred debt issuance costs, net of accumulated
amortization of $254,401, $286,402, $305,592 and
$305,592, respectively.............................. 151,330 96,109 76,918 76,918
Covenants not to compete, net of accumulated
amortization of $627,829, $958,780, $963,727 and
$963,727, respectively.............................. 1,249,396 918,445 913,497 913,497
Goodwill and other intangible assets, net of
accumulated amortization of $5,213,539, $6,432,863,
$6,584,660 and $6,584,660, respectively............. 6,319,092 5,096,410 4,944,613 4,944,613
Other assets.......................................... 186,290 229,210 229,213 229,213
----------- ----------- ----------- -----------
Total assets................................. $19,252,547 $18,360,231 $17,118,302 $17,119,152
============ ============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................... $ 1,224,068 $ 213,018 $ 230,571 $ 230,571
Accrued compensation................................ 381,963 1,152,547 591,211 591,211
Accrued income taxes................................ 11,445 232,252 85,182 85,182
Accrued expenses.................................... 1,013,634 881,486 655,427 655,427
Deferred tuition income............................. 2,017,370 2,277,919 2,141,247 2,141,247
Current portion of long-term debt................... 1,494,653 1,080,085 1,059,277 1,059,277
----------- ----------- ----------- -----------
Total current liabilities.................... 6,143,133 5,837,307 4,762,915 4,762,915
Long-term debt, less current portion.................. 7,030,413 6,059,858 5,678,640 5,678,640
Other liabilities..................................... 628,864 933,505 1,081,675 1,081,675
----------- ----------- ----------- -----------
Total liabilities............................ 13,802,410 12,830,670 11,523,230 11,523,230
Stockholders' equity:
Preferred stock, $.01 par value -- authorized
5,000,000 shares pro forma; none issued and
outstanding....................................... -- -- -- --
Convertible preferred stock, $.01 par
value -- authorized 1,100,000 shares; 1,023,049
shares issued and outstanding (historical), none
in pro forma (liquidation preference of $6.66 per
share)............................................ 10,230 10,230 10,230 --
Additional paid-in capital on convertible preferred
stock............................................. 6,732,160 6,732,160 6,732,160 --
Common stock, $.01 par value -- authorized 5,833,333
shares (historical), 15,000,000 shares (pro
forma); 1,676,827 shares issued and outstanding
(historical), 4,523,576 shares (pro forma)........ 16,768 16,768 16,768 45,235
Additional paid-in capital on common stock.......... 35 35 35 9,654,542
Common stock purchase warrants...................... 2,431,802 2,838,148 2,939,734 --
Accumulated deficit................................. (3,705,858) (4,032,780) (4,068,855) (4,068,855)
Less treasury stock, at cost (29,165 common
shares)........................................... (35,000) (35,000) (35,000) (35,000)
----------- ----------- ----------- -----------
Total stockholders' equity................... 5,450,137 5,529,561 5,595,072 5,595,922
----------- ----------- ----------- -----------
Total liabilities and stockholders' equity... $19,252,547 $18,360,231 $17,118,302 $17,119,152
============ ============ ============ ============
</TABLE>

See accompanying notes.

F-3
<PAGE> 75

EDUCATIONAL MEDICAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

See accompanying notes.

F-4
<PAGE> 76

EDUCATIONAL MEDICAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
ADDITIONAL ADDITIONAL
PAID-IN PAID-IN COMMON
CONVERTIBLE CAPITAL ON CAPITAL ON STOCK
PREFERRED PREFERRED COMMON COMMON PURCHASE ACCUMULATED TREASURY
STOCK STOCK STOCK STOCK WARRANTS DEFICIT STOCK TOTAL
----------- ---------- ------- ---------- ---------- ----------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1993... $10,230 $6,732,075 $16,768 $ -- $1,441,124 $ (93,649) $(35,000) $8,071,548
Accretion of value of
common stock purchase
warrants................ -- -- -- -- 283,276 (283,276) -- --
Conversion of common stock
purchase warrants....... -- 85 -- 35 -- -- -- 120
Net loss.................. -- -- -- -- -- (1,561,305) -- (1,561,305)
------- ---------- ------- --- ---------- ----------- -------- ----------
Balance at March 31, 1994... 10,230 6,732,160 16,768 35 1,724,400 (1,938,230) (35,000) 6,510,363
Accretion of value of
common stock purchase
warrants................ -- -- -- -- 339,252 (339,252) -- --
Issuance of common stock
purchase warrants....... -- -- -- -- 368,150 -- -- 368,150
Net loss.................. -- -- -- -- -- (1,428,376) -- (1,428,376)
------- ---------- ------- --- ---------- ----------- -------- ----------
Balance at March 31, 1995... 10,230 6,732,160 16,768 35 2,431,802 (3,705,858) (35,000) 5,450,137
Accretion of value of
common stock purchase
warrants................ -- -- -- -- 406,346 (406,346) -- --
Net income................ -- -- -- -- -- 79,424 -- 79,424
------- ---------- ------- --- ---------- ----------- -------- ----------
Balance at March 31, 1996... 10,230 6,732,160 16,768 35 2,838,148 (4,032,780) (35,000) 5,529,561
Accretion of value of
common stock purchase
warrants (unaudited).... -- -- -- -- 101,586 (101,586) -- --
Net income (unaudited).... -- -- -- -- -- 65,511 -- 65,511
------- ---------- ------- --- ---------- ----------- -------- ----------
Balance at June 30, 1996
(unaudited)............... $10,230 $6,732,160 $16,768 $ 35 $2,939,734 $(4,068,855) $(35,000) $5,595,072
======= ========== ======= === ========== =========== ======== ==========
</TABLE>

See accompanying notes.

F-5
<PAGE> 77

EDUCATIONAL MEDICAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE
YEAR ENDED MARCH 31, 30,
--------------------------------------- -------------------------
1994 1995 1996 1995 1996
----------- ----------- ----------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)......................... $(1,561,305) $(1,428,376) $ 79,424 $ (62,119) $ 65,511
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation............................ 649,171 724,880 943,634 210,590 269,717
Amortization of other assets............ 1,255,106 1,284,043 931,076 244,208 175,936
Loss on closure or relocation of
school................................ 1,125,518 -- 50,000 -- (35,187)
Impairment of goodwill and
intangibles........................... -- 176,042 764,000 -- --
Provision for losses on accounts
receivable............................ 1,144,361 1,238,287 1,082,408 285,849 217,158
Deferred income taxes................... 177,548 -- -- -- --
Amortization of discount on long-term
debt.................................. 212,445 212,445 123,567 54,129 30,877
Changes in operating assets and
liabilities, net of assets acquired
and liabilities assumed:
Restricted cash....................... -- (375,000) (235,000) 5,258 (7,428)
Accounts receivable................... (2,520,951) (1,697,456) (702,230) 568,154 (128,822)
Prepaid expenses...................... (141,327) (188,063) (76,600) (22,444) (56,006)
Other assets.......................... (79,332) (83,766) (42,920) (5) (3)
Accounts payable and accrued
expenses............................ 159,038 876,968 (422,614) (769,745) (734,655)
Deferred tuition income............... 202,707 (393,928) 260,549 (231,910) (136,672)
Accrued income taxes.................. (972,476) -- 220,807 47,403 (147,070)
Other liabilities..................... 255,528 165,212 304,641 (41,886) 148,170
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in)
operating activities........... (93,969) 511,288 3,280,742 287,482 (338,474)
INVESTING ACTIVITIES
Purchase of businesses, net of cash
acquired................................ (1,046,779) -- -- -- --
Purchases of property and equipment, net.. (678,125) (2,089,783) (785,193) (109,294) (234,016)
----------- ----------- ----------- ----------- -----------
Net cash used in investing
activities..................... (1,724,904) (2,089,783) (785,193) (109,294) (234,016)
FINANCING ACTIVITIES
Issuance of common stock.................. 35 -- -- -- --
Issuance of convertible preferred stock... 85 -- -- -- --
Issuance of common stock purchase
warrants................................ -- 368,150 -- -- --
Proceeds from notes payable and long-term
debt.................................... 178,979 2,460,199 -- -- --
Principal payments on notes payable....... (1,684,228) (1,149,366) (1,355,620) (829,338) (332,903)
Principal payments on senior subordinated
debt.................................... (401,588) (300,000) (500,000) (200,000) (100,000)
Decrease (increase) in deferred debt
issuance costs.......................... (62,128) (66,100) (86,222) (15,265) --
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in)
financing activities........... (1,968,845) 1,312,883 (1,941,842) (1,044,603) (432,903)
----------- ----------- ----------- ----------- -----------
Increase (decrease) in cash and cash
equivalents............................. (3,787,718) (265,612) 553,707 (866,415) (1,005,393)
Cash and cash equivalents at beginning of
period.................................. 6,533,006 2,745,288 2,479,676 2,479,676 3,033,383
----------- ----------- ----------- ----------- -----------
Cash and cash equivalents at end of
period.................................. $ 2,745,288 $ 2,479,676 $ 3,033,383 $ 1,613,261 $ 2,027,990
============ ============ ============ ============ ============
</TABLE>

See accompanying notes.

F-6
<PAGE> 78

EDUCATIONAL MEDICAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996

1. ORGANIZATION AND NATURE OF BUSINESS

Educational Medical, Inc. (the "Company") operates diversified
career-oriented postsecondary education schools. The Company offers diploma and,
in certain locations, degree programs through its fourteen schools located in
six states. The Company's fourteen schools offer programs designed to provide
enrolled students with the knowledge and skills necessary for entry level
employment in the fields of healthcare (twelve schools), business (five
schools), fashion and design (two schools), and photography (one school).

Approximately 57% of the Company's fiscal 1996 net revenues were derived
from its schools in California. Approximately 76% of the Company's cash receipts
were derived from Title IV programs as provided for by the Higher Education Act
of 1965, as amended. Cash receipts approximated 97% of the Company's net
revenues in fiscal 1996.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.

USE OF ESTIMATES

The preparation of financial statements in accordance with generally
accepted accounting principles ("GAAP") requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

CASH EQUIVALENTS

Cash equivalents includes overnight investments in a bank. These
investments are recorded at cost, which approximates market. The Company
considers investments with maturities of three months or less at the date of
purchase to be cash equivalents for purposes of the statements of cash flows.

RESTRICTED CASH

Restricted cash represents 25% of the Company's Title IV program refunds
made in the previous fiscal year, as required by such programs. See Note 3.

LONG-LIVED ASSETS

In accordance with Financial Accounting Standards Board Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of" ("SFAS 121"), the Company records impairment losses on
long-lived assets used in operations when events and circumstances indicate that
the assets might be impaired and the undiscounted cash flows estimated to be
generated by those assets are less than the carrying amounts of those assets.

Property and Equipment

Property and equipment are stated at cost. Depreciation, including that
related to assets under capital leases is computed using the straight-line
method over the estimated useful lives of the related assets or the remaining
lease term for leasehold improvements, if shorter.

F-7
<PAGE> 79

EDUCATIONAL MEDICAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Covenants Not to Compete

Non-compete agreements obtained from the sellers of certain acquired
schools are being amortized on the straight-line basis over the life of the
agreement, generally from two to 15 years.

Goodwill and Other Intangible Assets

Goodwill is amortized over a fifteen year period. Effective April 1, 1993,
the Company changed its estimate of the life of goodwill from 40 years to 15
years. The effect of the change was not material.

Other intangible assets, which are similar in character to goodwill
(acquired student contracts, program curriculum, favorable leases assumed,
accreditation and acquired tradenames) are being amortized using the
straight-line method over periods ranging generally from two to ten years.

During the fiscal year ended March 31, 1995, the Company wrote-off
approximately $176,000 of unamortized intangible assets, due to changes in
federal regulations regarding student referrals. During the fiscal year ended
March 31, 1996, the Company wrote-off approximately $764,000 of unamortized
goodwill related to one of its schools due to estimated impairment in value (see
Note 11).

LONG-TERM DEBT

Outstanding principal amounts are carried net of unamortized debt discount,
when applicable. The debt discount is being amortized over the period until
maturity of the underlying debt, using the straight-line method. Such
amortization is included in interest expense.

REVENUE RECOGNITION

Tuition revenue is recognized monthly on a straight-line basis over the
term of the course of study. Certain nonrefundable fees and charges are fully
recognized as revenue at the time a student begins classes.

The Company is generally required to refund a portion of a student's
unearned tuition who withdraws from a Company school. The amount of tuition, if
any, that may be retained by the Company after payment of any potential refund
is immediately recognized in the Company's statement of operations.

Deferred tuition income represents the portion of student tuitions received
in advance of the course of study's completion.

INCOME TAXES

The Company uses the liability method of accounting for income taxes. Under
this method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax basis of assets and liabilities
and are measured using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse.

STATEMENTS OF CASH FLOWS

As discussed in Note 4, the Company has acquired certain assets and assumed
certain liabilities of various schools. In fiscal year 1994, the Company issued
$3,873,000 in notes payable and long-term debt in conjunction with these
acquisitions. In addition, the Company entered into capital lease agreements
aggregating $145,000, $623,000, and $347,000 during the years ended March 31,
1994, 1995 and 1996, respectively. These non-cash transactions are excluded from
the consolidated statements of cash flows.

F-8
<PAGE> 80

EDUCATIONAL MEDICAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EARNINGS PER SHARE

Pro forma net income (loss) per share was computed by dividing net income
(loss) by the weighted average number of shares of Common Stock outstanding
after giving retroactive effect to the mandatory conversion of all of the
Company's Convertible Preferred Stock into 1,705,082 shares and the exercise of
warrants to purchase 1,141,667 shares, all of which will occur upon the
consummation of the Company's initial public offering, plus cheap stock as
defined below. Retroactive restatement has been made to share and per share
amounts for the stock split (see Note 7). Pursuant to the Securities and
Exchange Commission Staff Accounting Bulletin No. 83, common stock and common
stock equivalents issued at prices below the assumed initial public offering
price per share ("cheap stock") during the twelve month period immediately
preceding the initial filing date of the Company's Registration Statement for
its public offering have been included as outstanding for all periods presented
(using the treasury stock method at the assumed initial public offering price)
even though the effect is to reduce the loss per share.

Assuming the repayment of certain long-term debt outstanding at March 31,
1996 ($4,800,000) as if repaid on the date incurred or the beginning of the
period, whichever is later, with the proceeds of the sale of Common Stock
(assumed to be $12 per share) and supplemental net income and pro forma
supplemental net income for 1996 would have been $.11 and $.11 per share of
Common Stock, respectively.

Historical net income (loss) per share presented in accordance with GAAP is
as follows:

<TABLE>
<CAPTION>
THREE MONTHS
ENDED JUNE
1994 1995 1996 30, 1996
--------- --------- --------- -------------
(unaudited)
<S> <C> <C> <C> <C>
Net income (loss) per share......... $ (.94) $ (.87) $ .02 $ .01
Weighted average number of shares
used in computing net income
(loss) per share.................. 1,660,291 1,647,662 4,426,311 4,801,095
</TABLE>

Historical net income (loss) per share was computed by dividing net income
(loss) by the weighted average number of shares of common stock and common stock
equivalents outstanding plus cheap stock using the treasury stock method at the
estimated market prices at each applicable date. In 1994 and 1995, common stock
equivalents were antidilutive, therefore they were not included in the
computation of weighted average shares outstanding for such periods. Cheap stock
is included as outstanding for all periods even though the effect is to reduce
loss per share in 1994 and 1995.

The amounts computed for primary and fully diluted historical net income
(loss) per share of common stock are the same.

PRO FORMA BALANCE SHEET (UNAUDITED)

In conjunction with an initial public offering of the Company's Common
Stock, all outstanding shares of Convertible Preferred Stock automatically
convert into shares of Common Stock, warrants to purchase 141,667 shares of
common stock will be exercised at $.01 per share, and warrants to purchase
1,333,333 shares of common stock will be exercised under the cashless feature at
the initial public offering price per share (assumed to be $12 per share)
yielding 1,000,000 shares. As such, the effect of the conversion and exercises
has been reflected in the unaudited pro forma balance sheet. Each share of the
Convertible Preferred Stock is convertible into 1.67 shares of Common Stock.

F-9
<PAGE> 81

EDUCATIONAL MEDICAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NEW ACCOUNTING PRONOUNCEMENTS

In 1995, the Financial Accounting Standards Board issued Statement No. 123
"Accounting and Disclosure of Stock-based Compensation" ("SFAS 123") which the
Company will adopt in the quarter ended June 30, 1996. As permitted under SFAS
123, the Company will continue accounting for its stock compensation activity
using the intrinsic value method and will provide the pro forma disclosure using
the fair value method. Therefore, the Company does not expect the effect of
adopting SFAS 123 to have any impact on its statement of operations.

RECLASSIFICATIONS

Certain reclassifications were made to the 1994 and 1995 consolidated
financial statements to conform to the 1996 presentation.

INTERIM STATEMENTS

The interim financial data for the three months ended June 30, 1996 and
1995 is unaudited; however, in the opinion of management, the interim data
includes all adjustments, consisting only of normal recurring adjustments,
necessary for a fair statement of the results for the interim periods, on a
consistent basis.

3. REGULATORY MATTERS

The Company derives a substantial portion of its revenues from financial
aid received by its students under Title IV programs ("Title IV Programs")
administered by the United States Department of Education pursuant to the
federal Higher Education Act of 1965, ("HEA"), as amended. In order to continue
to participate in Title IV Programs, the Company and its schools must comply
with complex standards set forth in the HEA and the regulations promulgated
thereunder (the "Regulations"). Among other things these Regulations require the
Company's schools to exercise due diligence in approving and disbursing funds
and servicing loans, limit the proportion of cash receipts by the Company's
schools derived from Title IV Programs to no more than 85% of the total revenue
derived from the school's students in its Title IV eligible educational
programs, and to exercise financial responsibility related to maintaining
certain financial covenants (including cash reserve for refunds, an "acid test"
ratio, a positive tangible net worth test and limitations on the amount of
operating losses in comparison to tangible net worth, as defined). All of the
Company's schools participate in Title IV Programs.

The failure of any of the Company's schools to comply with the requirements
of the HEA or the Regulations could result in the restriction or loss by the
Company or such school of its ability to participate in Title IV Programs. If
the Department of Education ("Department") determines that any of the Company's
schools is not financially responsible, the Department may require that the
Company or such school post an irrevocable letter of credit in an amount equal
to not less than one-half of Title IV Program funds received by the relevant
school during the last complete award year or, at the Department's discretion,
require some other less onerous demonstration of financial responsibility.
One-half of Title IV funds received by the Company's individual schools in the
most recent award year ranged from $.2 million to $3.9 million and one-half of
the aggregate Title IV funds received by all of the Company's schools in the
most recent award year equaled $14.1 million.

Many of the financial responsibility standards are new, difficult to
interpret, and subject to the interpretation of the Department for
implementation. Further, the process for resolving lack of compliance with such
Regulations is also subject to interpretation and, in some cases, negotiation
with the Department. The Company believes each of its schools satisfies the
financial responsibility standards for fiscal 1996 except with respect to the
operating losses incurred by the Company's school located in Roanoke, Virginia.

F-10
<PAGE> 82

EDUCATIONAL MEDICAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

4. ACQUISITIONS

During the fiscal year ended March 31, 1994, the Company acquired certain
assets and assumed certain liabilities of four businesses operating a total of
six schools. Each of the acquisitions was accounted for as a purchase and
included in the accompanying results of operations beginning with the month of
acquisition. The following summarizes key information relevant to these
transactions:

<TABLE>
<CAPTION>
OHIO
INSTITUTE OF CALIFORNIA
DOMINION ICM PHOTOGRAPHY ACADEMY OF
BUSINESS SCHOOL OF AND MERCHANDISING,
SCHOOLS BUSINESS TECHNOLOGY ART AND DESIGN
------------ ------------ ------------- --------------
<S> <C> <C> <C> <C>
Acquisition Date............... May 29, 1993 July 3, 1993 July 14, 1993 Aug. 5, 1993
Number of schools.............. 3 1 1 1
Purchase price allocation:
Tangible assets.............. $ 13,000 $ 49,000 $ 1,286,000 $ --
Covenants not to compete..... 400,000 100,000 62,000 25,000
Goodwill..................... 2,712,000 932,000 -- 71,000
Liabilities assumed.......... (725,000) (481,000) (112,000) (46,000)
------------ ------------ ------------- --------------
$ 2,400,000 $ 600,000 $ 1,236,000 $ 50,000
============ =========== ============ ===========
</TABLE>

5. PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

<TABLE>
<CAPTION>
MARCH 31,
-------------------------
1995 1996
----------- -----------
<S> <C> <C>
Land........................................................ $ 208,100 $ 208,100
Buildings................................................... 1,074,199 1,159,171
Equipment, furniture and fixtures........................... 3,591,997 4,387,529
Leasehold improvements...................................... 1,233,751 1,272,871
----------- -----------
6,108,047 7,027,671
Less accumulated depreciation and amortization.............. (1,912,455) (2,643,590)
----------- -----------
$ 4,195,592 $ 4,384,081
========== ==========
</TABLE>

6. LONG-TERM DEBT

Long-term debt consists of the following:

<TABLE>
<CAPTION>
MARCH 31,
-------------------------
1995 1996
----------- -----------
<S> <C> <C>
14% senior subordinated debt ("14% Notes"), $2,200,000
principal, quarterly interest-only payments through March
31, 2000, principal due March 31, 2000. Outstanding
principal amounts are net of unamortized discount of
$368,150 and $294,520, respectively(a).................... $ 1,831,850 $ 1,905,480
</TABLE>

F-11
<PAGE> 83

EDUCATIONAL MEDICAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
MARCH 31,
-------------------------
1995 1996
----------- -----------
<S> <C> <C>
</TABLE>

6. LONG-TERM DEBT (CONTINUED)
<TABLE>
<S> <C> <C>
13% senior subordinated debt, ("13% Notes") $4,000,000
principal, quarterly interest-only payments through March
31, 1993, quarterly principal payments of $100,000 plus
interest beginning June 30, 1993 through the repayment of
the 14% notes. One month after repayment in full of the
14% Notes, 15% of unpaid principal is due. The remaining
balance is then payable in three monthly installments of
20%, 25% and remaining principal balance, respectively.
Outstanding principal amounts are net of unamortized debt
discount of $265,992 and $216,056, respectively(b)........ 3,034,008 2,583,944
8.75% mortgage payable, adjustable in 1998 up to prime plus
1.25%, to a bank due in monthly installments of principal
and interest, secured by land and building of one
school.................................................... 681,360 653,527
8% to 11% unsecured promissory notes payable to sellers of
various schools acquired, principal and interest payable
periodically through July 1999............................ 1,355,000 810,000
Various unsecured, non-interest bearing notes payable for
non-competition agreements, payable periodically through
July 1999................................................. 960,000 702,500
8% to 12% capital leases, payable periodically through
October 1999; secured by equipment........................ 662,848 484,492
----------- -----------
8,525,066 7,139,943
Less current portion........................................ (1,494,653) (1,080,085)
----------- -----------
$ 7,030,413 $ 6,059,858
=========== ===========
</TABLE>

- ---------------

(a) On March 31, 1995, the Company issued $2,200,000 of 14% Senior Subordinated
Debt and warrants to purchase a total of up to 308,333 shares of Common
Stock. Pursuant to this transaction, $368,150 was recorded as debt discount
and attributed to the warrants (see Note 7). Amortization of this discount
totaled $-0- and $73,630 in the year ended March 31, 1995 and 1996. The 14%
Notes are secured by substantially all the assets of the Company.
(b) In 1991, the Company issued $4,000,000 of 13% Senior Subordinated Debt Notes
and warrants to purchase a total of 1,333,333 shares of common stock.
Pursuant to this transaction, $1,050,000 was recorded as debt discount and
attributed to the warrants (see Note 7). Amortization of the discount
totaled $212,000 for each of the two years in the period ended March 31,
1994 and 1995, and $50,000 in the year ended March 31, 1996. In 1995, the
13% Notes were amended to extend the maturity date from 1996 to dates
correlated to the repayment of the 14% Notes. The 13% Notes are secured by
substantially all the assets of the Company. Such security is subordinate to
all senior debt, as defined, including the 14% Notes.

Under the terms of the Agreement, the Company must meet certain restrictive
covenants including specified levels of net worth, total debt to shareholders'
equity and a fixed charge coverage ratio. The Company is also restricted as to
the incurrence of certain other debt and restricted payments, as defined. In
addition, without the approval of a majority of the 13% Note holders the Company
is restricted as to: the consolidation, merger or sale of the Company; the
issuance of indebtedness subordinate to the 14% Notes and senior to the 13%
Notes as amended; the amendment of its articles of incorporation or bylaws; the
increase in the number of authorized directors; the redemption or repurchase of
outstanding stock (except as in employment contracts); and the payment of any
dividends on Common Stock.

F-12
<PAGE> 84

EDUCATIONAL MEDICAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

6. LONG-TERM DEBT (CONTINUED)
The Company, the Preferred Shareholders, and the holders of the 13% Notes
have entered into an Agreement which, among other things, entitles the holders
of the 13% Notes to select one representative on the Company's Board of
Directors as long as a certain minimum investment amount is maintained by the
holders of 13% Notes.

Aggregate maturities of long-term debt at March 31, 1996 are as follows:

<TABLE>
<CAPTION>
FISCAL YEAR ENDING MARCH 31,
-------------------------------------------------------------------------------
<S> <C>
1997.................................................................... $1,080,085
1998.................................................................... 1,098,118
1999.................................................................... 1,043,696
2000.................................................................... 2,708,806
2001.................................................................... 1,248,698
Thereafter.............................................................. 471,116
----------
7,650,519
Less unamortized discount on senior subordinated debt................... (510,576)
----------
$7,139,943
==========
</TABLE>

Interest paid during the years ended March 31, 1994, 1995, and 1996 was
approximately $733,000, $980,000 and $1,299,000, respectively.

The fair values of the Company's long-term debt are estimated using
discounted cash flow analyses, based on the Company's estimate of current
borrowing rates for credit facilities with maturities which approximate the
weighted average maturities for its existing long-term debt. At March 31, 1996
the estimated fair value of the Company's long-term debt approximated
$8,000,000. At March 31, 1995 the estimated fair value of the Company's
long-term debt approximated its carrying amounts.

The Company is committed to pay a third party a maximum of $200,000 in
connection with sourcing additional debt financing, if consummated.

7. STOCKHOLDERS' EQUITY

On June 20, 1996, the Company amended its certificate of incorporation to
increase the authorized Common Stock to 15,000,000 shares, retain the par value
of .01 per share, and to provide a five-for-three Common Stock split. Such
amendment will be effective upon consummation of the Offering. All common share
and per common share amounts have been adjusted for all periods to reflect the
stock split. In addition, the Company authorized 5,000,000 shares of Preferred
Stock; terms will be set upon issuance.

CONVERTIBLE PREFERRED STOCK

The Company has issued and outstanding 1,023,049 shares of Convertible
Preferred Stock, $.01 par value. At the option of the holder, shares of
Convertible Preferred Stock may be converted into 1.67 shares of Common Stock
and previously, was mandatorily redeemable at $6.66 per share, subject to
certain antidilution adjustments (1,705,082 shares at March 31, 1996).

Through July 22, 1991, the shares of Convertible Preferred Stock accrued
dividends at an annual rate of 8%. In 1991, pursuant to the issuance of the 13%
Notes (see Note 6), the terms of the Convertible Preferred Stock were amended to
eliminate the cumulative dividends feature and the mandatory redemption
requirement except in the event of an initial public offering of common stock
and certain other circumstances. The Company issued 410,833 shares of Common
Stock in 1991 in full payment of accrued dividends through

F-13
<PAGE> 85

EDUCATIONAL MEDICAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

7. STOCKHOLDERS' EQUITY (CONTINUED)
July 22, 1991 totaling $1,232,498. In March 1996, the terms were further amended
to eliminate the mandatory redemption in all circumstances, but still permitting
conversion at the option of the holder. In May 1996, terms were again amended to
require automatic conversion of all outstanding shares of Convertible Preferred
Stock in the event of an initial public offering of common stock.

Except for the election of directors, the holders of Convertible Preferred
Stock and Common Stock shall vote as one class, with each share of Convertible
Preferred Stock entitled to one vote for each share of Common Stock issuable
upon conversion. The Convertible Preferred Stockholders voting separately as a
class, may elect three of the five members of the Board of Directors.

COMMON STOCK

As of March 31, 1996, the Company has reserved the following shares of
Common Stock for future issuance by the following:

<TABLE>
<S> <C>
Convertible Preferred Stock....................................... 1,705,082
Common Stock purchase warrants.................................... 1,518,334
Stock options..................................................... 361,666
---------
3,585,082
=========
</TABLE>

COMMON STOCK PURCHASE WARRANTS

As described in Note 6, the holders of the 14% Notes were granted stock
purchase warrants allowing for the purchase of at least 141,667 and up to
308,333 shares, depending on the date of repayment of the 14% Notes, of Common
Stock at $.006 per share. The warrants were assigned a value of $368,150 and
expire on April 30, 2000. These warrants do not include put or call features.

As also described in Note 3, the holders of the 13% Notes were granted
stock purchase warrants allowing the purchase of up to 1,333,333 shares of
Common Stock at $3 per share (the "$3 Warrants"), for a total amount of
$4,000,000. The $3 exercise price of the warrants is subject to adjustment for
any future issuances of equity or equity related securities at a per share price
less than the exercise price.

At any time after March 31, 1998, but on or before March 31, 1999, the
holders of the $3 warrants had the right to "put" to the Company warrants
representing 50% of total warrants then outstanding. At any time after March 31,
1999, the holders had the right to "put" to the Company all then outstanding $3
warrants. The Company may "call" the warrants at the later of two years from
closing (July 23, 1991) or after the Company's stock has been publicly traded
for six months. The put/call price is $3 per share. The warrants expire June 30,
2001. In May 1996, the terms of the warrants were amended to provide for a
cashless exercise based on the initial public offering price per share, in the
event of an initial public offering of the Company's common stock and to
eliminate the "put" feature.

The $3 warrants were assigned a value of $1,050,000. The difference between
the $1,050,000 and the exercise price of $4,000,000 is being accreted, using a
method which approximates the effective interest rate method, through the date
of earliest exercise (50% through March 31, 1998 and 50% through March 31,
1999). Accretion of $283,276, $339,252 and $406,346 was charged to accumulated
deficit during the years ended March 31, 1994, 1995 and 1996, respectively.

In connection with the issuance of the Convertible Preferred Stock in 1991,
a third party was granted warrants to purchase 26,667 shares of Common Stock
exercisable at $3.60 per share. These warrants expire July 31, 1999.

F-14
<PAGE> 86

EDUCATIONAL MEDICAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

7. STOCKHOLDERS' EQUITY (CONTINUED)
The Company has also agreed in the event of an Initial Public Offering to
issue to a third party, warrants to purchase 16,667 shares of Common Stock at
the offering price of such shares in an initial public offering. These warrants
will expire 5 years from the date of such initial public offering.

STOCK OPTIONS

The Company has granted options to purchase its Common Stock. The options
vest incrementally over periods ranging from four to five years and expire five
years after vesting.

A summary of option transactions follows:

<TABLE>
<CAPTION>
NUMBER OF OPTIONS
---------------------------
EXERCISE YEAR ENDED MARCH 31,
PRICES PER ---------------------------
SHARES 1994 1995 1996
------------- ------- ------- -------
<S> <C> <C> <C> <C>
Outstanding at beginning of year:............. $2.40 - 4.00 170,000 199,166 190,833
Granted..................................... $2.40 - 4.00 33,333 -- 175,000
Cancelled/forfeited......................... $2.40 (4,167) (8,333) (4,167)
------------ ------- ------- -------
Outstanding at March 31....................... $2.40 - 4.00 199,166 190,833 361,666
============ ======= ======= =======
Exercisable at March 31....................... $2.40 - 4.00 80,000 130,833 156,667
============ ======= ======= =======
</TABLE>

INITIAL PUBLIC OFFERING

In April 1996, the Company commenced plans to offer up to 2,200,000 of
newly issued shares of Common Stock in an initial public offering.

8. INCOME TAXES

The components of income tax expense (benefit) are as follows:

<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------------
1994 1995 1996
--------- ------- --------
<S> <C> <C> <C>
Current:
Federal.............................................. $(584,479) $ -- $484,376
State................................................ (166,618) 27,982 147,809
Deferred:
Federal.............................................. 580,868 -- --
State................................................ 263 -- --
--------- ------- --------
$(169,966) $27,982 $632,185
========= ======= ========
</TABLE>

F-15
<PAGE> 87

EDUCATIONAL MEDICAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

8. INCOME TAXES (CONTINUED)
A reconciliation of income tax expense (benefit) computed at the statutory
federal income tax rate to the Company's effective income tax rate follows:

<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------------
1994 1995 1996
--------- --------- --------
<S> <C> <C> <C>
Federal.............................................. $(597,442) $(486,334) $241,947
State, net of federal tax benefit.................... 109,967 -- 97,554
Permanent differences................................ 15,985 49,988 55,436
Increase in deferred tax asset valuation allowance... 304,748 465,497 308,584
Utilization of AMT credit............................ -- -- (56,000)
Other, net........................................... (3,224) (1,169) (15,336)
--------- --------- --------
$(169,966) $ 27,982 $632,185
========= ========= ========
</TABLE>

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred income tax assets and liabilities are as follows:

<TABLE>
<CAPTION>
MARCH 31,
-------------------------
1995 1996
----------- -----------
<S> <C> <C>
Deferred income tax liabilities:
Prepaid expenses.......................................... $ (145,116) $ (192,974)
----------- -----------
Total deferred income tax liabilities............. (145,116) (192,974)
Deferred income tax assets:
Federal and state net operating loss carryforwards........ 61,634 --
Tradenames and other intangibles.......................... 447,778 868,393
Property and equipment.................................... 120,707 8,419
Allowance for doubtful accounts........................... 314,750 339,637
Accrued expenses and other liabilities.................... 174,905 264,166
Other, net................................................ 36,745 32,346
----------- -----------
Total deferred income tax assets.................. 1,156,519 1,512,961
Valuation allowance......................................... (1,011,403) (1,319,987)
----------- -----------
Net deferred income taxes......................... $ -- $ --
=========== ===========
</TABLE>

Based on its history of recurring losses before income taxes and the
Company's evaluation of available evidence at March 31, 1995 and 1996 as
described in SFAS No. 109, Accounting for Income Taxes, ("SFAS No. 109") the
Company has determined that it is more likely than not, for purposes of SFAS No.
109, that it will not realize its net deferred income tax assets. Accordingly,
the Company has recorded a valuation allowance against all of its net deferred
income tax assets at March 31, 1995 and 1996.

The Company paid approximately $383,500, $17,000 and $360,000 of income
taxes in the years ended March 31, 1994, 1995 and 1996, respectively. The
Company received approximately $733,000 of income tax refunds during the year
ended March 31, 1995.

9. LEASES

The Company leases office, classroom and dormitory space under operating
lease agreements expiring through 2004. Rent expense totaled approximately
$2,330,000, $3,104,000 and $2,873,000 for the years ended March 31, 1994, 1995
and 1996, respectively.

F-16
<PAGE> 88

EDUCATIONAL MEDICAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

9. LEASES (CONTINUED)
Future minimum lease payments under noncancelable operating leases in
effect at March 31, 1996 are as follows:

<TABLE>
<CAPTION>
FISCAL YEAR ENDING MARCH 31:
----------------------------------------------------------------
<S> <C>
1997....................................................... $ 2,513,093
1998....................................................... 2,141,752
1999....................................................... 1,549,867
2000....................................................... 1,056,021
2001....................................................... 942,107
Thereafter................................................. 2,101,133
-----------
$10,303,973
===========
</TABLE>

10. EMPLOYEE BENEFIT PLAN

The Company sponsors a defined contribution plan covering substantially all
employees; the plan is qualified under Section 401(k) of the Internal Revenue
Code. Under the provisions of the plan, eligible participating employees may
elect to contribute up to the maximum amount of tax deferred contribution
allowed by the Internal Revenue Code. The Company matches a portion of such
contributions up to a maximum percentage of the employees' compensation. The
Company's contributions to the plan were approximately $45,600, $57,500 and
$55,600 for the years ended March 31, 1994, 1995 and 1996, respectively.

11. OTHER EXPENSES

IMPAIRMENT OF LONG-LIVED ASSETS

The Company's Roanoke, Virginia school has incurred significant operating
losses since its acquisition. Accordingly, the Company evaluated the
recoverability of the school's long-lived assets including its identifiable
intangible assets and goodwill. Based on the Company's expectation of future
cash flows, the Company determined that assets with a carrying amount of
$764,000 were impaired and recorded an impairment loss to record such assets at
management's estimate of the net present value of such future cash flows. This
estimate was based on estimated undiscounted future cash flows to be generated
by such assets and is a subjectively determined amount subject to change based
upon actual results. This impairment loss is reflected in the 1996 consolidated
statement of operations.

CONTINGENCIES

In September 1995, the Company filed suit in the California Superior Court
in connection with its 1993 purchase of its Hollywood, California school. The
suit alleges that the sellers made significant financial and operational
misrepresentations to the Company. The Company is seeking damages from the
sellers, and, pending the resolution of the case, is making payments due to the
sellers in connection with the acquisition into an escrow account. The Sellers
have denied the Company's allegations and filed a Cross-Complaint against the
Company alleging among other things, breach of contract and fraud. The matter is
in the initial stages of discovery and is expected to be set for trial in the
first calendar quarter of 1997. No amounts have been accrued.

On June 24, 1994, eight students enrolled in one of the Company's programs
at its schools in the San Diego, California area filed a lawsuit against the
Company in the state court in California. In substance, the suit alleged that
there were material misrepresentations made with respect to the content of the
program and the potential outcomes achieved by the students who graduated from
it. The suit was certified as a class action in the fall of 1994. Although the
Company believes that it accurately described the course content and

F-17
<PAGE> 89

EDUCATIONAL MEDICAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

11. OTHER EXPENSES (CONTINUED)
the multiple outcomes to which the course could lead, in order to avoid further
legal expense and because of the uncertainty and risks inherent in any
litigation, the Company determined that it was desirable to settle the lawsuit.
A final settlement was approved in March 1996. Pursuant to the terms of the
settlement, the Company paid the plaintiffs $600,000 in the fiscal year ended
March 31, 1996 and have agreed to pay an additional $400,000 on April 1, 1997.
In addition, the Company agreed to make available tuition credits of $1,150,000
to class members, provided that students elect to utilize such tuition credits
by July 17, 1996. Any unused tuition credits will be redeemed in cash by the
Company for 10% of the credit and $115,000 has been accrued for these credits,
as of March 31, 1996. This settlement expense is reflected in the 1996
consolidated statement of operations.

The Company incurred $600,000 and $1,115,000 in expenses in the fiscal
years ended March 31, 1995 and 1996, respectively (of which $362,000 and
$515,000 was accrued at March 31, 1995 and 1996, respectively) related to legal
costs to defend the class action lawsuit and the settlement related to such
suit.

LOSS ON CLOSURE OF SCHOOL

In September 1993, the Company decided to close its school in Albany,
Georgia due to continued operating losses and the anticipation that such losses
would continue. A loss of $1,125,518 is included in the accompanying 1994
consolidated statement of operations and relates primarily to the write-off of
the related goodwill and other costs from September 1993 to September 1994 when
the school closed.

F-18
<PAGE> 90

INDEPENDENT AUDITORS' REPORT

To the Board of Directors
San Antonio College of Medical
and Dental Assistants, Inc.
and Career Centers of Texas -- El Paso, Inc.

We have audited the accompanying combined balance sheets of San Antonio
College of Medical and Dental Assistants, Inc. and Career Centers of Texas -- El
Paso, Inc. (S corporations) as of December 31, 1995 and 1994, and the related
combined statements of operations, retained earnings, and cash flows for the
years then ended. The combined financial statements are the responsibility of
the Institution's management. Our responsibility is to express an opinion on
these combined financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the combined financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the combined financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall combined
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the combined financial statements referred to in the first
paragraph present fairly, in all material respects, the combined financial
position of San Antonio College of Medical and Dental Assistants, Inc. and
Career Centers of Texas -- El Paso, Inc. as of December 31, 1995 and 1994 and
the results of their combined operations and their cash flows for the years then
ended, in conformity with generally accepted accounting principles.

/s/ Tsakopulos Brown Schott & Anchors
--------------------------------------

San Antonio, Texas
March 12, 1996, except for
Note 1, which is August 2, 1996

F-19
<PAGE> 91

SAN ANTONIO COLLEGE OF MEDICAL AND DENTAL ASSISTANTS, INC.
AND CAREER CENTERS OF TEXAS -- EL PASO, INC.

COMBINED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
1994 1995 1996
------------ ------------ ------------
(unaudited)
<S> <C> <C> <C>
ASSETS
Current assets
Cash.................................................... $1,358,394 $1,315,967 $ 1,336,260
Certificates of deposit................................. -- 415,227 473,438
Short-term investment................................... -- 25,761 25,761
Grant and loan program cash............................. 3,326 280 --
Due from Department of Education........................ -- -- 49,695
Accounts receivable from students....................... 898,650 1,127,003 966,877
Less: Deferred tuition income........................... -- (978,016) (884,843)
Allowance for uncollectible accounts.............. (145,460) (148,987) (82,034)
Note receivable, current portion........................ -- 4,683 2,858
Other................................................... 13,632 13,885 13,851
---------- ---------- ----------
Total Current Assets............................ 2,128,542 1,775,803 1,901,863
Property and equipment
Furniture, fixtures and equipment....................... 969,230 950,431 966,299
Leasehold improvements.................................. 82,947 88,725 88,725
---------- ---------- ----------
1,052,177 1,039,156 1,055,024
Less accumulated depreciation........................... (797,340) (833,338) (874,988)
---------- ---------- ----------
Total Property and Equipment.................... 254,837 205,818 180,036
Other assets
Goodwill, less $24,884 accumulated amortization......... 12,898 11,976 11,516
Unsecured note receivable, less current portion......... -- 9,942 9,942
---------- ---------- ----------
Total Other Assets.............................. 12,898 21,918 21,458
---------- ---------- ----------
Total assets.................................. $2,396,277 $2,003,539 $ 2,103,357
========== ========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities
Accounts payable........................................ 49,001 $ 45,851 $ 108,544
7% unsecured note payable to stockholder................ 83,226 -- --
Accrued expenses........................................ 21,064 36,227 216,225
Grant and loan program payable.......................... 3,326 280 --
---------- ---------- ----------
Grant and loan program overdraft........................ 49,695
Deferred tuition income................................. 1,454,483 1,595,010 1,542,120
Less amount to offset receivable from students....... -- (978,016) (884,843)
---------- ---------- ----------
Total Current Liabilities....................... 1,611,100 699,352 1,031,741
Stockholder's equity
Capital stock........................................... 11,000 11,000 11,000
Capital in excess of par value.......................... 104,074 104,074 104,074
Retained earnings....................................... 1,155,780 1,674,790 1,442,219
---------- ---------- ----------
1,270,854 1,789,864 1,557,293
Less treasury stock, at cost.................... (485,677) (485,677) (485,677)
---------- ---------- ----------
Total stockholder's equity.................... 785,177 1,304,187 1,071,616
---------- ---------- ----------
Total liabilities and stockholder's equity.... $2,396,277 $2,003,539 $ 2,103,357
========== ========== ==========
</TABLE>

The Accompanying Notes Are an Integral Part of These Combined Financial
Statements.

F-20
<PAGE> 92

SAN ANTONIO COLLEGE OF MEDICAL AND DENTAL ASSISTANTS, INC.
AND CAREER CENTERS OF TEXAS -- EL PASO, INC.

COMBINED STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1995
------------
<S> <C>
Net revenues.................................................................... $4,743,058
School operating costs:
Cost of education and facilities.............................................. 2,225,106
Selling and promotional....................................................... 371,511
General and administrative expenses........................................... 1,515,594
Amortization of goodwill and intangibles........................................ 922
----------
Income from operations.......................................................... 629,925
Interest income................................................................. 49,085
----------
Income before pro forma provision for income taxes.............................. 679,010
Pro forma provision for income taxes (unaudited)................................ 272,000
----------
Pro forma net income (unaudited)................................................ $ 407,010
==========
</TABLE>

The Accompanying Notes Are an Integral Part of These Combined Financial
Statements.

F-21
<PAGE> 93

SAN ANTONIO COLLEGE OF MEDICAL AND DENTAL ASSISTANTS, INC.
AND CAREER CENTERS OF TEXAS -- EL PASO, INC.

COMBINED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
YEAR ENDED 30,
DECEMBER 31, -----------------------
1994 1995 1996
------------ ---------- ----------
(unaudited) (unaudited)
<S> <C> <C> <C>
Revenues
Tuition income.......................................... $4,478,288 $2,249,178 $2,615,641
Student expenses........................................ (119,850) (38,484) (23,214)
Tuition refunds......................................... (333,435) (153,750) (141,183)
---------- ---------- ----------
Net tuition revenues............................ 4,025,003 2,056,944 2,451,244
Operating Expenses
Employee expense 1,954,660 1,033,979 1,146,486
Occupancy............................................... 424,147 207,204 221,474
Advertising and sales promotion......................... 187,262 118,102 152,936
Bad debts............................................... 147,337 116,950 106,700
Supplies................................................ 159,879 37,233 81,685
Depreciation............................................ 86,519 82,615 41,650
Books................................................... 115,943 65,670 34,796
Professional services................................... 59,509 41,141 34,607
Other................................................... 742,520 354,985 383,663
---------- ---------- ----------
Total operating expenses........................ 3,877,776 2,056,979 2,203,997
---------- ---------- ----------
Operating income (loss)................................. 147,227 (35) 247,247
Other income
Interest income......................................... 35,010 17,289 27,205
Miscellaneous........................................... 17,379 7,020 14,223
Vending................................................. 11,366 4,569 3,754
Interest Expense........................................ (10,062) (1,821) --
---------- ---------- ----------
Total other income.............................. 53,693 27,057 45,182
---------- ---------- ----------
Income before pro forma provision for income taxes........ 200,920 27,022 292,429
Pro forma provision for income taxes (unaudited).......... 80,000 11,000 117,000
---------- ---------- ----------
Pro forma net income (unaudited).......................... $ 120,920 $ 16,022 $ 175,429
========== ========== ==========
</TABLE>

The Accompanying Notes Are an Integral Part of These Combined Financial
Statements.

F-22
<PAGE> 94

SAN ANTONIO COLLEGE OF MEDICAL AND DENTAL ASSISTANTS, INC.
AND CAREER CENTERS OF TEXAS -- EL PASO, INC.

COMBINED STATEMENT OF RETAINED EARNINGS

<TABLE>
<S> <C>
Retained earnings at December 31, 1993........................................... $1,244,583
Distribution to stockholder...................................................... (289,723)
Net income....................................................................... 200,920
----------
Retained earnings at December 31, 1994........................................... 1,155,780
Distribution to stockholder...................................................... (160,000)
Net income....................................................................... 679,010
----------
Retained earnings at December 31, 1995........................................... 1,674,790
Distribution to stockholder (unaudited).......................................... (525,000)
Net income (unaudited)........................................................... 292,429
----------
Retained earnings at June 30, 1996 (unaudited)................................... $1,442,219
==========
</TABLE>

The Accompanying Notes are an Integral Part of the Combined Financial
Statements.

F-23
<PAGE> 95

SAN ANTONIO COLLEGE OF MEDICAL AND DENTAL ASSISTANTS, INC.
AND CAREER CENTERS OF TEXAS -- EL PASO, INC.

COMBINED STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1994 1995
------------ ------------
<S> <C> <C>
Cash flows from operating activities
Inflows
Cash received from students..................................... $4,097,092 $4,467,065
----------
Interest income................................................. 35,010 52,707
---------- ----------
4,132,102 4,519,772
Outflows
Cash paid to suppliers and employees............................ 3,625,764 3,837,357
Interest expense................................................ 10,062 3,622
---------- ----------
3,635,826 3,840,979
---------- ----------
Net cash provided by operating activities.................. 496,276 678,793
Cash flows from investing activities
Outflows
Purchase certificates of deposit and short-term investment...... -- 440,988
Purchase property and equipment................................. 100,160 22,381
Loans to employees.............................................. -- 14,625
---------- ----------
Net cash (used) by investing activities.................... (100,160) (477,994)
Cash flows from financing activities
Outflows
Debt payments to stockholder.................................... 76,774 83,226
Distribution to stockholder..................................... 289,723 160,000
---------- ----------
Net cash (used) by financing activities.................... (366,497) (243,226)
---------- ----------
Net increase (decrease) in cash...................................... 29,619 (42,427)
Cash, beginning of year.............................................. 1,328,775 1,358,394
---------- ----------
Cash, end of year.................................................... $1,358,394 $1,315,967
========== ==========
</TABLE>

The Accompanying Notes are an Integral Part of these Combined Financial
Statements.

F-24
<PAGE> 96

SAN ANTONIO COLLEGE OF MEDICAL AND DENTAL ASSISTANTS, INC.
AND CAREER CENTERS OF TEXAS -- EL PASO, INC.

COMBINED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-----------------------
1995 1996
---------- ----------
(unaudited) (unaudited)
<S> <C> <C>
Cash flows from operating activities
Net income.......................................................... $ 27,022 $ 292,429
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization expense............................ 66,130 42,110
Bad debt expense................................................. 116,950 106,700
(Increase) in current assets
Accounts receivable............................................ (3,503) 66,870
Other current assets........................................... 2,267 (2,441)
Increase in current liabilities
Accounts payable............................................... 6,076 62,693
Accrued liabilities............................................ 132,929 180,192
Deferred tuition income........................................ (4,111) (126,543)
---------- ----------
Net cash provided by operating activities................... 343,760 622,010
Cash flows from investing activities
Outflows
Purchase certificate of deposit.................................. -- 58,211
Purchase property and equipment.................................. 6,517 15,867
Inflows -- payments on notes receivable............................. -- (1,824)
---------- ----------
Net cash (used) by investing activities..................... (6,517) (72,254)
Cash flows from financing activities
Outflows
Repayments on loan from stockholder.............................. 43,419 --
Distribution to stockholder...................................... 135,000 525,000
---------- ----------
Net cash (used) by financing activities..................... (178,419) (525,000)
---------- ----------
Net decrease in cash.................................................. 158,824 24,756
Cash, beginning of period............................................. 1,358,392 1,311,504
---------- ----------
Cash, end of period................................................... $1,517,216 $1,336,260
========== ==========
</TABLE>

The Accompanying Notes are an Integral Part of these Combined Financial
Statements.

F-25
<PAGE> 97

SAN ANTONIO COLLEGE OF MEDICAL AND DENTAL ASSISTANTS, INC.
AND CAREER CENTERS OF TEXAS -- EL PASO, INC.

NOTES TO THE COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND DECEMBER 31, 1995

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business and Organization

The accompanying combined financial statements include the financial
position, results of operations and cash flows of San Antonio College of Medical
and Dental Assistants, Inc. and Career Centers of Texas -- El Paso, Inc.
(collectively, the "Institution"). The Institution's outstanding common stock is
owned by the same individual who is also an officer of both corporations. The
Institution's management believes that combined financial statements fairly
present the financial position, results of operations and cash flows of the
related entities. Intercompany transactions and balances have been eliminated in
the accompanying combined financial statements.

The Institution was organized to provide training to medical and dental
technicians in the San Antonio, McAllen and El Paso, Texas areas. A substantial
portion of the Institution's tuition income is derived from students who qualify
under government tuition assistance programs. Such programs are subject to
continued approval by the U.S. Congress. The Institution is also subject to
programmatic and financial audits by the Department of Education and other
regulatory agencies. Beginning in 1993, the Institution conducted a portion of
its training in an additional location (the "Additional Location") in El Paso,
Texas. Although the school received approvals for the Additional Location prior
to its opening from the applicable state regulatory authority and its
accrediting agency, it inadvertently failed to notify the Department of
Education of commencement of operations of the Additional Location until August
2, 1996, at which time the Department verbally approved the location.

Although the Company does not believe that its inadvertent failure to
notify the Department of its operations at the Additional Location will be
considered a significant failure to comply with relevant Department of Education
Regulations, the Department of Education could take the position that the
Additional Location was ineligible for Title IV funding pending its approval and
that all Title IV funding received by the Additional Location prior to the
August 1996 verbal approval (approximately $1,100,000 unaudited) is subject to
refund, repayment and applicable penalties. The Institution has not received
notice of any such claim from the Department, and does not believe that the
Department will take such a position.

The Institution has entered into an Asset Purchase Agreement dated
September 6, 1996 with an unrelated entity to sell substantially all of its
student receivables and property and equipment.

Use of Estimates

The Institution uses estimates and assumptions in preparing combined
financial statements in accordance with generally accepted accounting
principles. Those estimates and assumptions affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and liabilities, and
the reported revenues and expenses. Actual results could vary from the estimates
that were used.

Fair Values of Financial Instruments

The Institution's financial instruments consist of cash, certificates of
deposit, short-term investment, accounts receivable, note receivable and
accounts payable. The carrying amounts of these items reported in the combined
balance sheet approximate fair values due to the short maturity of those
instruments.

F-26
<PAGE> 98

SAN ANTONIO COLLEGE OF MEDICAL AND DENTAL ASSISTANTS, INC.
AND CAREER CENTERS OF TEXAS -- EL PASO, INC.

NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

Cash Equivalents

For purposes of the combined statement of cash flows, the Institution
considers all short-term debt securities purchased with a maturity of three
months or less to be cash equivalents. There were no cash equivalents at
December 31, 1995 and December 31, 1994.

Short-term Investment

The Institution's short-term investment is classified as available-for-sale
and is a highly liquid debt security. Market value approximated cost at December
31, 1995.

Property and Equipment

Property and equipment are recorded at cost. Depreciation is provided in
amounts sufficient to relate the cost of depreciable assets to operations over
their estimated service lives principally on the straight-line method.

The cost of major additions and improvements is capitalized; expenditures
for maintenance and repairs are expensed as incurred. When assets are sold,
retired or otherwise disposed of, cost and related accumulated depreciation are
removed from the accounts, and any resulting gain or loss is included in current
operations.

Goodwill

Goodwill is amortized over forty years using the straight-line method.

Deferred Tuition Income

Deferred tuition income represents the amount of tuition for which course
instruction has not been provided and is calculated on a monthly pro-rata basis.
In 1995, the institution decided for financial reporting purposes, that the
related deferred tuition should be shown as an offset against student
receivables. Amounts in excess of student receivables are presented as a current
liability in the accompanying combined balance sheet. Deferred tuition income
will be amortized ratably to future operations as educational services are
rendered.

Advertising Costs

All costs related to marketing and advertising the Institution's services
are expensed in the year incurred.

Interim Statements

The interim financial data for the six months ended June 30, 1996 and 1995
is unaudited; however, in the opinion of management, the interim data includes
all adjustments, consisting only of normal recurring adjustments, necessary for
a fair statement of the results for the interim periods, on a consistent basis.

F-27
<PAGE> 99

SAN ANTONIO COLLEGE OF MEDICAL AND DENTAL ASSISTANTS, INC.
AND CAREER CENTERS OF TEXAS -- EL PASO, INC.

NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 2. FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts and fair values of the Institution's financial
instruments at December 31, 1995 are summarized as follows:

<TABLE>
<CAPTION>
CARRYING
AMOUNT FAIR VALUE
---------- ----------
<S> <C> <C>
Cash and certificates of deposit.............................. $1,731,474 $1,731,474
Short-term investment......................................... 25,761 25,761
Accounts receivable........................................... 1,127,003 1,127,003
Note receivable............................................... 14,625 14,625
Accounts payable.............................................. 45,851 45,851
</TABLE>

NOTE 3. CONCENTRATION OF CREDIT RISK

Financial instruments which potentially subject the Institution to
concentrations of credit risk consist principally of cash, certificates of
deposit and accounts receivable from students. The Institution places its
depository accounts and certificates of deposit with high-quality financial
institutions and, by policy, limits the amounts of credit exposure to any one
financial institution. As of December 31, 1994 and 1995, aggregate deposits
exceeded the insuring governmental agency's limit by $271,000 and $477,000,
respectively. The concentration of credit risk with respect to student accounts
receivable is limited due to the significant large number of students comprising
the Institution's student base, their dispersion across San Antonio, McAllen and
El Paso, Texas and their qualification for governmental financial assistance
(Note 1). The Institution continually monitors student academic performance and
maintains allowances for anticipated withdrawals.

NOTE 4. GRANT PROGRAMS

The Institution participates in the Pell Grant and Supplemental Educational
Opportunity Grant programs. A separate bank account is maintained for the
administration of these grants which entails receipt of grant monies and
disbursement thereof to eligible students. The ending cash balance represents
receipts that are either payable to the students or refundable back to the grant
programs if the students do not complete the required program.

NOTE 5. SHORT-TERM INVESTMENT

The Institution adopted Statement of Financial Accounting Standards
Statement No. 115, "Accounting for Certain Debt and Equity Securities," at
December 31, 1995 and has classified its investment as available-for-sale. The
investment was purchased in 1995.

NOTE 6. CAPITAL STOCK

Capital stock at December 31, 1995 and December 31, 1994 are summarized as
follows:

<TABLE>
<S> <C>
San Antonio College of Medical and Dental Assistants, Inc.
Class A Common Stock -- $1 par value, 50,000 shares authorized; none
issued................................................................ $ --
Class B Common Stock -- $1 par value, 10,000 shares authorized and
issued; 3,534 shares outstanding...................................... 10,000
Career Centers of Texas -- El Paso, Inc.
Common Stock -- $1 par value, 500,000 shares authorized; 1,000 shares
issued and outstanding................................................ 1,000
-------
$11,000
=======
</TABLE>

F-28
<PAGE> 100

SAN ANTONIO COLLEGE OF MEDICAL AND DENTAL ASSISTANTS, INC.
AND CAREER CENTERS OF TEXAS -- EL PASO, INC.

NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

Treasury stock represents 6,466 shares of Class B common stock issued by
San Antonio College of Medical and Dental Assistants, Inc.

NOTE 7. NET TUITION REVENUES

Net tuition revenues for each campus for the year ended December 31, 1994
and 1995 is summarized as follows:

<TABLE>
<CAPTION>
1994 1995
---------- ----------
<S> <C> <C>
San Antonio -- Central........................................ $1,106,343 $1,356,148
----------
San Antonio -- Medical Center................................. 893,797 775,650
McAllen....................................................... 854,710 1,116,558
El Paso....................................................... 1,170,153 1,494,702
---------- ----------
Total Net Tuition Revenues.......................... $4,025,003 $4,743,058
========== ==========
</TABLE>

NOTE 8. PROFIT SHARING PLAN

The Institution has a qualified profit sharing plan for the benefit of its
eligible employees. Contributions are made at the discretion of the Board of
Directors. Profit sharing expense for the years ended December 31, 1994 and 1995
was $14,091 and $20,986, respectively.

NOTE 9. RELATED PARTY TRANSACTIONS

During 1993, the Institution's stockholder purchased the facility currently
occupied by the San Antonio -- Central campus from its owner. The Institution
has guaranteed the related debt to the bank which financed the purchase of the
property and it must also meet certain financial ratios. The stockholder also
owns the facility occupied by the McAllen campus.

During 1995, the Institution's stockholder purchased the facility currently
occupied by the main El Paso campus. Previously, the facility was owned by a
partnership partially owned by the Institution's stockholder (see Note 13). The
Institution has guaranteed the related debt to the bank which financed the
purchase of the property, and it must also meet certain financial ratios.

Operating lease payments aggregating $271,000 and $288,000 for the San
Antonio -- Central, McAllen and El Paso campuses were paid to the stockholder in
1994 and 1995, respectively.

NOTE 10. FEDERAL INCOME TAXES

Pursuant to applicable provisions of the Internal Revenue Code, the
Institution has received permission to be treated as an "S Corporation" for
income tax purposes. Under such provisions, the Institution is not responsible
for the federal income tax liability attributable to its taxable income. The
Institution's taxable income will be reported on its stockholder's individual
income tax return and the related tax liability, if any, will be the
responsibility of the stockholder.

The pro forma provision for income taxes represents a provision for income
taxes as if the Institution had operated as subchapter C Corporations.

NOTE 11. EMPLOYEE EXPENSE

The Institution "leases" its employees from an unrelated company.
Consequently, salaries, wages, payroll taxes and other related employee benefit
costs are included in the appropriate expense category.

F-29
<PAGE> 101

SAN ANTONIO COLLEGE OF MEDICAL AND DENTAL ASSISTANTS, INC.
AND CAREER CENTERS OF TEXAS -- EL PASO, INC.

NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 12. CASH FLOWS

A reconciliation of net income to net cash provided by operating activities
for the year ended December 31, 1994 and 1995 is summarized as follows:

<TABLE>
<CAPTION>
1994 1995
--------- ---------
<S> <C> <C>
Net income..................................................... $ 200,920 $ 679,010
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization expense........................ 87,441 72,241
Bad debt expense............................................. 147,337 223,797
(Increase) in current assets
Accounts receivables...................................... (175,212) (428,204)
Other current assets...................................... 7,039 (173)
Increase (decrease) in current liabilities
Accounts payable.......................................... (17,065) (3,150)
Accrued expenses.......................................... (2,207) 15,163
Deferred tuition income................................... 248,023 120,109
---------- ----------
Net cash provided by operating activities...................... $ 496,276 $ 678,793
========== ==========
</TABLE>

NOTE 13. COMMITMENTS

The Institution conducts its operations in facilities pursuant to lease
agreements which are classified as operating leases. The following is a schedule
by years of minimum rental payments under such operating leases which expire at
various dates through 2009:

<TABLE>
<CAPTION>
LEASED FROM
FOR THE YEARS -------------------------
ENDING INSTITUTION'S UNRELATED
DECEMBER 31, TOTAL STOCKHOLDER 3RD PARTIES
---------------------------------------------------- ---------- ----------- -----------
<S> <C> <C> <C>
1996................................................ $ 417,700 $ 286,000 $ 131,700
1997................................................ 417,700 286,000 131,700
1998................................................ 402,800 286,000 116,800
1999................................................ 402,300 286,000 116,300
2000................................................ 381,100 286,000 95,100
Remaining rentals................................... 2,088,000 2,088,000 --
---------- ---------- --------
$4,109,600 $ 3,518,000 $ 591,600
========== ========== ========
</TABLE>

Total rent expense for the years ended December 31, 1994 and 1995 was
$389,003 and $427,054, respectively, of which $271,000 and $288,000 was paid to
the Institution's stockholder, respectively.

As indicated in Note 9 to the combined financial statements, the
Institution has guaranteed the related debt which financed the stockholder's
purchase of the San Antonio -- Central and El Paso facilities.

The Institution is from time to time subject to routine litigation
incidental to its business. While the ultimate results of these matters cannot
be determined at this time, the Institution believes that it has meritorious
defenses with respect to such matters and does not expect them to have a
material adverse impact on the Institution's financial condition.

F-30
<PAGE> 102

- ------------------------------------------------------
- ------------------------------------------------------

NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED HEREIN IN
THIS PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR BY ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES
OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THOSE TO WHICH IT
RELATES IN ANY STATE TO ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE SUCH OFFER
IN SUCH STATE. THE DELIVERY OF THIS PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT
THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.

------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary...................... 3
Risk Factors............................ 8
Use of Proceeds......................... 16
Dividend Policy......................... 16
Dilution................................ 17
Capitalization.......................... 18
Unaudited Pro Forma As Adjusted
Financial Data........................ 19
Selected Consolidated Financial and
Other Operating Data.................. 23
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................ 25
Business................................ 32
Financial Aid and Regulation............ 45
Management.............................. 53
Certain Transactions.................... 61
Principal and Selling Stockholders...... 62
Description of Capital Stock............ 64
Shares Eligible for Future Sale......... 66
Underwriting............................ 68
Legal Matters........................... 69
Experts................................. 69
Additional Information.................. 69
Index to Financial Statements........... F-1
</TABLE>

------------------

Until , 1996 (25 calendar days after the date of this Prospectus) all
dealers effecting transactions in the Common Stock, whether or not participating
in this distribution, may be required to deliver a Prospectus. This is in
addition to the obligation of dealers to deliver a Prospectus when acting as
Underwriters and with respect to their unsold allotments or subscriptions.

- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------

2,700,000 SHARES

EDUCATIONAL
MEDICAL, INC.

COMMON STOCK

[LOGO] EDUCATIONAL MEDICAL, INC.
------------

PROSPECTUS

, 1996

------------

SMITH BARNEY INC.

MONTGOMERY SECURITIES
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 103

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth the expenses to be borne by the Registrant
in connection with the issuance and distribution of the securities being
registered hereby other than underwriting discounts and commissions. All
expenses other than the SEC registration fee and the NASD filing fee are
estimated.

<TABLE>
<S> <C>
SEC registration fee........................................................... $ 13,919.00
NASD filing fee................................................................ 4,536.00
Nasdaq National Market filing fee.............................................. 33,300.00
Transfer agent's fee and expenses.............................................. 11,500.00
Accounting fees and expenses................................................... 150,000.00
Legal fees and expenses........................................................ 141,745.00
"Blue Sky" fees and expenses (including legal fees)............................ 20,000.00
Costs of printing and engraving................................................ 225,000.00
------------
Total................................................................ $ 600,000
===========
</TABLE>

- ---------------

* To be filed by amendment.

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

The Registrant's Bylaws effectively provide that the Registrant shall, to
the full extent permitted by Section 145 of the General Corporation Law of the
State of Delaware, as amended from time to time ("Section 145"), indemnify all
persons whom it may indemnify pursuant thereto. In addition, the Registrant's
Certificate of Incorporation eliminates personal liability of its directors to
the full extent permitted by Section 102(b)(7) of the General Corporation Law of
the State of Delaware, as amended from time to time ("Section 102(b)(7)").

Section 145 permits a corporation to indemnify its directors and officers
against expenses (including attorney's fees), judgments, fines and amounts paid
in settlements actually and reasonably incurred by them in connection with any
action, suit or proceeding brought by a third party if such directors or
officers acted in good faith and in a manner they reasonably believed to be in
or not opposed to the best interests of the corporation and, with respect to any
criminal action or proceeding, had no reason to believe their conduct was
unlawful. In a derivative action, indemnification may be made only for expenses
actually and reasonably incurred by directors and officers in connection with
the defense or settlement of an action or suit and only with respect to a matter
as to which they shall have acted in good faith and in a manner they reasonably
believed to be in or not opposed to the best interest of the corporation, except
that no indemnification shall be made if such person shall have been adjudged
liable to the corporation, unless and only to the extent that the court in which
the action or suit was brought shall determine upon application that the
defendant officers or directors are reasonably entitled to indemnity for such
expenses despite such adjudication of liability.

Section 102(b)(7) provides that a corporation may eliminate or limit the
personal liability of a director to the corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director, provided that such
provision shall not eliminate or limit the liability of a director (i) for any
breach of the director's duty of loyalty to the corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) for willful or negligent conduct
in paying dividends or repurchasing stock out of other than lawfully available
funds or (iv) for any transaction from which the director derived an improper
personal benefit. No such provisions shall eliminate or limit the liability of a
director for any act or omission occurring prior to the date when such provision
becomes effective.

II-1
<PAGE> 104

The Company intends to obtain, prior to the effective date of the
Registration Statement, insurance against liabilities under the Securities Act
of 1933 for the benefit of its officers and directors.

Section 9(d) of the Underwriting Agreement (filed as Exhibit 1.1 to this
Registration Statement) provides that the Underwriters severally and not jointly
will indemnify and hold harmless the Registrant and each director, officer and
controlling person of the Registrant from and against any liability caused by
any statement or omission in the Registration Statement, in the Prospectus, in
any Preliminary Prospectus or in any amendment of supplement thereto, in each
case to the extent that the statement or omission was made in reliance upon and
in conformity with written information furnished to the Registrant by the
Underwriters expressly for use therein.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

There have been no sales of unregistered securities by the Registrant
within the past three years, except as follows:

In March 1995, the Company issued warrants (the "Sirrom Warrants") to
Sirrom to acquire up to 141,667 shares of Common Stock for a purchase price of
$.006 per share. The Sirrom Warrants expire on April 30, 2000. In connection
with this Offering, the Sirrom Warrants will be exercised in full.

In connection with this Offering, the Company is issuing 1,000,000 shares
of Common Stock to the Pecks Managed Entities upon the cashless exercise of
warrants to purchase 1,333,333 shares of Common Stock based on the initial
public offering price.

In each such transaction, the securities were not registered under the
Securities Act of 1933, as amended, in reliance upon the exemption from
registration provided by Section 4(2) of the Act. The factors that assured the
availability of that exemption for each such transaction included the
sophistication of the offerees and of the purchasers, their access to material
information, the disclosures actually made to them by the Registrant and the
absence of any general solicitation or advertising.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(A) EXHIBITS.

II-2
<PAGE> 105

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------- --------------------------------------------------------------------------------
<C> <S>
**10.4 Promissory Note R-004, dated as of July 23, 1991, in the principal amount of
$497,000 issued by the Company in favor of Fuelship & Company.
**10.5 Allonge to Promissory Note R-002, dated as of March 31, 1995.
**10.6 Allonge to Promissory Note R-003, dated as of March 31, 1995.
**10.7 Allonge to Promissory Note R-004, dated as of March 31, 1995.
**10.8 Warrant No. R-001 to purchase Common Stock issued to Fuelship & Company.
**10.9 Warrant No. R-002 to purchase Common Stock issued to NAP & Company.
***10.10 Warrant No. E-007 to purchase Common Stock issued to Equitable Securities
Corporation.
**10.11 First Amendment to Securities Purchase Agreement, dated as of March 31, 1995, by
and among the Company and the Pecks Managed Entities.
***10.12 Loan Agreement, dated as of March 31, 1995, by and between the Company, each of
its subsidiaries, and Sirrom.
**10.13 Letter Addendum to Loan Agreement, dated as of March 31, 1995, between the
Company, each of its subsidiaries, and Sirrom.
***10.14 Secured Promissory Note, dated as of March 31, 1995, in the principal amount of
$2,200,000, issued by the Company and each of its subsidiaries in favor of
Sirrom.
***10.15 Security Agreement, dated as of March 31, 1995, among the Company, each of its
subsidiaries, and Sirrom.
**10.16 Stock Purchase Warrant to purchase Common Stock of the Company issued to Sirrom,
dated as of March 31, 1995.
**10.17 Pledge Agreement, dated as of March 31, 1995, between the Company and Sirrom.
**10.18 Agreement in Respect of Warrant, dated as of March 31, 1995, among NAP &
Company, the Company and Sirrom.
**10.19 Agreement in Respect of Warrant, dated as of March 31, 1995, among Fuelship &
Company, the Company and Sirrom.
**10.20 Registration Rights Agreement, dated as of July 23, 1991, by and among the
Company, the Sprout Group, LTOS, and the Pecks Managed Entities.
**10.21 First Amendment to Registration Rights Agreement, dated as of March 31, 1995, by
and among the Company, the Sprout Group, LTOS, the Pecks Managed Entities and
Sirrom.
**10.22 Coinvestors Agreement, dated as of July 23, 1991, by and among the Company, the
Sprout Group, LTOS, the Pecks Managed Entities and Investech, L.P.
**10.23 Letter Agreement, dated as of July 23, 1991, by and among the Company, the
Sprout Group, LTOS and Investech, L.P.
**10.24 Business Loan Agreement, dated as of July 14, 1993, between Bank One, Dayton,
N.A. and OIOPT Acquisition Corp.
**10.25 Business Purpose Promissory Note, dated as of July 14, 1993, in the principal
amount of $720,000 issued by OIOPT Acquisition Corp. in favor of Bank One,
Dayton, N.A., and guaranteed by the Company.
**10.26 Mortgage, dated as of July 14, 1993, by OIOPT Acquisition Corp., (Mortgagor), to
Bank One, Dayton, N.A., (Mortgagee), guaranteed by the Company.
**10.27 Pledge Agreement, dated as of July 14, 1993, among the Company, Ohio Institute
of Photography and Technology, Inc. and OIOPT Acquisition Corp.
**10.28 Asset Purchase Agreement, dated as of June 23, 1993, among the Company, OIOPT
Acquisition Corp., Ohio Institute of Photography and Technology, Inc., K. Terry
Guthrie, Richard L. Cretcher, Stephen T. McLain, Gerald D. Guthrie and James R.
Madden.
**10.29 Amendment to Business Loan Agreement, dated as of August 28, 1995, by and
between OIOPT Acquisition Corp. and Bank One, Dayton, N.A., with the Company as
guarantor.
**10.30 Promissory Note Modification Agreement, dated as of August 28, 1995, by and
between OIOPT Acquisition Corp. and Bank One, Dayton, N.A., with the Company as
guarantor.
</TABLE>

II-3
<PAGE> 106

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------- --------------------------------------------------------------------------------
<C> <S>
**10.31 Asset Purchase Agreement, dated as of April 30, 1993, among the Company, DBS
Acquisition Corp., Beta Services, Inc. d/b/a Dominion Business Schools, Kenneth
C. Horne, Ann S. Horne, Craig H. Miller and Diane S. Clower.
**10.32 Purchase Money Promissory Note, dated as of May 28, 1993, in the principal
amount of $900,000 issued by the Company and DBS Acquisition Corp. in favor of
Beta Services, Inc.
**10.33 Pledge Agreement, dated as of May 28, 1993, among the Company, DBS Acquisition
Corp. and Beta Services, Inc.
**10.34 Amendment One to Pledge Agreement, dated as of July 23, 1993, among the Company,
DBS Acquisition Corp. and Beta Services, Inc.
**10.35 Asset Purchase Agreement, dated as of March 12, 1993, among the Company, MTSX
Acquisition Corp., M.T. School of X-Ray, Inc., Jerome Caplan, Donna Caplan and
Harvey Caplan.
**10.36 Purchase Money Promissory Note in the principal amount of $450,000 issued by the
Company and MTSX Acquisition Corp. in favor of M.T. X-Ray, Inc.
**10.37 Second Payment Promissory Note in the principal amount of $500,000 issued by the
Company and MTSX Acquisition Corp. in favor of M.T. X-Ray, Inc.
***10.38 Pledge Agreement, dated as of July 22, 1993, among the Company, MTSX Acquisition
Corp. and M.T. X-Ray, Inc.
***10.39 Amendment to Business Loan Agreement, dated as of August 28, 1995, by and
between OIOPT Acquisition Corp. and Bank One, Dayton, N.A., and the Company as
guarantor.
***10.40 Guaranty Agreement, dated as of June 22, 1993, between the Company and Vandab
Associates.
**10.41 Assumption Agreement, dated as of June 22, 1993, between Institute of Computer
Management of Baltimore, Inc. and ICM Acquisition Corp., with the Company as
guarantor.
**10.42 Employment Agreement, dated as of December 31, 1992, between the Company and
Gary D. Kerber.
**10.43 Consulting Agreement, dated as of July 14, 1993, by and between the Company and
K. Terry Guthrie.
**10.44 Consulting Agreement, dated as of July 14, 1993, by and between the Company and
Richard L. Cretcher.
**10.45 Consulting Agreement, dated as of July 14, 1993, by and between the Company and
Stephen T. McLain.
**10.46 Consulting Agreement, dated as of July 14, 1993, by and between the Company and
Gerald D. Guthrie.
**10.47 Consulting Agreement, dated as of July 14, 1993, by and between the Company and
James R. Madden.
***10.48 Employee Loan Agreement, dated as of September 20, 1991, by and between the
Company, Vince Pisano and Gail Pisano.
**10.49 First Amendment to Employee Loan Agreement, dated as of September 12, 1994, by
and between the Company, Vince Pisano and Gail Pisano.
***10.50 Mortgage Loan Promissory Note, dated as of September 20, 1991, by and between
the Company, Vince Pisano and Gail Pisano.
**10.51 Amendment to Mortgage Loan Promissory Note, dated as of September 12, 1994, by
and between the Company and Vince and Gail Pisano.
**10.52 Letter Agreement, dated November 21, 1988 between the Company and Robert L.
Heidrich concerning the granting of options.
**10.53 1996 Stock Incentive Plan of the Company.
**10.54 Non-employee Director Stock Option Plan of the Company.
**10.55 Letter Agreement, dated April 6, 1995 between the Company and Equitable
Securities Corporation amending the maturity date of Warrant No. E-007.
</TABLE>

II-4
<PAGE> 107

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------- --------------------------------------------------------------------------------
<C> <S>
**10.56 Asset Purchase Agreement, dated as of September 6, 1996, among the Company,
SACMD Acquisition Corp., San Antonio College of Medical and Dental Assistants,
Inc., Career Centers of Texas -- El Paso, Inc. and Mr. Comer Alden.
**10.57 Letter of Commitment, dated August 22, 1996, from Bank of America to the Company
concerning the Proposed Bank Line of Credit.
**11.1 Statement regarding computation of pro forma net income (loss) per share.
**11.2 Statement regarding computation of pro forma supplemental net income per share.
**11.3 Statement regarding computation of historical net income (loss) per share.
**11.4 Statement regarding computation of supplemental net income per share.
**11.5 Statement regarding computation of pro forma as adjusted income before
extraordinary loss per share.
**21.1 List of Registrant's Subsidiaries.
***23.1 Consent of Ernst & Young LLP.
23.2 Consent of Greenberg Traurig (included in the opinion filed as Exhibit 5.1 to
this Registration Statement).
***23.3 Consent of Tsakopulos Brown Schott & Anchors.
**24.1 Power of Attorney (contained on signature page of the Registration Statement).
**27.1 Financial Data Schedule (for SEC use only).
</TABLE>

- ---------------

** Previously filed.

*** Filed with this Amendment.

(B) INDEX TO FINANCIAL STATEMENT SCHEDULES

The following financial statement schedule is included in this Registration
Statement:

Report of Independent Auditors

Schedule II -- Valuation and Qualifying Accounts

ITEM 17. UNDERTAKINGS.

The undersigned Registrant hereby undertakes to provide to the
Underwriters, at the closing or closings specified in the Underwriting
Agreement, certificates in such denominations and registered in such names as
may be required by the Underwriters in order to permit prompt delivery to each
purchaser.

The undersigned Registrant hereby further undertakes that:

(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.

Insofar as indemnification for liabilities assigned under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the

II-5
<PAGE> 108

securities being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question of whether such indemnification by it
is against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.

II-6
<PAGE> 109

SIGNATURES

Pursuant to the requirement of the Securities Act of 1933, the Registrant
has duly caused this Amendment to Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Atlanta, Georgia on
October 22, 1996.

EDUCATIONAL MEDICAL, INC.

By: /s/ GARY D. KERBER
------------------------------------
Gary D. Kerber
President and Chief Executive
Officer

Pursuant to the requirements of the Securities Act of 1933, this Amendment
to Registration Statement has been signed by the following persons in the
capacities and on the date indicated:

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- --------------------------- -------------------
<C> <S> <C>
/s/ GARY D. KERBER Chairman of the Board, October 22, 1996
- --------------------------------------------- President and Chief
Gary D. Kerber Executive Officer
(Principal executive
officer)

/s/ VINCE PISANO Vice President and Chief October 22, 1996
- --------------------------------------------- Financial Officer
Vince Pisano (Principal financial and
accounting officer)

/s/ ROBERT T. CRESCI* Director October 22, 1996
- ---------------------------------------------
Robert T. Cresci

/s/ CARL S. HUTMAN* Director October 22, 1996
- ---------------------------------------------
Carl S. Hutman

/s/ W. PATRICK ORTALE, III* Director October 22, 1996
- ---------------------------------------------
W. Patrick Ortale, III

/s/ RICHARD E. KROON* Director October 22, 1996
- ---------------------------------------------
Richard E. Kroon

*By: /s/ GARY D. KERBER
-------------------------------------
Gary D. Kerber
Attorney-in-fact
</TABLE>

II-7
<PAGE> 110

REPORT OF INDEPENDENT AUDITORS

Board of Directors
Educational Medical, Inc.

We have audited the consolidated financial statements of Educational
Medical, Inc. as of March 31, 1996 and 1995, and for each of the three years in
the period ended March 31, 1996, and have issued our report thereon dated May
24, 1996 except as to the first paragraph in Note 7 as to which the date is June
20, 1996 (included elsewhere in this Registration Statement). Our audit also
included the financial statement schedule listed in Item 16(a) of this
Registration Statement. This schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audit.

In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects the information set forth therein.

/s/ Ernst & Young LLP

Atlanta, Georgia
May 24, 1996

II-8
<PAGE> 111

SCHEDULE II

EDUCATIONAL MEDICAL, INC.

VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND NET AT END
OF YEAR EXPENSES DEDUCTIONS OF YEAR
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
For the year ended March 31, 1994............. $ 874,961 $1,144,361 $1,239,134 $ 780,188
========= ========= ========= =========
For the year ended March 31, 1995............. $ 780,188 $1,238,287 $1,197,742 $ 820,733
========= ========= ========= =========
For the year ended March 31, 1996............. $ 820,733 $1,082,408 $1,118,760 $ 784,381
========= ========= ========= =========
Deferred tax asset valuation allowance:
For the year ended March 31, 1994............. $ 241,158 $ 304,748 $ -- $ 545,906
========= ========= ========= =========
For the year ended March 31, 1995............. $ 545,906 $ 465,497 $ -- $1,011,403
========= ========= ========= =========
For the year ended March 31, 1996............. $1,011,403 $ 308,584 $ -- $1,319,987
========= ========= ========= =========
</TABLE>

II-9
<PAGE> 112

INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------- --------------------------------------------------------------------------------
<C> <S>
***1.1 Form of Underwriting Agreement.
3.1 (a) Restated Certificate of Incorporation of EMI Acquisition Corp.
3.1 (b) Certificate of Amendment of Certificate of Incorporation of EMI Acquisition
Corp.
3.1 (c) Second Amendment to Restated Certificate of Incorporation of Educational
Medical, Inc.
3.1 (d) Third Amendment to Restated Certificate of Incorporation of Educational Medical,
Inc.
3.1 (e) Fourth Amendment to Restated Certificate of Incorporation of Educational
Medical, Inc.
3.1 (f) Fifth Amendment to Restated Certificate of Incorporation of Educational Medical,
Inc.
3.1 (g) Sixth Amendment to Restated Certificate of Incorporation of Educational Medical,
Inc.
3.1 (h) Seventh Amendment to Restated Certificate of Incorporation of Educational
Medical, Inc.
3.1 (i) Eighth Amendment to Restated Certificate of Incorporation of Educational
Medical, Inc.
***3.2 Restated By-Laws of the Company.
***4.1 Form of Common Stock Certificate.
***5.1 Opinion of Greenberg Traurig.
**10.1 Securities Purchase Agreement, dated as of July 23, 1991, by and among the
Company and the Pecks Managed Entities.
***10.2 Promissory Note R-002, dated as of July 16, 1991, in the principal amount of
$2,900,000 issued by the Company in favor of NAP & Company.
**10.3 Promissory Note R-003, dated as of July 23, 1991, in the principal amount of
$603,000 issued by the Company in favor of Fuelship & Company.
**10.4 Promissory Note R-004, dated as of July 23, 1991, in the principal amount of
$497,000 issued by the Company in favor of Fuelship & Company.
**10.5 Allonge to Promissory Note R-002, dated as of March 31, 1995.
**10.6 Allonge to Promissory Note R-003, dated as of March 31, 1995.
**10.7 Allonge to Promissory Note R-004, dated as of March 31, 1995.
**10.8 Warrant No. R-001 to purchase Common Stock issued to Fuelship & Company.
**10.9 Warrant No. R-002 to purchase Common Stock issued to NAP & Company.
***10.10 Warrant No. E-007 to purchase Common Stock issued to Equitable Securities
Corporation.
**10.11 First Amendment to Securities Purchase Agreement, dated as of March 31, 1995, by
and among the Company and the Pecks Managed Entities.
***10.12 Loan Agreement, dated as of March 31, 1995, by and between the Company, each of
its subsidiaries, and Sirrom.
**10.13 Letter Addendum to Loan Agreement, dated as of March 31, 1995, between the
Company, each of its subsidiaries, and Sirrom.
***10.14 Secured Promissory Note, dated as of March 31, 1995, in the principal amount of
$2,200,000, issued by the Company and each of its subsidiaries in favor of
Sirrom.
***10.15 Security Agreement, dated as of March 31, 1995, among the Company, each of its
subsidiaries, and Sirrom.
**10.16 Stock Purchase Warrant to purchase Common Stock of the Company issued to Sirrom,
dated as of March 31, 1995.
**10.17 Pledge Agreement, dated as of March 31, 1995, between the Company and Sirrom.
**10.18 Agreement in Respect of Warrant, dated as of March 31, 1995, among NAP &
Company, the Company and Sirrom.
**10.19 Agreement in Respect of Warrant, dated as of March 31, 1995, among Fuelship &
Company, the Company and Sirrom.
**10.20 Registration Rights Agreement, dated as of July 23, 1991, by and among the
Company, the Sprout Group, LTOS, and the Pecks Managed Entities.
**10.21 First Amendment to Registration Rights Agreement, dated as of March 31, 1995, by
and among the Company, the Sprout Group, LTOS, the Pecks Managed Entities and
Sirrom.
</TABLE>

<PAGE> 113

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------- --------------------------------------------------------------------------------
<C> <S>
**10.22 Coinvestors Agreement, dated as of July 23, 1991, by and among the Company, the
Sprout Group, LTOS, the Pecks Managed Entities and Investech, L.P.
**10.23 Letter Agreement, dated as of July 23, 1991, by and among the Company, the
Sprout Group, LTOS and Investech, L.P.
**10.24 Business Loan Agreement, dated as of July 14, 1993, between Bank One, Dayton,
N.A. and OIOPT Acquisition Corp.
**10.25 Business Purpose Promissory Note, dated as of July 14, 1993, in the principal
amount of $720,000 issued by OIOPT Acquisition Corp. in favor of Bank One,
Dayton, N.A., and guaranteed by the Company.
**10.26 Mortgage, dated as of July 14, 1993, by OIOPT Acquisition Corp., (Mortgagor), to
Bank One, Dayton, N.A., (Mortgagee), guaranteed by the Company.
**10.27 Pledge Agreement, dated as of July 14, 1993, among the Company, Ohio Institute
of Photography and Technology, Inc. and OIOPT Acquisition Corp.
**10.28 Asset Purchase Agreement, dated as of June 23, 1993, among the Company, OIOPT
Acquisition Corp., Ohio Institute of Photography and Technology, Inc., K. Terry
Guthrie, Richard L. Cretcher, Stephen T. McLain, Gerald D. Guthrie and James R.
Madden.
**10.29 Amendment to Business Loan Agreement, dated as of August 28, 1995, by and
between OIOPT Acquisition Corp. and Bank One, Dayton, N.A., with the Company as
guarantor.
**10.30 Promissory Note Modification Agreement, dated as of August 28, 1995, by and
between OIOPT Acquisition Corp. and Bank One, Dayton, N.A., with the Company as
guarantor.
**10.31 Asset Purchase Agreement, dated as of April 30, 1993, among the Company, DBS
Acquisition Corp., Beta Services, Inc. d/b/a Dominion Business Schools, Kenneth
C. Horne, Ann S. Horne, Craig H. Miller and Diane S. Clower.
**10.32 Purchase Money Promissory Note, dated as of May 28, 1993, in the principal
amount of $900,000 issued by the Company and DBS Acquisition Corp. in favor of
Beta Services, Inc.
**10.33 Pledge Agreement, dated as of May 28, 1993, among the Company, DBS Acquisition
Corp. and Beta Services, Inc.
**10.34 Amendment One to Pledge Agreement, dated as of July 23, 1993, among the Company,
DBS Acquisition Corp. and Beta Services, Inc.
**10.35 Asset Purchase Agreement, dated as of March 12, 1993, among the Company, MTSX
Acquisition Corp., M.T. School of X-Ray, Inc., Jerome Caplan, Donna Caplan and
Harvey Caplan.
**10.36 Purchase Money Promissory Note in the principal amount of $450,000 issued by the
Company and MTSX Acquisition Corp. in favor of M.T. X-Ray, Inc.
**10.37 Second Payment Promissory Note in the principal amount of $500,000 issued by the
Company and MTSX Acquisition Corp. in favor of M.T. X-Ray, Inc.
***10.38 Pledge Agreement, dated as of July 22, 1993, among the Company, MTSX Acquisition
Corp. and M.T. X-Ray, Inc.
***10.39 Amendment to Business Loan Agreement, dated as of August 28, 1995, by and
between OIOPT Acquisition Corp. and Bank One, Dayton, N.A., and the Company as
guarantor.
***10.40 Guaranty Agreement, dated as of June 22, 1993, between the Company and Vandab
Associates.
**10.41 Assumption Agreement, dated as of June 22, 1993, between Institute of Computer
Management of Baltimore, Inc. and ICM Acquisition Corp., with the Company as
guarantor.
**10.42 Employment Agreement, dated as of December 31, 1992, between the Company and
Gary D. Kerber.
**10.43 Consulting Agreement, dated as of July 14, 1993, by and between the Company and
K. Terry Guthrie.
**10.44 Consulting Agreement, dated as of July 14, 1993, by and between the Company and
Richard L. Cretcher.
</TABLE>

<PAGE> 114

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------- --------------------------------------------------------------------------------
<C> <S>
**10.45 Consulting Agreement, dated as of July 14, 1993, by and between the Company and
Stephen T. McLain.
**10.46 Consulting Agreement, dated as of July 14, 1993, by and between the Company and
Gerald D. Guthrie.
**10.47 Consulting Agreement, dated as of July 14, 1993, by and between the Company and
James R. Madden.
***10.48 Employee Loan Agreement, dated as of September 20, 1991, by and between the
Company, Vince Pisano and Gail Pisano.
**10.49 First Amendment to Employee Loan Agreement, dated as of September 12, 1994, by
and between the Company, Vince Pisano and Gail Pisano.
***10.50 Mortgage Loan Promissory Note, dated as of September 20, 1991, by and between
the Company, Vince Pisano and Gail Pisano.
**10.51 Amendment to Mortgage Loan Promissory Note, dated as of September 12, 1994, by
and between the Company and Vince and Gail Pisano.
**10.52 Letter Agreement, dated November 21, 1988 between the Company and Robert L.
Heidrich concerning the granting of options.
**10.53 1996 Stock Incentive Plan of the Company.
**10.54 Non-employee Director Stock Option Plan of the Company.
**10.55 Letter Agreement, dated April 6, 1995 between the Company and Equitable
Securities Corporation amending the maturity date of Warrant No. E-007.
**10.56 Asset Purchase Agreement, dated as of September 6, 1996, among the Company,
SACMD Acquisition Corp., San Antonio College of Medical and Dental Assistants,
Inc., Career Centers of Texas -- El Paso, Inc. and Mr. Comer Alden.
**10.57 Letter of Commitment, dated August 22, 1996, from Bank of America to the Company
concerning the Proposed Bank Line of Credit.
**11.1 Statement regarding computation of pro forma net income (loss) per share.
**11.2 Statement regarding computation of pro forma supplemental net income per share.
**11.3 Statement regarding computation of historical net income (loss) per share.
**11.4 Statement regarding computation of supplemental net income per share.
**11.5 Statement regarding computation of pro forma as adjusted income before
extraordinary loss per share.
**21.1 List of Registrant's Subsidiaries.
***23.1 Consent of Ernst & Young LLP.
23.2 Consent of Greenberg Traurig (included in the opinion filed as Exhibit 5.1 to
this Registration Statement).
***23.3 Consent of Tsakopulos Brown Schott & Anchors.
**24.1 Power of Attorney (contained on signature page of the Registration Statement).
**27.1 Financial Data Schedule (for SEC use only).
</TABLE>

- ---------------
* To be filed by Amendment.
** Previously filed.
*** Filed with this Amendment.

<PAGE> 1
EXHIBIT 1.1

Draft of October 15, 1996

2,700,000 SHARES

EDUCATIONAL MEDICAL, INC.

COMMON STOCK

UNDERWRITING AGREEMENT

October __, 1996

SMITH BARNEY INC.
MONTGOMERY SECURITIES
As Representatives of the Several Underwriters
c/o SMITH BARNEY INC.
388 Greenwich Street
New York, New York 10013

Dear Sirs:

Educational Medical, Inc., a Delaware corporation (the
"Company"), proposes to issue and sell an aggregate of 2,200,000 shares of its
common stock, par value $0.01 per share (the "Common Stock"), to the several
Underwriters named in Schedule III hereto (the "Underwriters"), and the persons
named in Schedule I hereto as selling stockholders (the "Primary Selling
Stockholders") propose to sell to the several Underwriters an aggregate of
500,000 shares of Common Stock. The 2,200,000 shares of Common Stock to be
issued and sold to the Underwriters by the Company and the 500,000 shares of
Common Stock to be sold to the Underwriters by the Primary Selling Stockholders
are hereinafter referred to as the "Firm Shares." In addition, solely for the
purpose of covering over-allotments, the persons named in Schedule II hereto
(the "Over-allotment Selling Stockholders") propose to sell to the
Underwriters, upon the terms and conditions set forth in Section 2 hereof, up
to an additional 405,000 shares (the "Additional Shares") of Common Stock. The
Firm Shares and the Additional Shares are hereinafter collectively referred to
as the "Shares." The Primary Selling Stockholders and the Over-allotment
Selling Stockholders are hereinafter sometimes referred to as the "Selling
Stockholders". The Company and the Selling Stockholders are hereinafter
sometimes referred to as the "Sellers."

The Company and the Selling Stockholders wish to confirm as
follows their agreement with you (the "Representatives") and the other several
Underwriters on whose behalf you are acting, in connection with the several
purchases of the Shares by the Underwriters.

1. REGISTRATION STATEMENT AND PROSPECTUS. The Company has
prepared and filed with the Securities and Exchange Commission (the
"Commission") in accordance with the provisions of the Securities Act of 1933,
as amended, and the rules and regulations of the Commission thereunder
(collectively, the "Act"), a registration statement on Form S-1 under the Act
(the "registration statement"), including a prospectus subject to completion,
relating to the Shares. The term "Registration Statement" as used in this
Agreement means the registration statement (including all financial schedules
and exhibits) as amended at the time it becomes effective or, if the
registration statement became effective prior to the execution
<PAGE> 2

of this Agreement, as supplemented or amended prior to the execution of this
Agreement. If it is contemplated, at the time this Agreement is executed, that
a post-effective amendment to the registration statement will be filed and must
be declared effective before the offering of the Shares may commence, the term
"Registration Statement" as used in this Agreement means the registration
statement as amended by said post-effective amendment. If an abbreviated
registration statement is prepared and filed with the Commission in accordance
with Rule 462(b) under the Act (an "Abbreviated Registration Statement"), the
term "Registration Statement" as used in this Agreement includes the
Abbreviated Registration Statement. The term "Prospectus" as used in this
Agreement means the prospectus in the form included in the Registration
Statement, or, if the prospectus included in the Registration Statement omits
information in reliance on Rule 430A under the Act and such information is
included in a prospectus filed with the Commission pursuant to Rule 424(b)
under the Act, the term "Prospectus" as used in this Agreement means the
prospectus in the form included in the Registration Statement as supplemented
by the addition of the Rule 430A information contained in the prospectus filed
with the Commission pursuant to Rule 424(b). The term "Prepricing Prospectus"
as used in this Agreement means the prospectus subject to completion in the
form included in the registration statement at the time of the initial filing
of the registration statement with the Commission and as such prospectus shall
have been amended from time to time prior to the date of the Prospectus.

2. AGREEMENTS TO SELL AND PURCHASE. Subject to any adjustments
as you may determine to avoid fractional shares, the Company hereby agrees,
subject to all the terms and conditions set forth herein, to issue and sell to
each Underwriter and, upon the basis of the representations, warranties and
agreements of the Company and the Selling Stockholders herein contained and
subject to all the terms and conditions set forth herein, each Underwriter
agrees, severally and not jointly, to purchase from the Company, at a purchase
price of $ per share (the "purchase price per share"), that number of
Firm Shares which bears the same proportion to the aggregate number of Firm
Shares to be issued and sold by the Company as the number of Firm Shares set
forth opposite the name of such Underwriter in Schedule III hereto (or such
number of Firm Shares increased as set forth in Section 12 hereof) bears to the
aggregate number of shares to be sold by the Company and the Primary Selling
Stockholders.

Subject to any adjustments as you may determine to avoid
fractional shares, each Primary Selling Stockholder hereby agrees, subject to
all the terms and conditions set forth herein, to issue and sell to each
Underwriter and, upon the basis of the representations, warranties and
agreements of the Company and the Selling Stockholders herein contained and
subject to all the terms and conditions set forth herein, each Underwriter
agrees, severally and not jointly, to purchase from each Primary Selling
Stockholder, at the purchase price per share, that number of Firm Shares which
bears the same proportion to the aggregate number of Firm Shares to be sold by
the Primary Selling Stockholders as the number of Firm Shares set forth
opposite the name of such Underwriter in Schedule III hereto (or such number of
Firm Shares increased as set forth in Section 12 hereof) bears to the aggregate
number of shares to be sold by the Company and the Primary Selling
Stockholders.

The Over-allotment Selling Stockholders also agree, subject to
all the terms and conditions set forth herein, to sell to the Underwriters,
and, upon the basis of the representations, warranties and agreements of the
Company and the Selling Stockholders herein contained and subject to all the
terms and conditions set forth herein, the Underwriters shall have the right to
purchase from the Over-allotment Selling Stockholders, at the purchase price
per share, pursuant to an option (the "over-allotment option") which may be
exercised at any time and from time to time prior to 9:00 p.m., New York City
time, on the 30th day after the date of the Prospectus (or, if such 30th day
shall be a Saturday or Sunday or a holiday, on the next business day thereafter
when the New York Stock Exchange is open for trading), up to an aggregate of
405,000 Additional Shares. The maximum number of Additional Shares which each
Over-allotment Selling Stockholder agrees to sell upon the exercise by the
Underwriters of the over-allotment option is set forth opposite their
respective names in Schedule II hereto. Additional Shares may be purchased
only to cover over-allotments made in connection with the offering of the Firm
Shares. Upon any exercise of the over-allotment option, each Over-allotment

2
<PAGE> 3

Selling Stockholder agrees to sell to the Underwriters that number of
Additional Shares which bears the same proportion to the number of Additional
Shares set forth opposite the name of such Over-allotment Selling Stockholder
in Schedule II hereto as the aggregate number of Additional Shares being
purchased by the Underwriters from the Over-allotment Selling Stockholders
bears to the aggregate number of Additional Shares subject to sale by the
Over-allotment Selling Stockholders as set forth in Schedule II hereto, and
each Underwriter, severally and not jointly, agrees to purchase from each
Over-allotment Selling Stockholder the number of Additional Shares (subject to
such adjustments as you may determine in order to avoid fractional shares)
which bears the same proportion to the number of Additional Shares to be sold
by such Over-allotment Selling Stockholder as the number of Firm Shares set
forth opposite the name of such Underwriter in Schedule III hereto (or such
number of Firm Shares increased as set forth in Section 12 hereof) bears to the
aggregate number of Firm Shares to be sold by the Over-allotment Selling
Stockholders.

Certificates in transferable form for the Shares (including
any Additional Shares) which each of the Selling Stockholders agree to sell
pursuant to this Agreement have been placed in custody with Vince Pisano (the
"Custodian") for delivery under this Agreement pursuant to a Custody Agreement
and Power of Attorney (the "Custody Agreement") executed by the Selling
Stockholders appointing Carl S. Hutman and Seymour L. Goldblatt as agents and
attorneys-in-fact (the "Attorneys-in-Fact"), except in the case of the Delaware
State Employees' Retirement Fund, the Trust for Defined Benefit Plans of ICI
American Holding Inc., and Trust for Defined Benefit Plans of Zeneca Holding
Inc. (collectively such three entities are referred to as the "Pecks Managed
Entities") who have executed the Custody Agreement solely for the purpose of
transferring the relevant Additional Shares to the Underwriters pursuant to the
terms of this Agreement. The Selling Stockholders agree that (i) the Shares
represented by the certificates held in custody pursuant to the Custody
Agreement are subject to the interests of the Underwriters and the Company,
(ii) the arrangements made by the Selling Stockholders for such custody are,
except as specifically provided in the Custody Agreement, irrevocable and (iii)
the obligations of the Selling Stockholders hereunder and under the Custody
Agreement shall not be terminated by any act of any Selling Stockholder or by
operation of law, whether by the death or incapacity of any Selling Stockholder
or the occurrence of any other event. If any Selling Stockholder shall die or
be incapacitated or if any other event shall occur before the delivery of the
Shares hereunder, certificates for the Shares to be sold by such Selling
Stockholder shall be delivered to the Underwriters by the Attorneys-in-Fact in
accordance with the terms and conditions of this Agreement and the Custody
Agreement as if such death or incapacity or other event had not occurred,
regardless of whether or not the Attorneys-in-Fact or any Underwriter shall
have received notice of such death, incapacity or other event. Each
Attorney-in-Fact represents that he is authorized, on behalf of the Selling
Stockholders to (i) execute this Agreement and any other documents necessary or
desirable in connection with the Custody Agreement and the sale of the Shares
to be sold hereunder by the Selling Stockholders, (ii) make delivery of the
certificates for such Shares, (iii) receive the proceeds of the sale of such
Shares, (iv) give receipts for such proceeds, (v) pay therefrom any expenses to
be borne by the Selling Stockholders in connection with the sale and public
offering of such Shares, (vi) distribute the balance thereof among the Selling
Stockholders and (vii) take such other actions as may be necessary or desirable
in connection with the transactions contemplated by this Agreement, except no
representation is made by either Attorney-in-Fact with respect to clauses (i)
and (vii) regarding the Pecks Managed Entities. Each Attorney-in-Fact agrees
to perform his duties under the Custody Agreement.

3. TERMS OF PUBLIC OFFERING. The Company and the Selling
Stockholders have been advised by you that the Underwriters propose to make a
public offering of their respective portions of the Shares as soon after the
Registration Statement and this Agreement have become effective as in your
judgment is advisable and initially to offer the Shares upon the terms set
forth in the Prospectus.

4. DELIVERY OF THE SHARES AND PAYMENT THEREFOR. Delivery to the
Underwriters of and payment for the Firm Shares shall be made at the office of
Smith Barney Inc., 388 Greenwich Street,

<PAGE> 4

New York, New York 10013, at 10:00 A.M., New York City time, on ,
1996 (the "Closing Date"). The place of closing for the Firm Shares and the
Closing Date may be varied by agreement among you, the Company and the
Attorneys-in-Fact.

Delivery to the Underwriters of and payment for any Additional
Shares to be purchased by the Underwriters shall be made at the aforementioned
office of Smith Barney Inc. at such time on such date (the "Option Closing
Date"), which may be the same as the Closing Date but shall in no event be
earlier than the Closing Date nor earlier than two nor later than ten business
days after the giving of the notice hereinafter referred to, as shall be
specified in a written notice from you on behalf of the Underwriters to the
Company, the Attorneys-in-Fact and the Pecks Managed Entities of the
Underwriters' determination to purchase a number, specified in such notice, of
Additional Shares. The place of closing for any Additional Shares and the
Option Closing Date for such Shares may be varied by agreement among you, the
Company and the Attorneys-in-Fact.

Certificates for the Firm Shares and for any Additional Shares
to be purchased hereunder shall be registered in such names and in such
denominations as you shall request by written notice, it being understood that
a facsimile transmission shall be deemed written notice, prior to 9:30 A.M.,
New York City time, on the second business day preceding the Closing Date or
any Option Closing Date, as the case may be. Such certificates shall be made
available to you in New York City for inspection and packaging not later than
9:30 A.M., New York City time, on the business day next preceding the Closing
Date or the Option Closing Date, as the case may be. The certificates
evidencing the Firm Shares and any Additional Shares to be purchased hereunder
shall be delivered to you on the Closing Date or the Option Closing Date, as
the case may be, against payment of the purchase price therefor in immediately
available funds.

5. AGREEMENTS OF THE COMPANY. The Company agrees with the
several Underwriters as follows:

(a) If, at the time this Agreement is executed and
delivered, it is necessary for the registration statement or a post-effective
amendment thereto or any Abbreviated Registration Statement to be declared
effective before the offering of the Shares may commence, the Company will
endeavor to cause the Registration Statement or such post-effective amendment
to become effective as soon as possible and will advise you promptly and, if
requested by you, will confirm such advice in writing, when the Registration
Statement or such post-effective amendment has become effective.

(b) The Company will advise you promptly and, if
requested by you, will confirm such advice in writing: (i) of any request by
the Commission for amendment of or a supplement to the Registration Statement,
any Prepricing Prospectus or the Prospectus or for additional information; (ii)
of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or of the suspension of
qualification of the Shares for offering or sale in any jurisdiction or the
initiation of any proceeding for such purpose; and (iii) within the period of
time referred to in paragraph (f) below, of any change in the Company's
condition (financial or other), business, prospects, properties, net worth or
results of operations, or of the happening of any event, which makes any
statement of a material fact made in the Registration Statement or the
Prospectus (as then amended or supplemented) untrue or which requires the
making of any additions to or changes in the Registration Statement or the
Prospectus (as then amended or supplemented) in order to state a material fact
required by the Act or the regulations thereunder to be stated therein or
necessary in order to make the statements therein not misleading, or of the
necessity to amend or supplement the Prospectus (as then amended or
supplemented) to comply with the Act or any other law. If at any time the
Commission shall issue any stop order suspending the effectiveness of the
Registration Statement, the Company will make every reasonable effort to obtain
the withdrawal of such order at the earliest possible time.

<PAGE> 5

(c) The Company will furnish to you, without charge,
three signed copies of the registration statement as originally filed with the
Commission and of each amendment thereto, including financial statements and
all exhibits to the registration statement and will also furnish to you,
without charge, such number of conformed copies of the registration statement
as originally filed and of each amendment thereto, but without exhibits, as you
may request.

(d) The Company will not (i) file any amendment to the
Registration Statement or make any amendment or supplement to the Prospectus of
which you shall not previously have been advised or to which you shall object
after being so advised or (ii) so long as, in the opinion of counsel for the
Underwriters, a prospectus is required to be delivered in connection with sales
by any Underwriter or dealer, file any information, documents or reports
pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), without delivering a copy of such information, documents or reports to
you, as Representatives of the several Underwriters, prior to or concurrently
with such filing.

(e) Prior to the execution and delivery of this
Agreement, the Company has delivered or will deliver to you, without charge, in
such quantities as you have requested or may hereafter request, copies of each
form of the Prepricing Prospectus. The Company consents to the use, in
accordance with the provisions of the Act and with the securities or Blue Sky
laws of the jurisdictions in which the Shares are offered by the several
Underwriters and by dealers, prior to the date of the Prospectus, of each
Prepricing Prospectus so furnished by the Company.

(f) As soon after the execution and delivery of this
Agreement as possible and thereafter from time to time for such period as in
the opinion of counsel for the Underwriters a prospectus is required by the Act
to be delivered in connection with sales by any Underwriter or dealer, the
Company will expeditiously deliver to each Underwriter and each dealer, without
charge, as many copies of the Prospectus (and of any amendment or supplement
thereto) as you may request. The Company consents to the use of the Prospectus
(and of any amendment or supplement thereto) in accordance with the provisions
of the Act and with the securities or Blue Sky laws of the jurisdictions in
which the Shares are offered by the several Underwriters and by all dealers to
whom Shares may be sold, both in connection with the offering and sale of the
Shares and for such period of time thereafter as the Prospectus is required by
the Act to be delivered in connection with sales by any Underwriter or dealer.
If during such period of time any event shall occur that in the judgment of the
Company or in the opinion of counsel for the Underwriters is required to be set
forth in the Prospectus (as then amended or supplemented) or should be set
forth therein in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or if it is necessary
to supplement or amend the Prospectus to comply with the Act or any other law,
the Company will forthwith prepare and, subject to the provisions of paragraph
(d) above, file with the Commission an appropriate supplement or amendment
thereto and will expeditiously furnish copies thereof to the Underwriters and
dealers in such quantities as you shall request. In the event that the Company
and you, as Representatives of the several Underwriters, agree that the
Prospectus should be amended or supplemented, the Company, if requested by you,
will promptly issue a press release announcing or disclosing the matters to be
covered by the proposed amendment or supplement.

(g) The Company will cooperate with you and with counsel
for the Underwriters in connection with the registration or qualification of
the Shares for offering and sale by the several Underwriters and by dealers
under the securities or Blue Sky laws of such jurisdictions as you may
designate and will file such consents to service of process or other documents
necessary or appropriate in order to effect such registration or qualification;
provided that in no event shall the Company be obligated to qualify to do
business in any jurisdiction where it is not now so qualified or to take any
action that would subject it to service of process in suits, other than those
arising out of the offering or sale of the Shares, in any jurisdiction where it
is not now so subject.

<PAGE> 6

(h) The Company will make generally available to its
security holders a consolidated earnings statement, which need not be audited,
covering a twelve-month period commencing after the effective date of the
Registration Statement and ending not later than 15 months thereafter, as soon
as practicable after the end of such period, which consolidated earnings
statement shall satisfy the provisions of Section 11(a) of the Act.

(i) During the period of five years hereafter, the
Company will furnish to you (i) as soon as available, a copy of each report of
the Company mailed to stockholders or filed with the Commission, and (ii) from
time to time such other information concerning the Company as you may
reasonably request.

(j) If this Agreement shall terminate or shall be
terminated after execution pursuant to any provisions hereof (otherwise than
pursuant to the second paragraph of Section 12 hereof or by notice given by you
terminating this Agreement pursuant to Section 12 or Section 13 hereof) or if
this Agreement shall be terminated by the Underwriters because of any failure
or refusal on the part of the Company to comply with the terms or fulfill any
of the conditions of this Agreement, the Company agrees to reimburse the
Representatives for all out-of-pocket expenses (including fees and expenses of
counsel for the Underwriters) incurred by you in connection herewith.

(k) The Company will apply the net proceeds from the sale
of the Shares substantially in accordance with the description set forth in the
Prospectus.

(l) If Rule 430A of the Act is employed, the Company will
timely file the Prospectus pursuant to Rule 424(b) under the Act and will
advise you of the time and manner of such filing.

(m) The Company will not offer to sell, contract to sell,
sell or otherwise transfer or dispose of, or grant any option or warrant to
purchase, any shares of Common Stock (or any securities convertible into or
exercisable or exchangeable for Common Stock) for a period of 180 days after
the date of the Prospectus (the "Lock-up Period") without the prior written
consent of Smith Barney Inc., other than options granted at no less than fair
market value pursuant to its 1996 Stock Incentive Plan or its Non-employee
Director Stock Option Plan, each as in effect on the date hereof.

(n) The Company has furnished or will furnish to you
"lock-up" letters, in form and substance satisfactory to you, signed by each of
its current officers and directors and each of its stockholders designated by
you.

(o) Except as stated in this Agreement and in the
Prepricing Prospectus and Prospectus, the Company has not taken, nor will it
take, directly or indirectly, any action designed to or that might reasonably
be expected to cause or result in stabilization or manipulation of the price of
the Common Stock to facilitate the sale or resale of the Shares.

(p) The Company will use its best efforts to have the
Shares listed on the Nasdaq National Market prior to or concurrently with the
effectiveness of the registration statement.

6. AGREEMENTS OF THE SELLING STOCKHOLDERS. Each of the Selling
Stockholders agrees with the several Underwriters as follows:

(a) Such Selling Stockholder will cooperate to the extent
necessary to cause the registration statement or any post-effective amendment
thereto to become effective at the earliest possible time.

<PAGE> 7

(b) Such Selling Stockholder will pay all Federal and
other taxes, if any, on the transfer or sale of any Shares that are sold by
such Selling Stockholder to the Underwriters.

(c) Such Selling Stockholder will do or perform all
things reasonably required to be done or performed by such Selling Stockholder
prior to the Closing Date and any Option Closing Date, as the case may be, to
satisfy all conditions precedent to the delivery of the Shares to be sold by
such Selling Stockholder pursuant to this Agreement.

(d) Such Selling Stockholder will not (and will not
announce or otherwise disclose any intention to) offer to sell, contract to
sell, sell or otherwise transfer or dispose of, or grant any option to
purchase, any shares of Common Stock (or any securities convertible into or
exercisable or exchangeable for Common Stock), or exercise any registration
rights with respect to the sale of Common Stock, owned by such Selling
Stockholder during the Lock-up Period without the prior written consent of
Smith Barney Inc., except for the sale of Shares to the Underwriters pursuant
to this Agreement.

(e) Except as stated in this Agreement and in the
Prepricing Prospectus and the Prospectus, such Selling Stockholder will not
take, directly or indirectly, any action designed to or that might reasonably
be expected to cause or result in stabilization or manipulation of the price of
the Common Stock to facilitate the sale or resale of the Shares.

(f) Such Selling Stockholder will advise you promptly,
and if requested by you, will confirm such advice in writing, within the period
of time referred to in Section 5(f) hereof, of any change in information
relating to such Selling Stockholder and of any change in the Company's
condition (financial or other), business, prospects, properties, net worth or
results of operations or any other information relating to the Company or
relating to any matter stated in the Prospectus or any amendment or supplement
thereto that comes to the attention of such Selling Stockholder that would make
any statement of a material fact made in the Registration Statement or the
Prospectus (as then amended or supplemented, if amended or supplemented) untrue
in any material respect or would result in the Registration Statement or
Prospectus (as then amended or supplemented, if amended or supplemented)
omitting to state a material fact or a fact necessary to be stated therein in
order to make the statements therein not misleading in any material respect.

(g) In order to document the Underwriters' compliance
with the reporting and withholding provisions of the Tax Equity and Fiscal
Responsibility Act of 1982, as amended, with respect to the transactions herein
contemplated, such Selling Stockholder agrees to deliver to you prior to or on
the Option Closing Date a properly completed and executed United States
Treasury Department Form W-9 (or other applicable form or statement specified
by Treasury Department regulations in lieu thereof).

7. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to each Underwriter that:

(a) Each Prepricing Prospectus included as part of the
registration statement as originally filed or as part of any amendment or
supplement thereto, or filed pursuant to Rule 424 under the Act, complied when
so filed in all material respects with the provisions of the Act. The
Commission has not issued any order preventing or suspending the use of any
Prepricing Prospectus.

(b) The registration statement in the form in which it
became or becomes effective, and also in such form as it may be when any
post-effective amendment thereto or any Abbreviated Registration Statement
shall become effective, and the Prospectus and any supplement or amendment
thereto when filed with the Commission under Rule 424(b) under the Act,
complied or will comply in all material respects with the provisions of the Act
and did not or will not at any such times contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or

<PAGE> 8

necessary to make the statements therein not misleading, except that this
representation and warranty does not apply to statements in or omissions from
the registration statement or the Prospectus made in reliance upon and in
conformity with information relating to any Underwriter furnished to the
Company in writing by or on behalf of such Underwriter through you expressly
for use therein.

(c) All the outstanding shares of capital stock of the
Company have been duly authorized and validly issued, are fully paid and
nonassessable, are free of any preemptive or similar rights and have been
issued and sold in compliance with all Federal and state securities laws; the
Shares to be issued and sold by the Company have been duly authorized and, when
issued and delivered to the Underwriters against payment therefor in accordance
with the terms hereof, will be validly issued, fully paid and nonassessable and
free of any preemptive or similar rights; and the capital stock of the Company
conforms in all material respects to the description thereof in the
Registration Statement and the Prospectus.

(d) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware with full
corporate power and authority to own, lease and operate its properties and to
conduct its business as described in the Registration Statement and the
Prospectus, and is duly registered and qualified to conduct its business and is
in good standing in each jurisdiction or place where the nature of its
properties or the conduct of its business requires such registration or
qualification, except where the failure so to register or qualify would not
have a material adverse effect on the condition (financial or other), business,
prospects, properties, net worth or results of operations of the Company and
the Subsidiaries (as defined herein) taken as a whole (a "Material Adverse
Effect").

(e) All of the Company's subsidiaries (as defined in the Act)
are listed in an exhibit to the Registration Statement and are referred to
herein individually as a "Subsidiary" and collectively as the "Subsidiaries."
Each Subsidiary is a corporation duly organized, validly existing and in good
standing in the jurisdiction of its incorporation, with full corporate power
and authority to own, lease and operate its properties and to conduct its
business as described in the Registration Statement and the Prospectus and is
duly registered and qualified to conduct its business and is in good standing
in each jurisdiction or place where the nature of its properties or the conduct
of its business requires such registration, except where the failure so to
register or qualify would not have a Material Adverse Effect. All the
outstanding shares of capital stock of each of the Subsidiaries have been duly
authorized and validly issued, are fully paid and nonassessable and are
wholly-owned by the Company directly or indirectly through one of the other
Subsidiaries, free and clear of any lien, adverse claim, security interest,
equity or other encumbrance, except as disclosed in the Registration Statement
and the Prospectus (or any amendment or supplement thereto).

(f) There are no legal or governmental proceedings pending
or, to the knowledge of the Company, threatened, against the Company or any of
the Subsidiaries, or to which the Company or any of the Subsidiaries or any of
their respective properties is subject, that are required to be described in
the Registration Statement or the Prospectus but are not described as required.
There are no agreements, contracts, indentures, leases or other instruments
that are required to be described in the Registration Statement or the
Prospectus or to be filed as an exhibit to the Registration Statement that are
not described or filed as required by the Act. Neither the Company nor any of
the Subsidiaries is involved in any strike, job action or labor dispute, and to
the Company's best knowledge no such action or dispute is threatened.

(g) Neither the Company nor any of the Subsidiaries is (i) in
violation of its certificate of incorporation or by-laws or other
organizational documents, (ii) in violation of any law, ordinance,
administrative or governmental rule or regulation applicable to the Company or
any of the Subsidiaries, the violation of which would have a Material Adverse
Effect, (iii) in violation of any decree of any court or governmental agency or
body having jurisdiction over the Company or any of the Subsidiaries, or (iv)

<PAGE> 9

in default in any material respect in the performance of any obligation,
agreement or condition contained in any bond, debenture, note or any other
evidence of indebtedness or in any material agreement, indenture, lease or
other instrument to which the Company or any of the Subsidiaries is a party or
by which any of them or any of their respective properties may be bound.

(h) Neither the issuance and sale of the Shares, the
execution, delivery or performance of this Agreement by the Company nor the
consummation by the Company of the transactions contemplated hereby (i)
requires any consent, approval, authorization or other order of, or
registration or filing with, any court, regulatory body, administrative agency
or other governmental body, agency or official (except such as may be required
for the registration of the Shares under the Act and the Exchange Act, all of
which have been or will be effected in accordance with this Agreement, and
compliance with the securities or Blue Sky laws of various jurisdictions) or
conflicts or will conflict with or constitutes or will constitute a breach of,
or a default under, the certificate of incorporation or bylaws, or other
organizational documents, of the Company or any of the Subsidiaries or (ii)
conflicts or will conflict with or constitutes or will constitute a breach of,
or a default under, any agreement, indenture, lease or other instrument to
which the Company or any of the Subsidiaries is a party or by which the Company
or any of the Subsidiaries or any of their respective properties may be bound,
violates or will violate any statute, law or regulation, filing, judgment,
injunction, order or decree applicable to the Company or any of the
Subsidiaries or any of their respective properties or will result in the
creation or imposition of any lien, charge or encumbrance upon any property or
assets of the Company or any of the Subsidiaries pursuant to the terms of any
agreement or instrument to which it is a party or by which it may be bound or
to which any of the property or assets of it is subject.

(i) The accountants, Ernst & Young LLP and Tsakopulos Brown
Schott & Anchors, who have certified or shall certify the financial statements
filed or to be filed as part of the Registration Statement or the Prospectus
(or any amendment or supplement thereto), are independent public accountants as
required by the Act.

(j) The financial statements, together with the related
schedules and notes forming part of the Registration Statement and the
Prospectus (and any amendment or supplement thereto), comply with the
requirements of the Act and present fairly the consolidated financial position,
results of operations and changes in stockholders' equity and cash flows of the
Company and the Subsidiaries on the basis stated in the Registration Statement
at the respective dates or for the respective periods to which they apply; such
statements and related schedules and notes have been prepared in accordance
with generally accepted accounting principles consistently applied throughout
the periods involved, except as disclosed therein; the pro forma financial
information included in the Registration Statement and the Prospectus (and any
amendment or supplement thereto) has been prepared in accordance with
requirements of the Act and the rules and regulations of the Commission with
respect to pro forma financial information (including Article 11 of Regulation
S-X) and have been properly computed on the basis described therein, and the
assumptions used in preparing the pro forma financial statements and other pro
forma financial information included in the Registration Statement and the
Prospectus (or any amendment or supplement thereto) are reasonable, and the
adjustments used therein are reasonably appropriate to give effect to the
transactions or circumstances referred to therein; and the other financial and
statistical information and data set forth in the Registration Statement and
the Prospectus (and any amendment or supplement thereto) are accurately
presented and prepared on a basis consistent with such financial statements and
the books and records of the Company.

(k) The Company has all requisite power and authority to
execute, deliver and perform its obligations under this Agreement. The
execution and delivery of, and the performance by the Company of its
obligations under, this Agreement have been duly and validly authorized by the
Company. This Agreement has been duly executed and delivered by the Company
and constitutes the valid and legally binding agreement of the Company,
enforceable against the Company in accordance with its terms, except as rights
to indemnity and contribution hereunder may be limited by federal or

<PAGE> 10

state securities laws or principles of public policy and subject to the
qualification that the enforceability of the Company's obligations hereunder
may be limited by bankruptcy, fraudulent conveyance, insolvency,
reorganization, moratorium and other laws relating to or affecting creditors'
rights generally and by general equitable principles.

(l) Except as disclosed in the Registration Statement and the
Prospectus (or any amendment or supplement thereto), subsequent to the
respective dates as of which such information is given in the Registration
Statement and the Prospectus (or any amendment or supplement thereto), neither
the Company nor any of the Subsidiaries has incurred any liability or
obligation, direct or contingent, or entered into any transaction that is
material to the Company and the Subsidiaries taken as a whole, and there has
not been any material change in the capital stock, or material increase in the
consolidated short-term or long-term debt, of the Company and the Subsidiaries,
or any material adverse change, or any development involving or which may
reasonably be expected to involve a prospective material adverse change, in the
condition (financial or other), business, prospects, properties, net worth or
results of operations of the Company and the Subsidiaries taken as a whole.

(m) Each of the Company and the Subsidiaries has good and
marketable title to all property (real and personal) described in the
Prospectus as being owned by it, free and clear of all liens, claims, security
interests or other encumbrances, except such as are described in the
Registration Statement and the Prospectus, and all the property described in
the Prospectus as being held under lease by the Company or any of the
Subsidiaries is held by it under valid, subsisting and enforceable leases.

(n) The Company has not distributed and, prior to the later
to occur of the Closing Date and completion of the distribution of the Shares,
will not distribute any offering material in connection with the offering and
sale of the Shares other than the Registration Statement, the Prepricing
Prospectus, the Prospectus or other materials, if any, permitted by the Act and
state securities or Blue Sky laws.

(o) Each of the Company and the Subsidiaries has such
permits, licenses, franchises, authorizations and clearances ("Permits") of
governmental or regulatory authorities, including without limitation, all
authorizations required for participation in federal financial aid programs
under Title IV ("Title IV Programs") of the Higher Education Act of 1965, as
amended, as are necessary to own, lease and operate its properties and to
conduct its business in the manner described in the Prospectus, subject to such
qualifications as may be set forth in the Prospectus. Subject to such
qualifications as may be set forth in the Prospectus, each of the Company and
the Subsidiaries has fulfilled and performed all its material obligations with
respect to the Permits, and no event has occurred which allows, or after notice
or lapse of time would allow, revocation or termination thereof or results in
any other material impairment of the rights of the holder of any Permit,
subject in each case to such qualification as may be set forth in the
Prospectus. Except as described in the Prospectus, none of the Permits
contains any restriction that is materially burdensome to the Company or any of
the Subsidiaries.

(p) Neither the Company nor any of any of the Subsidiaries
has received nor is it aware of any communication (written or oral) relating to
the termination or modification or threatened termination or modification of
the agreements described or referred to in the Prospectus nor is it aware of
any communication (written or oral) relating to any determination or threatened
determination not to renew or extend any agreement described or referred to in
the Prospectus at the end of the current term of any such agreement.

(q) The property, assets and operations of the Company and
the Subsidiaries comply in all material respects with all applicable federal,
state and local laws, rules, orders, decrees, judgments, injunctions,
licenses, permits or regulations relating to environmental matters (the
"Environmental Laws"). To the Company's best knowledge, none of the Company's
nor any of the Subsidiaries' property, assets or operations is the subject of
any federal, state or local investigation

<PAGE> 11

evaluating whether any remedial action is needed to respond to a release of any
substance regulated by or form the basis of liability under any Environmental
Laws (a "Hazardous Material") into the environment or is in contravention of
any federal, state, local or foreign law, order or regulation. Neither the
Company nor any of the Subsidiaries has received any notice or claim, nor are
there any pending or, to the Company's best knowledge, threatened or reasonably
anticipated lawsuits or other proceedings against it with respect to violations
of an Environmental Law or in connection with the release of any Hazardous
Material into the environment. Neither the Company nor any of the Subsidiaries
has any material contingent liability in connection with any release of
Hazardous Material into the environment.

(r) Each of the Company and the Subsidiaries is insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as is customary in the businesses in which it is engaged;
all policies of insurance insuring the Company and each of the Subsidiaries or
their respective businesses, assets, employees, officers and directors are in
full force and effect; the Company and each of the Subsidiaries is in
compliance with the terms of such policies and instruments in all material
respects; and there are no claims by the Company or any of the Subsidiaries
under any such policy or instrument as to which any insurance company is
denying liability or defending under a reservation of rights clause.

(s) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (i) transactions are
executed in accordance with management's general or specific authorization;
(ii) transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.

(t) Neither the Company nor any of the Subsidiaries nor, to
the Company's best knowledge, any employee or agent of the Company or any of
the Subsidiaries has made any payment of funds of the Company or any of the
Subsidiaries or received or retained any funds in violation of any law, rule or
regulation, which payment, receipt or retention of funds is of a character
required to be disclosed in the Prospectus.

(u) Each of the Company and the Subsidiaries has filed all
federal, state, local and foreign tax returns and tax forms required to be
filed; such returns and forms are complete and correct in all material
respects; and all taxes shown by such returns or otherwise assessed that are
due or payable have been paid, except such taxes as are being contested in good
faith and as to which adequate reserves have been provided. All payroll
withholdings required to be made by the Company or any of the Subsidiaries with
respect to employees have been made. The charges, accruals and reserves on the
books of the Company and the Subsidiaries in respect of any tax liability for
any year not finally determined are adequate to meet any assessments or
reassessments for additional taxes; and there have been no tax deficiencies
asserted and, to the best knowledge of the Company, no tax deficiency might be
reasonably asserted or threatened against the Company or any of the
Subsidiaries that could, individually or in the aggregate, have a Material
Adverse Effect.

(v) No holder of any security of the Company has any right
(other than rights that have been validly waived) to require registration of
shares of Common Stock or any other security of the Company because of the
filing of the registration statement or the consummation of the transactions
contemplated by this Agreement and, except as disclosed in the Prospectus, no
person has the right to require registration under the Act of any shares of
Common Stock or other securities of the Company. No person has the right,
contractual or otherwise, to cause the Company to permit such person to
underwrite the sale of any of the Shares. Except as described in or
contemplated by the Prospectus, there are no outstanding options, warrants or
other rights calling for the issuance of, and there are no

<PAGE> 12

commitments, plans or arrangements to issue, any shares of capital stock of the
Company or any of the Subsidiaries or any security convertible into or
exchangeable or exercisable for capital stock of the Company or any of the
Subsidiaries.

(w) The Company and the Subsidiaries own or possess all
trademarks, trademark registrations, service marks, service mark registrations,
trade names, copyrights, licenses, trade secrets and rights described in the
Prospectus as being owned by any of them or necessary for the conduct of their
respective businesses, and the Company is not infringing upon the rights of any
other person with respect to the foregoing.

(x) The Company is not, and, upon the sale of the Shares to
be issued and sold by it hereunder and application of the net proceeds from
such sale as described in the Prospectus under the caption "Use of Proceeds,"
will not be an "investment company" within the meaning of the Investment
Company Act of 1940, as amended.

(y) The Company and each of the Subsidiaries is in compliance
with all provisions of Florida Statutes Section 517.075 and the regulations
thereunder, relating to issuers doing business with Cuba.

8. REPRESENTATIONS AND WARRANTIES OF THE SELLING STOCKHOLDERS.
Each of the Selling Stockholders represents and warrants to each Underwriter
that:

(a) Such Selling Stockholder now has, and on the Closing
Date and any Option Closing Date will have, valid and marketable title to the
Shares to be sold by such Selling Stockholder, free and clear of any lien,
claim, security interest or other encumbrance, including, without limitation,
any restriction on transfer or other defect in title.

(b) Such Selling Stockholder now has, and on the Closing
Date and any Option Closing Date will have, full legal right, power and
authorization, and any approval required by law (except such as may be required
under the Act or state securities or Blue Sky laws governing the purchase and
distribution of the Shares), to sell, assign, transfer and deliver the Shares
to be sold by such Selling Stockholder in the manner provided in this
Agreement, and upon delivery of and payment for such Shares hereunder, the
several Underwriters will acquire valid and marketable title to such Shares,
free and clear of any lien, claim, security interest, or other encumbrance or
restriction on transfer or other defect in title.

(c) This Agreement and the Custody Agreement have been
duly authorized, and the Custody Agreement has been, and this Agreement, when
executed and delivered on behalf of such Selling Stockholder in accordance with
the Custody Agreement, or in the case of the Pecks Managed Entities, by Pecks
Management Partners, Ltd., has been duly executed and delivered by or on behalf
of such Selling Stockholder and are the valid and binding agreements of such
Selling Stockholder, enforceable against such Selling Stockholder in accordance
with their respective terms, except as rights to indemnity and contribution
hereunder may be limited by federal or state securities laws or principles of
public policy and except as enforcement hereof and thereof may be limited by
bankruptcy, fraudulent conveyance, insolvency, reorganization, moratorium and
other laws relating to or affecting creditors' rights generally and by general
equitable principles.

(d) Neither the execution and delivery of this Agreement
or the Custody Agreement by or on behalf of such Selling Stockholder nor the
consummation of the transactions herein or therein contemplated by or on behalf
of such Selling Stockholder requires any consent, approval, authorization or
order of, or filing or registration with, any court, regulatory body,
administrative agency or other governmental body, agency or official (except
such as may be required under the Act or state securities or Blue Sky laws
governing the purchase and distribution of the Shares) or conflicts or will
conflict with or constitutes or will constitute a breach of, or default under,
or violates or will violate, any

<PAGE> 13

agreement, indenture or other instrument to which such Selling Stockholder is a
party or by which such Selling Stockholder is or may be bound or to which any
of such Selling Stockholder's property or assets is subject, or any statute,
law, rule, regulation, ruling, judgement, injunction, order or decree
applicable to such Selling Stockholder or to any property or assets of such
Selling Stockholder, except in each case as would not adversely affect the
ability of such Selling Stockholder to consummate the transactions contemplated
by this Agreement.

(e) Such Selling Stockholder has reviewed the
Registration Statement and the Prospectus. The parts of the Registration
Statement and the Prospectus relating to such Selling Stockholder do not
contain an untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. Such Selling Stockholder does not have
actual knowledge that the Registration Statement or Prospectus contains any
untrue statement of a material fact or omits to state a material fact necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading.

(f) The representation and warranties of such Selling
Stockholder herein and in the Custody Agreement are, and on the Closing Date
and any Option Closing Date will be, true and correct.

(g) Such Selling Stockholder has not taken, directly or
indirectly, any action designed to or that might reasonably be expected to
cause or result in stabilization or manipulation of the price of the Common
Stock to facilitate the sale or resale of the Shares, except for the lock-up
arrangements described in the Prospectus.

9. INDEMNIFICATION AND CONTRIBUTION. (a) The Company agrees to
indemnify and hold harmless each of you and each other Underwriter and each
person, if any, who controls any Underwriter within the meaning of Section 15
of the Act or Section 20 of the Exchange Act from and against any and all
losses, claims, damages, liabilities and expenses (including reasonable costs
of investigation) arising out of or based upon any untrue statement or alleged
untrue statement of a material fact contained in any Prepricing Prospectus or
in the Registration Statement or the Prospectus or in any amendment or
supplement thereto, or arising out of or based upon any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as such
losses, claims, damages, liabilities or expenses arise out of or are based upon
any untrue statement or omission or alleged untrue statement or omission which
has been made therein or omitted therefrom in reliance upon and in conformity
with the information relating to such Underwriter furnished in writing to the
Company by or on behalf of any Underwriter through you expressly for use in
connection therewith; provided, however, that the indemnification contained in
this paragraph (a) with respect to any Prepricing Prospectus shall not inure to
the benefit of any Underwriter (or to the benefit of any person controlling
such Underwriter) on account of any such loss, claim, damage, liability or
expense arising from the sale of Shares by such Underwriter to any person if
(i) a copy of the Prospectus shall not have been delivered or sent to such
person within the time required by the Act and the untrue statement or alleged
untrue statement or omission or alleged omission of a material fact contained
in such Prepricing Prospectus was corrected in the Prospectus and (ii) the
Company has delivered the Prospectus to the several Underwriters in requisite
quantity on a timely basis to permit such delivery or sending. The foregoing
indemnity agreement shall be in addition to any liability which the Company may
otherwise have.

(b) If any action, suit or proceeding shall be brought
against any Underwriter or any person controlling any Underwriter in respect of
which indemnity may be sought against the Company, such Underwriter or such
controlling person shall promptly notify the Company, and the Company shall
assume the defense thereof, including the employment of counsel and payment of
all fees and expenses. Such Underwriter or any such controlling person shall
have the right to employ separate

<PAGE> 14

counsel in any such action, suit or proceeding and to participate in the
defense thereof, but the fees and expenses of such counsel shall be at the
expense of such Underwriter or such controlling person unless (i) the Company
has agreed in writing to pay such fees and expenses, (ii) the Company has
failed to assume the defense and employ counsel or (iii) the named parties to
any such action, suit or proceeding (including any impleaded parties) include
both such Underwriter or such controlling person and the Company and such
Underwriter or such controlling person shall have been advised by its counsel
that representation of such indemnified party and the Company by the same
counsel would be inappropriate under applicable standards of professional
conduct (whether or not such representation by the same counsel has been
proposed) due to actual or potential differing interests between them (in which
case the Company shall not have the right to assume the defense of such action,
suit or proceeding on behalf of such Underwriter or such controlling person).
It is understood, however, that the Company shall, in connection with any one
such action, suit or proceeding or separate but substantially similar or
related actions, suits or proceedings in the same jurisdiction arising out of
the same general allegations or circumstances, be liable for the reasonable
fees and expenses of only one separate firm of attorneys (in addition to any
local counsel) at any time for all such Underwriters and controlling persons
not having actual or potential differing interests with you or among
themselves, which firm shall be designated in writing by Smith Barney Inc., and
that all such fees and expenses shall be reimbursed as they are incurred. The
Company shall not be liable for any settlement of any such action, suit or
proceeding effected without its written consent, but if settled with such
written consent, or if there be a final judgment for the plaintiff in any such
action, suit or proceeding, the Company agrees to indemnify and hold harmless
any Underwriter and any such controlling person, to the extent provided in the
preceding paragraph, from and against any loss, claim, damage, liability or
expense by reason of such settlement or judgment.

(c) The Primary Selling Stockholders agree to indemnify
and hold harmless each Underwriter and each person, if any, who controls any
Underwriter within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act to the same extent as the indemnity from the Company to each
Underwriter set forth in paragraph (a) above, but only with respect to
information relating to such Primary Selling Stockholder furnished in writing
to the Company by or on behalf of such Primary Selling Stockholder expressly
for use in the Registration Statement, the Prospectus or any Prepricing
Prospectus, or any amendment or supplement thereto and subject to the
provisions of paragraph (g) below. The Over-allotment Selling Stockholders
agree to indemnify and hold harmless each Underwriter and each person, if any,
who controls any Underwriter within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act to the same extent as the indemnity from the
Company to each Underwriter set forth in paragraph (a) above, but subject to
the provisions of paragraph (g) below. In case any action or claim shall be
brought or asserted against any Underwriter or any such controlling person in
respect of which indemnity may be sought against the Selling Stockholders
pursuant to this paragraph (c), the Selling Stockholders shall have the rights
and duties given to the Company, and each Underwriter and any such controlling
person shall have the rights and duties given to the Underwriters, under
paragraph (b) above. The foregoing indemnity agreement shall be in addition to
any liability which the Selling Stockholders may otherwise have.

(d) Each Underwriter agrees, severally and not jointly,
to indemnify and hold harmless the Company, its directors, its officers who
sign the Registration Statement, any person who controls the Company within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act and each
Selling Stockholder, to the same extent as the foregoing indemnity from the
Company to each Underwriter, but only with respect to information relating to
such Underwriter furnished in writing to the Company by or on behalf of such
Underwriter through you expressly for use in the Registration Statement, the
Prospectus or any Prepricing Prospectus, or any amendment or supplement
thereto. If any action, suit or proceeding shall be brought against the
Company, any of its directors, any such officer, any such controlling person or
any Selling Stockholder based on the Registration Statement, the Prospectus or
any Prepricing Prospectus, or any amendment or supplement thereto, and in
respect of which indemnity may be sought against any Underwriter pursuant to
this paragraph (d), such

<PAGE> 15

Underwriter shall have the rights and duties given to the Company by paragraph
(b) above (except that if the Company shall have assumed the defense thereof
such Underwriter shall not be required to do so, but may employ separate
counsel therein and participate in the defense thereof, but the fees and
expenses of such counsel shall be at such Underwriter's expense), and the
Company, its directors, any such officer, any such controlling person and any
Selling Stockholder shall have the rights and duties given to the Underwriters
by paragraph (b) above. The foregoing indemnity agreement shall be in addition
to any liability which the Underwriters may otherwise have.

(e) If the indemnification provided for in this Section 9
is unavailable to an indemnified party under paragraphs (a), (c) or (d) hereof
in respect of any losses, claims, damages, liabilities or expenses referred to
therein, then an indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, liabilities or expenses (i) in
such proportion as is appropriate to reflect the relative benefits received by
the Company and the Selling Stockholders on the one hand and the Underwriters
on the other hand from the offering of the Shares, or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of the Company and the
Selling Stockholders on the one hand and the Underwriters on the other hand in
connection with the statements or omissions that resulted in such losses,
claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The relative benefits received by the Company on the
one hand and the Underwriters on the other hand shall be deemed to be in the
same proportion as the total net proceeds from the offering (before deducting
expenses) received by the Company bear to the total underwriting discounts and
commissions received by the Underwriters, in each case as set forth in the
table on the cover page of the Prospectus; provided that, in the event that the
Underwriters shall have purchased any Additional Shares hereunder, any
determination of the relative benefits received by the Company and the Selling
Stockholders and the Underwriters from the offering of the Shares shall include
the net proceeds (before deducting expenses) received by the Company and the
Selling Stockholders, and the underwriting discounts and commissions received
by the Underwriters, from the sale of such Additional Shares, in each case
computed on the basis of the respective amounts set forth in the notes to the
table on the cover page of the Prospectus. The relative fault of the Company
and the Selling Stockholders on the one hand and the Underwriters on the other
hand shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by
the Company or the Selling Stockholders on the one hand or by the Underwriters
on the other hand and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.

(f) The Company, the Selling Stockholders and the
Underwriters agree that it would not be just and equitable if contribution
pursuant to this Section 9 were determined by a pro rata allocation (even if
the Underwriters were treated as one entity for such purpose) or by any other
method of allocation that does not take account of the equitable considerations
referred to in paragraph (e) above. The amount paid or payable by an
indemnified party as a result of the losses, claims, damages, liabilities and
expenses referred to in paragraph (e) above shall be deemed to include, subject
to the limitations set forth above, any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating any claim
or defending any such action, suit or proceeding. Notwithstanding the
provisions of this Section 9, no Underwriter shall be required to contribute
any amount in excess of the amount by which the total price of the Shares
underwritten by it and distributed to the public exceeds the amount of any
damages which such Underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations to
contribute pursuant to this Section 9 are several in proportion to the

<PAGE> 16

respective numbers of Firm Shares set forth opposite their names in Schedule
III hereto (or such numbers of Firm Shares increased as set forth in Section 12
hereof) and not joint.

(g) Notwithstanding any other provision of this Section
9, the total liability of any Selling Stockholder for indemnification or
contribution under this Section 9 shall not exceed an amount equal to the
number of Shares sold by such Selling Stockholder hereunder multiplied by the
purchase price per share set forth in Section 2 hereof.

(h) No indemnifying party shall, without the prior
written consent of the indemnified party, effect any settlement of any pending
or threatened action, suit or proceeding in respect of which any indemnified
party is or could have been a party and indemnity could have been sought
hereunder by such indemnified party, unless such settlement includes an
unconditional release of such indemnified party from all liability on claims
that are the subject matter of such action, suit or proceeding.

(i) Any losses, claims, damages, liabilities or expenses
for which an indemnified party is entitled to indemnification or contribution
under this Section 9 shall be paid by the indemnifying party to the indemnified
party as such losses, claims, damages, liabilities or expenses are incurred.
The indemnity and contribution agreements contained in this Section 9 and the
representations and warranties of the Company and the Selling Stockholders set
forth in this Agreement shall remain operative and in full force and effect,
regardless of (i) any investigation made by or on behalf of any Underwriter or
any person controlling any Underwriter, the Company, its directors or officers
or any person controlling the Company or the Selling Stockholders, (ii)
acceptance of any Shares and payment therefor hereunder and (iii) any
termination of this Agreement. A successor to any Underwriter or any person
controlling any Underwriter, or to the Company, its directors or officers, or
any person controlling the Company or the Selling Stockholders shall be
entitled to the benefits of the indemnity, contribution and reimbursement
agreements contained in this Section 9.

10. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The several
obligations of the Underwriters to purchase the Firm Shares hereunder are
subject to the following conditions:

(a) If, at the time this Agreement is executed and
delivered, it is necessary for the registration statement or a post-effective
amendment thereto or an Abbreviated Registration Statement to be declared
effective before the offering of the Shares may commence, the registration
statement or such post-effective amendment or Abbreviated Registration
Statement shall have become effective not later than 5:30 P.M., New York City
time, on the date hereof, or at such later date and time as shall be consented
to in writing by you, and all filings, if any, required by Rules 424 and 430A
under the Act shall have been timely made.

(b) Subsequent to the effective date of this Agreement,
there shall not have occurred (i) any change, or any development involving a
prospective change, in or affecting the condition (financial or other),
business, prospects, properties, net worth, or results of operations of the
Company or any of the Subsidiaries not contemplated by the Prospectus, which in
your opinion, as Representatives of the several Underwriters, would materially,
adversely affect the market for the Shares, or (ii) any event or development
relating to or involving the Company or any of the Subsidiaries, or any officer
or director of the Company or any of the Subsidiaries, which makes any
statement made in the Prospectus untrue or which, in the opinion of the Company
and its counsel or the Underwriters and their counsel, requires the making of
any addition to or change in the Prospectus in order to state a material fact
required by the Act or any other law to be stated therein or necessary in order
to make the statements therein not misleading, if amending or supplementing the
Prospectus to reflect such event or development would, in your opinion, as
Representatives of the several Underwriters, materially, adversely affect the
market for the Shares.

<PAGE> 17

(c) You shall have received on the Closing Date an opinion of
Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A., counsel for the
Company and the Selling Stockholders, dated the Closing Date and addressed to
you, as Representatives of the several Underwriters, that:

(i) The Company is a corporation duly incorporated and
validly existing in good standing under the laws of the State of
Delaware with full corporate power and authority to conduct its
business as described in the Registration Statement and the Prospectus
(and any amendment or supplement thereto), and is duly qualified to
conduct its business and is in good standing as a foreign corporation
in each jurisdiction where the conduct of its business requires
qualification, except where the failure so to register or qualify
would not have a Material Adverse Effect;

(ii) Each Subsidiary is a corporation duly incorporated and
validly existing and in good standing under the laws of the
jurisdiction of its organization, with full corporate power and
authority to conduct its business as described in the Registration
Statement and the Prospectus (and any amendment or supplement
thereto); each Subsidiary is duly qualified to conduct its business
and is in good standing as a foreign corporation in each jurisdiction
where the conduct of its business requires such registration or
qualification, except where the failure so to register or qualify or
to be in good standing would not have a Material Adverse Effect; and
all the outstanding shares of capital stock of each of the
Subsidiaries have been duly authorized and validly issued, are fully
paid and nonassessable and are owned of record by the Company
directly, or indirectly through one of the other Subsidiaries, free
and clear of any perfected security interest or, to such counsel's
knowledge, any other lien, adverse claim, equity or other encumbrance,
except as disclosed in the Registration Statement and the Prospectus
(or any amendment or supplement thereto);

(iii) The authorized capital stock of the Company is as set
forth under the caption "Capitalization" in the Prospectus, and the
authorized capital stock of the Company conforms in all material
respects as to legal matters to the description contained in the
Prospectus under the caption "Description of Capital Stock";

(iv) All the shares of capital stock of the Company
outstanding prior to the issuance of the Shares have been duly
authorized and validly issued and are fully paid and nonassessable;

(v) The Shares have been duly authorized and, when issued and
delivered to the Underwriters against payment therefor in accordance
with the terms hereof, will be validly issued, fully paid and
nonassessable and free of (A) any preemptive rights arising under the
Company's certificate of incorporation or the Delaware General
Corporation Law or(B) to the knowledge of such counsel, similar rights
provided for in any agreement filed as an exhibit to the Registration
Statement that entitle or will entitle any person to acquire any
shares of capital stock of the Company upon the issuance and sale of
the Shares by the Company;

(vi) The form of certificate for the Shares conforms to the
requirements of the Delaware General Corporation Law;

(vii) Such counsel has received oral confirmation from the
staff of the Commission that the Registration Statement and all
post-effective amendments, if any, have become effective under the Act
and, to the knowledge of such counsel, no stop order suspending the
effectiveness of the Registration Statement has been issued and no
proceedings for that purpose are pending before or contemplated by the
Commission; and any required filing of the Prospectus pursuant to Rule
424(b) has been made in accordance with Rule 424(b);

<PAGE> 18

(viii) The Company has the corporate power and authority to
enter into this Agreement and to issue, sell and deliver to the
Underwriters the Shares to be issued and sold by the Company as
provided herein, and this Agreement has been duly authorized, executed
and delivered by the Company and is a valid, legal and binding
agreement of the Company, enforceable against the Company in
accordance with its terms, except as enforcement of rights to
indemnity and contribution hereunder may be limited by federal or
state securities laws or principles of public policy and subject to
the qualification that the enforceability of the Company's obligations
hereunder may be limited by bankruptcy, fraudulent conveyance,
insolvency, reorganization, moratorium and other laws relating to or
affecting creditors' rights generally and by general equitable
principles;

(ix) To the knowledge of such counsel, neither the Company
nor any of the Subsidiaries is in violation of its certificate of
incorporation or bylaws or in default in the performance of any
material obligation, agreement or condition contained in any bond,
debenture, note or other evidence of indebtedness, or in any
agreement, indenture, lease or other instrument to which the Company
or any Subsidiary is a party or by which any of them or any of their
respective properties may be bound which default would have a Material
Adverse Effect, in each case that is made an exhibit to the
Registration Statement;

(x) Neither the offer, sale or delivery of the Shares, the
execution, delivery or performance of this Agreement, compliance by
the Company with the provisions hereof nor consummation by the Company
of the transactions contemplated hereby conflicts with or constitutes
a breach of, or a default under, the certificate of incorporation or
bylaws, or other organizational documents, of the Company or any of
the Subsidiaries or any agreement, indenture, lease or other
instrument to which the Company or any of the Subsidiaries is a party
or by which the Company or any of the Subsidiaries or any of their
respective properties is bound that is made an exhibit to the
Registration Statement, or is known to such counsel after reasonable
inquiry, or to the knowledge of such counsel will result in the
creation or imposition of any lien, charge or encumbrance upon any
property or assets of the Company or any of the Subsidiaries, nor, to
our knowledge, will any such action result in any violation of any
existing law, regulation, ruling (assuming compliance with all
applicable state securities or Blue Sky laws), judgment, injunction,
order ordecree applicable to the Company or any of the Subsidiaries or
any of their respective properties;

(xi) No consent, approval, authorization or other order of,
or registration or filing with, any court, regulatory body,
administrative agency or other governmental body, agency, or official
is required on the part of the Company or any of the Subsidiaries
(except as have been obtained under the Act and the Exchange Act or
such as may be required under state securities or Blue Sky laws
governing the purchase and distribution of the Shares and the
clearance of the Offering with the National Association of Securities
Dealers) for the valid issuance and sale of the Shares to the
Underwriters as contemplated by this Agreement;

(xii) The Registration Statement and the Prospectus and any
supplements or amendments thereto (except for the financial statements
and the notes thereto and the schedules and other financial and
statistical data included therein, as to which such counsel need not
express any opinion) comply as to form in all material respects with
the requirements of the Act;

(xiii) To the knowledge of such counsel, (A) there are no
legal or governmental proceedings pending or threatened against the
Company or any of the Subsidiaries, or to which the Company or any of
the Subsidiaries or any of their respective properties is subject,
which are required to be described in the Registration Statement or
Prospectus (or any amendment or supplement thereto) that are not
described as required and (B) there are no agreements,

<PAGE> 19

contracts, indentures, leases or other instruments that are required
to be described in the Registration Statement or the Prospectus (or
any amendment or supplement thereto) or to be filed as an exhibit to
the Registration Statement that are not described or filed as
required, as the case may be;

(xiv) To the knowledge of such counsel, neither the Company
nor any of the Subsidiaries is in violation of any law, ordinance,
administrative or governmental rule or regulation applicable to the
Company or any such Subsidiary the violation of which would have a
Material Adverse Effect, or of any decree of any court or governmental
agency or body having jurisdiction over the Company or any of the
Subsidiaries;

(xv) To the knowledge of such counsel, each of the Company
and the Subsidiaries has all necessary Permits (other than those
Permits specifically required to participate in Title IV Programs or
pursuant to which the Company or any of the Subsidiaries must be
authorized by applicable states to engage in rendering educational
services, as to which such counsel need not express an opinion), to
own its properties and to conduct its business as now being conducted
as described in the Registration Statement and the Prospectus (except
where the failure to so have any such Permits, individually or in the
aggregate, would not have a Material Adverse Effect);

(xvi) The statements in the Registration Statement and
Prospectus, insofar as they refer to statements of law or legal
conclusions, are accurate in all material respects (except with
respect to Title IV Programs, as to which such counsel need not
express an opinion);

(xvii) Except as described in the Prospectus, such counsel
does not know of any holder of any securities of the Company or any of
the Subsidiaries who has the right, as a result of the filing of the
Registration Statement, to require the Company to register under the
Act any shares of Common Stock or other securities of the Company, and
any registration rights in connection with the offering contemplated
hereby have been validly waived;

(xviii) The Company is not an "investment company" or a
person "controlled" by an "investment company" within the meaning of
the Investment Company Act of 1940, as amended;

(xix) This Agreement and the Custody Agreement have each
been duly executed and delivered by or on behalf the Selling
Stockholders;

(xx) To the knowledge of such counsel, each of the Selling
Stockholders has full legal right, power and authorization, and any
approval required by law, to sell, assign, transfer and deliver good
and marketable title to the Shares which such Selling Stockholder has
agreed to sell pursuant to this Agreement; upon delivery of such
Shares pursuant to this Agreement and payment therefor as contemplated
herein and assuming that the several Underwriters purchased such
Shares in good faith and without notice of an adverse claim within the
meaning of the Uniform Commercial Code (the "UCC"), the Underwriters
will acquire such Shares free and clear of any adverse claim (within
the meaning of Section 8-302 of the UCC);

(xxi) To the knowledge of such counsel, the execution and
delivery of this Agreement and the Custody Agreement by or on behalf
of the Selling Stockholders and the consummation of the transactions
contemplated hereby and thereby will not conflict with, violate,
result in a breach of or constitute a default under the terms or
provisions of any agreement, indenture or other instrument to which
any of the Selling Stockholder is a party or by which any of the
Selling Stockholders or the assets or property of any of the Selling
Stockholders is bound, or any court order or decree or any law, rule,
or regulation applicable

<PAGE> 20

to any of the Selling Stockholders or to the property or assets of any
of the Selling Stockholders; and

In addition, such counsel shall state that although such
counsel has not undertaken, except as otherwise indicated in their opinion, to
determine independently, and does not assume any responsibility for, the
accuracy, completeness or fairness of the statements in the Registration
Statement, such counsel has participated in the preparation of the Registration
Statement and the Prospectus, including review and discussion of the contents
thereof, and nothing has come to the attention of such counsel that has caused
it to believe that the Registration Statement, at the time the Registration
Statement became effective, contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein not misleading, or that the Prospectus, as of its
date and as of the Closing Date or the Option Closing Date, as the case may be,
contained or contains an untrue statement of a material fact or omitted or
omits to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, or that any amendment or supplement to the Prospectus, as of its
date, and as of the Closing Date or the Option Closing Date, as the case may
be, contained or contains an untrue statement of a material fact or omitted or
omits to state a material fact necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading (it being understood that such counsel need express no opinion with
respect to the financial statements and the notes thereto and the schedules and
other financial and statistical data included in the Registration Statement or
the Prospectus).

In rendering their opinion as aforesaid, such counsel may rely
as to factual matters (i) upon certificates of the Selling Stockholders and
(ii) the representations of the Selling Stockholders contained herein and in
the Custody Agreement. In rendering their opinion as aforesaid, counsel may
rely upon an opinion or opinions, each dated the Closing Date, of other counsel
retained by them or the Company as to laws of any jurisdiction other than the
federal laws of United States or the State of New York or the corporation law
of the State of Delaware, provided that (1) each such local counsel is
acceptable to the Representatives, (2) such reliance is expressly authorized by
each opinion so relied upon and a copy of each such opinion is delivered to the
Representatives and is, in form and substance, satisfactory to them and counsel
for the Underwriters and (3) counsel shall state in their opinion that they
believe that they and the Underwriters are justified in relying thereon.

(d) You shall have received on the Closing Date an opinion of
Baker & Hostetler, special regulatory counsel for the Company, dated the
Closing Date and addressed to you, as Representatives of the several
Underwriters, that:

(i) The statements in the Prospectus under the captions
"Risk Factors--Dependance on Title IV Funding; Regulatory Compliance
as a Condition for Continued Eligibility for Title IV Funding," "Risk
Factors--Change in Ownership Resulting in Change in Control," "Risk
Factors--Participation in Federal Direct Lending Program; Risk of
Legislative Action," Risk Factors-Reliance on Acquisitions," and
"Financial Aid and Regulation," and other references therein to
educational regulatory matters, insofar as such statements constitute
a summary of applicable federal and state laws and regulations or a
summary of judicial or administrative proceedings, are accurate and
present fairly the information purported to be shown;

(ii) No facts have come to the attention of such counsel,
that lead them to believe that the information contained in the
Registration Statement and the Prospectus forming a part thereof under
the captions "Risk Factors--Dependance on Title IV Funding; Regulatory
Compliance as a Condition for Continued Eligibility for Title IV
Funding," "Risk Factors--Change in Ownership Resulting in Change in
Control," Risk Factors-Participation in Federal Direct Lending
Program; Risk of Legislative Action," Risk Factors--Reliance on

<PAGE> 21

Acquisitions," and "Financial Aid and Regulation," as of the time the
Registration Statement became effective and as of the date of the
Prospectus and as of the Closing Date, contained any untrue statement
of a material fact, or omitted to state any material fact required to
be stated therein or necessary to make the statements therein not
misleading;

(iii) Consummation of the Offering will not constitute a
change in ownership resulting in a change in control (as defined in
the Rules and Regulations under the Higher Education Act of 1965, as
amended); and

(iv) To the knowledge of such counsel, each of the Company
and the Subsidiaries has all necessary Permits required for each of
the Company and the Subsidiaries to participate in Title IV Programs
or pursuant to which the Company or any of the Subsidiaries must be
authorized by applicable states to engage in rendering educational
services as described in the Registration Statement and the Prospectus
(except where the failure to so have any such Permits, individually or
in the aggregate, would not have a Material Adverse Effect).

(e) You shall have received on the Closing Date an opinion of
Dewey Ballantine, counsel for the Underwriters, dated the Closing Date and
addressed to you, as Representatives of the several Underwriters, with respect
to the matters referred to in clauses (v) (other than subclause (B) thereof),
(vii), (viii), (xii) and the penultimate paragraph of Section 10(c) hereof and
such other related matters as you may request.

(f) You shall have received letters addressed to you and
dated the date hereof and the Closing Date from Ernst & Young LLP, independent
certified public accountants, substantially in the forms heretofore approved by
you.

(g)(i) No stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for that
purpose shall have been instituted or, to the knowledge of the Company,
contemplated by the Commission at or prior to the Closing Date and any request
of the Commission for additional information (to be included in the
registration statement or the prospectus or otherwise) shall have been complied
with; (ii) there shall not have been any material change in the capital stock
of the Company nor any material increase in the short-term or long-term debt of
the Company and the Subsidiaries, taken as a whole, from that set forth or
contemplated in the Registration Statement or the Prospectus (or any amendment
or supplement thereto); (iii) there shall not have been, since the respective
dates as of which information is given in the Registration Statement and the
Prospectus (or any amendment or supplement thereto), except as may otherwise be
stated in the Registration Statement and Prospectus (or any amendment or
supplement thereto), any material adverse change in the condition (financial or
other), business, prospects, properties, net worth or results of operations of
the Company and the Subsidiaries, taken as a whole; (iv) neither the Company
nor any of the Subsidiaries shall have any liabilities or obligations, direct
or contingent (whether or not in the ordinary course of business), that are
material to the Company and the Subsidiaries, taken as a whole, other than
those reflected in or contemplated by the Registration Statement or the
Prospectus (or any amendment or supplement thereto); and (v) all the
representations and warranties of the Company contained in this Agreement shall
be true and correct in all material respects on and as of the date hereof and
on and as of the Closing Date as if made on and as of the Closing Date, and you
shall have received a certificate, dated the Closing Date and signed by the
chief executive officer and the chief financial officer of the Company (or such
other officers as are acceptable to you), as to the matters set forth in this
Section 10(g) and in Section 10(h) hereof.

(h) The Company shall not have failed at or prior to the
Closing Date to have performed or complied with any of its agreements herein
contained and required to be performed or complied with by it hereunder at or
prior to the Closing Date.

<PAGE> 22

(i) All the representations and warranties of the Selling
Stockholders contained in this Agreement shall be true and correct on and as of
the date hereof and on and as of the Closing Date as if made on and as of the
Closing Date, and you shall have received a certificate, dated the Closing Date
and signed by or on behalf of the Selling Stockholders to the effect set forth
in this Section 10(i) and in Section 10(j) hereof.

(j) The Selling Stockholders shall not have failed at or
prior to the Closing Date to have performed or complied with any of their
agreements herein contained and required to be performed or complied with by
them hereunder at or prior to the Closing Date.

(k) The Shares shall have been approved for quotation subject
to notice of issuance on the Nasdaq Stock Market's National Market.

(l) The Company shall have furnished or caused to be
furnished to you such further certificates and documents as you shall have
reasonably requested.

All such opinions, certificates, letters and other documents
will be in compliance with the provisions hereof only if they are satisfactory
in form and substance to you, as Representatives of the several Underwriters,
and counsel for the Underwriters.

Any certificate or document signed by any officer of the
Company and delivered to you, as Representatives of the several Underwriters,
or to counsel for the Underwriters, shall be deemed a representation or
warranty by the Company to each Underwriter as to the statements made therein.

The several obligations of the Underwriters to purchase
Additional Shares hereunder are subject to the satisfaction on and as of any
Option Closing Date of the conditions set forth in this Section 10, except
that, if any Option Closing Date is other than the Closing Date, the
certificates, opinions and letters referred to in paragraphs (c) through (g)
and paragraph (i) shall be dated the Option Closing Date in question and the
opinions called for by paragraphs (c), (d) and (e) shall be revised to reflect
the sale of Additional Shares.

11. EXPENSES. The Company agrees to pay the following costs and
expenses and all other costs and expenses incident to the performance by it of
its obligations hereunder: (i) the preparation, printing or reproduction, and
filing with the Commission of the registration statement (including financial
statements and exhibits thereto), each Prepricing Prospectus, the Prospectus,
and each amendment or supplement to any of them; (ii) the printing (or
reproduction) and delivery (including postage, air freight charges and charges
for counting and packaging) of such copies of the registration statement, each
Prepricing Prospectus, the Prospectus, and all amendments or supplements to any
of them as may be reasonably requested for use in connection with the offering
and sale of the Shares; (iii) the preparation, printing, authentication,
issuance and delivery of certificates for the Shares, including any stamp taxes
in connection with the offering of the Shares; (iv) the printing (or
reproduction) and delivery of this Agreement, the preliminary and supplemental
Blue Sky Memoranda and all other agreements or documents printed (or
reproduced) and delivered in connection with the offering of the Shares; (v)
the registration of the Common Stock under the Exchange Act and the listing of
the Shares on the Nasdaq National Market; (vi) the registration or
qualification of the Shares for offer and sale under the securities or Blue Sky
laws of the several states as provided in Section 5(g) hereof (including the
reasonable fees, expenses and disbursements of counsel for the Underwriters
relating to the preparation, printing or reproduction, and delivery of the
preliminary and supplemental Blue Sky Memoranda and such registration and
qualification); (vii) the filing fees and the reasonable fees and expenses of
counsel for the Underwriters in connection with any filings required to be made
with the National Association of Securities Dealers, Inc. in connection with
the offering; (viii) the transportation and other expenses incurred by or on
behalf of representatives of the Company in connection with presentations to
prospective purchasers of the Shares; (ix) the fees and expenses of the

<PAGE> 23

Company's accountants and the fees and expenses of counsel (including local and
special counsel) for the Company; and (x) the performance by the Company of its
other obligations under this Agreement.

12. EFFECTIVE DATE OF AGREEMENT. This Agreement shall become
effective: (i) upon the execution and delivery hereof by the parties hereto;
or (ii) if, at the time this Agreement is executed and delivered, it is
necessary for the registration statement or a post-effective amendment thereto
or an Abbreviated Registration Statement to be declared or become effective
before the offering of the Shares may commence, when notification of the
effectiveness of the registration statement or such post-effective amendment
has been released by the Commission or such Abbreviated Registration Statement
has, pursuant to the provisions of Rule 462 under the Act, become effective.
Until such time as this Agreement shall have become effective, it may be
terminated by the Company, by notifying you, or by you, as Representatives of
the several Underwriters, by notifying the Company.

If any one or more of the Underwriters shall fail or refuse to
purchase Shares which it or they have agreed to purchase hereunder, and the
aggregate number of Shares which such defaulting Underwriter or Underwriters
agreed but failed or refused to purchase is not more than one-tenth of the
aggregate number of Shares which the Underwriters are obligated to purchase on
the Closing Date, each non-defaulting Underwriter shall be obligated,
severally, in the proportion which the number of Firm Shares set forth opposite
its name in Schedule I hereto bears to the aggregate number of Firm Shares set
forth opposite the names of all non-defaulting Underwriters or in such other
proportion as you may specify in accordance with Section 20 of the Master
Agreement Among Underwriters of Smith Barney, Harris Upham & Co. Incorporated
(predecessor of Smith Barney Inc.), to purchase the Shares which such
defaulting Underwriter or Underwriters agreed, but failed or refused, to
purchase. If any Underwriter or Underwriters shall fail or refuse to purchase
Shares which it or they are obligated to purchase on the Closing Date and the
aggregate number of Shares with respect to which such default occurs is more
than one-tenth of the aggregate number of Shares which the Underwriters are
obligated to purchase on the Closing Date and arrangements satisfactory to you
and the Company for the purchase of such Shares by one or more non-defaulting
Underwriters or other party or parties approved by you and the Company are not
made within 36 hours after such default, this Agreement will terminate without
liability on the part of any non-defaulting Underwriter or the Company. In any
such case which does not result in termination of this Agreement, either you or
the Company shall have the right to postpone the Closing Date, but in no event
for longer than seven days, in order that the required changes, if any, in the
Registration Statement and the Prospectus or any other documents or
arrangements may be effected. Any action taken under this paragraph shall not
relieve any defaulting Underwriter from liability in respect of any such
default of any such Underwriter under this Agreement. The term "Underwriter"
as used in this Agreement includes, for all purposes of this Agreement, any
party not listed in Schedule III hereto who, with your approval and the
approval of the Company, purchases Shares which a defaulting Underwriter
agreed, but failed or refused, to purchase.

Any notice under this Section 12 may be given by telegram,
telecopy or telephone but shall be subsequently confirmed by letter.

13. TERMINATION OF AGREEMENT. This Agreement shall be subject to
termination in your absolute discretion, without liability on the part of any
Underwriter to the Company, by notice to the Company, the Attorneys-in-Fact and
the Pecks Managed Entities, if prior to the Closing Date or any Option Closing
Date (if different from the Closing Date and then only as to the Additional
Shares), as the case may be, (i) trading in securities generally on the New
York Stock Exchange, the American Stock Exchange or the Nasdaq National Market
shall have been suspended or materially limited, (ii) a general moratorium on
commercial banking activities in New York shall have been declared by either
federal or state authorities, or (iii) there shall have occurred any outbreak
or escalation of hostilities or other international or domestic calamity,
crisis or change in political, financial or economic conditions, the effect of
which on the financial markets of the United States is such as to make it, in
your judgment, impracticable or inadvisable to commence or continue the
offering of the Shares at the offering price

<PAGE> 24

to the public set forth on the cover page of the Prospectus or to enforce
contracts for the resale of the Shares by the Underwriters. Notice of such
termination may be given by telegram, telecopy or telephone and shall be
subsequently confirmed by letter.

14. INFORMATION FURNISHED BY THE UNDERWRITERS. The statements set
forth in the last paragraph on the cover page, the stabilization legend on the
inside front cover page and the statements in the first and third paragraphs
under the caption "Underwriting" in any Prepricing Prospectus and in the
Prospectus constitute the only information furnished by or on behalf of the
Underwriters through you as such information is referred to in Sections 7(b)
and 9 hereof.

15. MISCELLANEOUS. Except as otherwise provided in Sections 5, 12
and 13 hereof, notice given pursuant to any provision of this Agreement shall
be in writing and shall be delivered (i) if to the Company, at the office of
the Company at 1327 Northmeadow Parkway, Suite 132, Roswell, Georgia 30076,
Attention: Gary D. Kerber, Chairman of the Board, President and Chief Executive
Officer, with a copy to Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel,
P.A., 777 South Flagler Drive, West Palm Beach, Florida 33401, Attention:
Morris C. Brown, Esq.; (ii) if to the Selling Stockholders (other than the
Pecks Managed Entities), in care of the Attorney-in-Fact at the office of the
Company, at the address given in clause (i), with a copy to Greenberg, Traurig,
Hoffman, Lipoff, Rosen & Quentel, P.A., Attention: Morris C. Brown at the
address given in clause (i); (iii) if to the Pecks Managed Entities, care of
Pecks Management Partners Ltd. One Rockefeller Plaza; New York, New York 10020
Attention: Robert J. Cresci, Managing Director; or (iii) if to you, as
Representatives of the several Underwriters, care of Smith Barney Inc., 388
Greenwich Street, New York, New York 10013, Attention: Manager, Investment
Banking Division, with a copy to Dewey Ballantine, 1301 Avenue of the Americas,
New York, New York 10019, Attention: Frederick W. Kanner, Esq.

This Agreement has been and is made solely for the benefit of
the several Underwriters, the Company, its directors, its officers who sign the
Registration Statement and the controlling persons referred to in Section 9
hereof and, to the extent provided herein, their respective successors and
assigns, and no other person shall acquire or have any right under or by virtue
of this Agreement. Neither the term "successor" nor the term "successors and
assigns" as used in this Agreement shall include a purchaser from any
Underwriter of any of the Shares in his status as such purchaser.

16. APPLICABLE LAW; COUNTERPARTS. This Agreement shall be
governed by and construed in accordance with the laws of the State of New York
applicable to contracts made and to be performed within the State of New York.

This Agreement may be signed in various counterparts which
together constitute one and the same instrument. If signed in counterparts,
this Agreement shall not become effective unless at least one counterpart
hereof shall have been executed and delivered on behalf of each party hereto.

<PAGE> 25

Please confirm that the foregoing correctly sets forth the
agreement among the Company, the several Selling Stockholders and the several
Underwriters.

Very truly yours,

EDUCATIONAL MEDICAL INC.

By:
------------------------------------

EACH OF THE SELLING
STOCKHOLDERS NAMED IN
SCHEDULES I AND II HERETO
(other than the Pecks
Managed Entities)

By:
------------------------------------
Attorney-in-Fact

TRUST FOR DEFINED
BENEFIT PLAN OF ICI
AMERICAN HOLDINGS INC.

By: Pecks Management Partners,
Ltd., its Investment
Advisor

By:
------------------------------------
Robert J. Cresci
Managing Director

TRUST FOR DEFINED
BENEFIT PLAN OF ZENECA
HOLDINGS, INC.

By: Pecks Management Partners,
Ltd., its Investment
Advisor

<PAGE> 26
By:
------------------------------------
Robert J. Cresci
Managing Director

DELAWARE STATE
EMPLOYEES' RETIREMENT
FUND

By: Pecks Management Partners,
Ltd., its Investment
Advisor

By:
------------------------------------
Robert J. Cresci
Managing Director

Confirmed as of the date first
above mentioned on behalf of
themselves and the other several
Underwriters named in Schedule III
hereto.

SMITH BARNEY INC.
MONTGOMERY SECURITIES

As Representatives of the Several Underwriters

By: SMITH BARNEY INC.

By:
--------------------------------------------
Managing Director

<PAGE> 27

SCHEDULE III

EDUCATIONAL MEDICAL INC.

<TABLE>
<CAPTION>
Number of
Underwriter Firm Shares
- ----------- -----------
<S> <C>
Smith Barney Inc. . . . . . . . . . . . . . . . . . . . . . . . .
Montgomery Securities . . . . . . . . . . . . . . . . . . . . . .

-----------
Total . . . . . . . . . .
2,700,000
===========
</TABLE>
<PAGE> 28

SCHEDULE I

EDUCATIONAL MEDICAL INC.

<TABLE>
<CAPTION>
Number of
Primary Selling Stockholder Firm Shares
- --------------------------- -----------
<S> <C>
Sirrom Capital Corporation . . . . . . . . . . . . . . . . . . . 83,674
AI Ventures . . . . . . . . . . . . . . . . . . . . . . . . . . .
Article 3/Goldblatt . . . . . . . . . . . . . . . . . . . . . . .
Bassock, Stephen . . . . . . . . . . . . . . . . . . . . . . . .
Benson, Marguerita H. . . . . . . . . . . . . . . . . . . . . . .
Bradford, Jr., William H. . . . . . . . . . . . . . . . . . . . .
Braver, David A. . . . . . . . . . . . . . . . . . . . . . . . .
Burke, Robert J. & Ann M. . . . . . . . . . . . . . . . . . . . .
CGEN LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Claar, Alice . . . . . . . . . . . . . . . . . . . . . . . . . .
Fondren, Robert . . . . . . . . . . . . . . . . . . . . . . . . .
Gewirtz, Morton & Karin . . . . . . . . . . . . . . . . . . . . .
Goldblatt, Seymour L. . . . . . . . . . . . . . . . . . . . . . .
Hall, Marie F. . . . . . . . . . . . . . . . . . . . . . . . . .
Hare & Co. (State of Washington State Investment Board) . . . . .
Hoffman, Howard A. . . . . . . . . . . . . . . . . . . . . . . .
Honeywell Master Trust . . . . . . . . . . . . . . . . . . . . .
Hoskinson, J. Henry & John K (Trustees) . . . . . . . . . . . . .
Hutman, Carl S. . . . . . . . . . . . . . . . . . . . . . . . . .
Kalman, Ernest. . . . . . . . . . . . . . . . . . . . . . . . . .
Kay, David G. . . . . . . . . . . . . . . . . . . . . . . . . . .
Laden, Robert. . . . . . . . . . . . . . . . . . . . . . . . . .
Lembas, Gerald A. . . . . . . . . . . . . . . . . . . . . . . . .
Manufacturers Life Insurance Co. . . . . . . . . . . . . . . . .
McKay Robert . . . . . . . . . . . . . . . . . . . . . . . . . .
Melamed, A. Douglas . . . . . . . . . . . . . . . . . . . . . . .
Meynet, Maryanne Mott . . . . . . . . . . . . . . . . . . . . . .
MFO Management . . . . . . . . . . . . . . . . . . . . . . . . .
Morningstar Associates . . . . . . . . . . . . . . . . . . . . .
Mott, C.S. Harding Estate of . . . . . . . . . . . . . . . . . .
Mott, Maryanne T--1952 Trust . . . . . . . . . . . . . . . . . .
Mott, Ruth R. . . . . . . . . . . . . . . . . . . . . . . . . . .
Mott, Stewart R.--1952 Trust . . . . . . . . . . . . . . . . . .
Mott, Stewart R. . . . . . . . . . . . . . . . . . . . . . . . .
Nigra, Thomas P. . . . . . . . . . . . . . . . . . . . . . . . .
Nusbaum, Arthur . . . . . . . . . . . . . . . . . . . . . . . . .
Pantheon USA Fund Limited . . . . . . . . . . . . . . . . . . . .
</TABLE>

I-1

<PAGE> 29

<TABLE>

<S> <C>
Paturick, Arthur . . . . . . . . . . . . . . . . . . . . . . . .
Poor, Mary A. . . . . . . . . . . . . . . . . . . . . . . . . . .
Rosenberg, Ricardo M . . . . . . . . . . . . . . . . . . . . . .
Schiavoni, T.V . . . . . . . . . . . . . . . . . . . . . . . . .
Soroka, William . . . . . . . . . . . . . . . . . . . . . . . . .
Tandon, Sirjang Lal . . . . . . . . . . . . . . . . . . . . . . .
Tulchin, Herbert . . . . . . . . . . . . . . . . . . . . . . . .
Venvest, Inc. . . . . . . . . . . . . . . . . . . . . . . . . .
Warshaw, Peter . . . . . . . . . . . . . . . . . . . . . . . . .
Warshaw, William . . . . . . . . . . . . . . . . . . . . . . . .
Wilson, Kendall c/f . . . . . . . . . . . . . . . . . . . . . . .
Yates, Weldon as Trustee For
Ellanor Jeannette Yates Trust . . . . . . . . . . . . . . . . . .
Yates, Weldon as Trustee For
Emily Fondren Yates Trust . . . . . . . . . . . . . . . . . . . .
Yates, Weldon as Trustee For
Mirenda Louise Yates Trust . . . . . . . . . . . . . . . . . . .

-------
Total . . . . . . . . . . . . . . . . . . . . . . . 500,000
=======
</TABLE>

I-2
<PAGE> 30

SCHEDULE II

EDUCATIONAL MEDICAL INC.

<TABLE>
<CAPTION>
Number of
Over-allotment Selling Stockholder Additional Shares
- ---------------------------------- -----------------
<S> <C>
Sprout Capital V. . . . . . . . . . . . . . . . . . . . . . . . .
Sprout Technology Fund . . . . . . . . . . . . . . . . . . . . .
DLJ Venture Capital Fund II, L.P. . . . . . . . . . . . . . . . .
Lawrence, Tyrrell, Ortale &
Smith . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Delaware State Employees' Retirement Fund . . . . . . . . . . . .
Declaration of Trust for Defined Benefit
Plans of ICI American Holding Inc. . . . . . . . . . . . . . . .
Declaration of Trust for Defined Benefit
Plans of Zeneca Holding Inc. . . . . . . . . . . . . . . . . . .
Pecks Management Partners Ltd. . . . . . . . . . . . . . . . . .
Gary D. Kerber . . . . . . . . . . . . . . . . . . . . . . . . .
Vince Pisano . . . . . . . . . . . . . . . . . . . . . . . . . .
-------------
Total . . . . . . . . . . . . . . . . . . . . . . 405,000
=============
</TABLE>

I-1

<PAGE> 1
EXHIBIT 3.1(a)

RESTATED

CERTIFICATE OF INCORPORATION

EMI ACQUISITION CORP.

(Original Certificate of Incorporation filed with the Secretary of
State of the State of Delaware on March 11, 1988)

ARTICLE FIRST

NAME

The name of the Corporation (the "Corporation") is EMI ACQUISITION
CORP.

ARTICLE SECOND

REGISTERED OFFICE

The address of the registered office of the Corporation in the State of
Delaware is 229 South State Street, City of Dover, County of Kent. The name of
the registered agent of the Corporation at such address is The Prentice-Hall
Corporation System, Inc.

ARTICLE THIRD

PURPOSE

The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.

ARTICLE FOURTH

STOCK

The total number of shares of all classes of stock that the Corporation
shall have the authority to issue is 2,115,000 shares, consisting of (a) 615,000
shares of Cumulative Convertible Preferred Stock, $.01 par value (the
"Preferred Stock") and (b) 1,500,000 shares of Common Stock, $.01 par value
(the "Common Stock").

<PAGE> 2
The designations, powers, preferences and relative, participating,
optional or other special rights, and the qualifications, limitations and
restrictions thereof in respect of the Preferred Stock and the Common Stock are
as follows:

A. PREFERRED STOCK

1. Dividends. (a) The holders of each share of Preferred Stock shall be
entitled to receive, before any dividends shall be declared and paid upon or
set aside for the Junior Stock (as defined in Section 7 hereof) in any year,
out of funds legally available for that purpose, dividends in cash at the
annual rate per share equal to eight percent (8%) of the Liquidation Preference
(as defined in Section 7 hereof) payable when and as declared by the Board of
Directors of the Corporation (any such dividend payment date being hereinafter
referred to as a "Dividend Payment Date"). Dividends on shares of Preferred
Stock shall be cumulative (whether or not there shall be net profits or net
assets of the Corporation legally available for the payment of such dividends),
so that, if at any time Accrued Dividends (as defined in Section 7 hereof) upon
the Preferred Stock shall not have been paid or declared and a sum sufficient
for payment thereof set apart, no dividend shall be declared or paid or any
other distribution ordered or made upon any Junior Stock (other than a dividend
payable in such Junior Stock) or any sum or sums set aside for or applied to
the purchase or redemption of any shares of any Junior Stock.

(b) All dividends declared upon the Preferred Stock shall be
declared pro rata per share based on the Liquidation Preference of the
Preferred Stock, but shall be paid pro rata based on the Accrued Dividends
declared with respect thereto. The aggregate of all payments due under this
Section 1 to any holder of shares of Preferred Stock shall be made to such
holder to the nearest dollar. In the event of a split-up, subdivision, a
combination of shares of Preferred Stock or similar event the dividend rate on
the Preferred Stock shall be subject to equitable adjustment.

2. Rights on Liquidation, Dissolution or Winding Up. In the event
of any liquidation, dissolution or winding up of the Corporation, the holders
of shares of Preferred Stock then outstanding shall be entitled to be paid out
of the assets of the Corporation available for distribution to its
stockholders, whether from capital, surplus or earnings, before any payment
shall be made to the holders of any stock ranking on liquidation junior to the
Preferred Stock (with respect to rights on liquidation, dissolution or winding
up, the Preferred Stock shall rank prior to the Common Stock) an amount equal
to the Liquidation Preference of the Preferred Stock, plus an amount equal to
Accrued Dividends, if any, to the date of payment. If upon any liquidation,
dissolution or winding up of the Corporation the assets of the Corporation
available for distribution to its

-2-

<PAGE> 3
stockholders shall be insufficient to pay the holders of shares of Preferred
Stock the full amounts to which they shall be entitled, the holders of shares
of Preferred Stock shall share ratably in any distribution of assets according
to the respective amounts which would be payable in respect of the shares held
by them upon such distribution if all amounts payable on or with respect to
said shares were paid in full. In the event of any liquidation, dissolution or
winding up of the Corporation, after payment shall have been made to the
holders of Preferred Stock of the full amount to which they shall be entitled
as aforesaid, the holders of the Common Stock shall be entitled, to the
exclusion of the holders of shares of Preferred Stock, to shares ratably in all
remaining assets of the Corporation available for distribution to its
stockholders.

3. Redemption. (a) Subject to Section 3(e) below, on each of March
31, 1994 and 1995 (each such date being hereinafter called a "Preferred
Redemption Date"), the Corporation shall (unless otherwise prevented by law)
concurrently redeem at an amount per share equal to the Liquidation Preference,
plus Accrued Dividends, if any, payable with respect thereto, that number of
shares of Preferred Stock equal to the lesser of (A) 50% of all shares of
Preferred Stock outstanding on March 31, 1994, or (B) all of the shares of
Preferred Stock then outstanding. The total sum payable per share of Preferred
Stock on any Preferred Redemption Date is hereinafter referred to as the
"Preferred Redemption Price," and any payment to be made is hereinafter referred
to as a "Preferred Redemption Payment."

(b) If less than all the shares of Preferred Stock then
outstanding are to be redeemed, the redemption shall be pro rata with respect
to such shares based upon the number of outstanding shares of Preferred Stock
then owned by each holder thereof. If upon any redemption the assets of the
Corporation available for redemption shall be insufficient to pay the holders
of Preferred Stock the full amounts to which they shall be entitled, the
holders of shares of Preferred Stock shall share ratably in any such redemption
according to the respective amounts which would be payable in respect of shares
held by them upon such redemption if all amounts payable on or with respect to
said shares were paid in full. On and after any Preferred Redemption Date
(unless default shall be made by the Corporation in the payment of the
Preferred Redemption Price as hereinafter provided, in which event such rights
shall be exercisable until such default is cured) all rights in respect of the
shares of Preferred Stock to be redeemed, except the right to receive the
Preferred Redemption Price as hereinafter provided, shall cease and terminate;
and such shares shall no longer be deemed to be outstanding, whether or not the
certificates representing such shares have been received by the Corporation.

-3-
<PAGE> 4
postage prepaid, to the holders of record of the outstanding shares of
Preferred Stock at their respective addresses as the same shall appear on the
books of the Corporation. Such notice shall be mailed not less than 60 nor more
than 90 days in advance of the commencement of the Preferred Redemption Date.
At any time on or after the Preferred Redemption Date, the holders of record of
shares of Preferred Stock shall be entitled to receive the Preferred Redemption
Price upon actual delivery to the Corporation or its agent of the certificates
representing the shares to be redeemed.

(d) The Corporation will not, and will not permit any subsidiary of the
Corporation to, purchase or acquire any shares of Preferred Stock otherwise
than pursuant to the terms of this Section 3 or pursuant to an offer made on
the equivalent terms to all holders of Preferred Stock, at the time
outstanding.

(e) Anything contained in this Section 3 to the contrary
notwithstanding, the holders of shares of Preferred Stock to be redeemed in
accordance with this Section 3 shall have the right, exercisable at any time up
to the close of business on the Preferred Redemption Date (unless default shall
be made by the Corporation in the payment or the Preferred Redemption Price as
herein provided, in which event such right shall be exercisable until such
default is cured), to convert all or any part of such shares requested by such
holder to be redeemed as herein provided into shares of Common Stock pursuant
to Section 6 hereof. If, and to the extent, any shares of Preferred Stock so
entitled to redemption are converted into shares of Common Stock by the holders
thereof prior to the close of business on the Preferred Redemption Date, the
total number of shares of Preferred Stock otherwise to be redeemed on such
Preferred Redemption Date shall be reduced by the number of shares of Preferred
Stock so converted.

(f) Once redeemed pursuant to the provisions of this Section 3, shares
of Preferred Stock shall be cancelled and not subject to reissuance.

(g) The Preferred Stock shall not be entitled to the benefit of a
sinking fund or purchase fund.

4. Special Redemption. (a) In the event of and simultaneously with
the closing of an Event of Sale (as hereinafter defined), the Corporation shall
(unless otherwise prevented by law) redeem all the shares of Preferred Stock
then outstanding for a cash amount per share of Preferred Stock redeemed
determined as set forth herein (the "Special Redemption Price", said
redemption being referred to herein as a "Special Redemption"). For all
purposes of this Section 4, the Special Redemption Price shall be equal to that
amount per share which would be received by each holder of shares of Preferred
Stock, in connection

-4-
<PAGE> 5
with an Event of Sale, all the consideration paid in exchange for the assets or
the shares of capital stock (as the case may be) of the Corporation were
actually paid to and received by the Corporation and the Corporation were
immediately thereafter liquidated pursuant to Section 2 hereof. To the extent
that one or more redemptions and/or a liquidation are occurring concurrently,
the Special Redemption shall be deemed to occur first. The date upon which the
Special Redemption shall occur is sometimes referred to herein as the "Special
Redemption Date".

(b) At any time on or after the Special Redemption Date, a
holder of shares of Preferred Stock shall be entitled to receive the Special
Redemption Price for each such share held by such holder upon actual delivery
to the Corporation or its transfer agent of the certificate representing such
shares.

(c) If on the Special Redemption Date, less than all the shares
of Preferred Stock then outstanding may be legally redeemed by the Corporation,
the Special Redemption shall be made on a pro rata basis, based upon the number
of outstanding shares of Preferred Stock then owned by each holder of Preferred
Stock. On and after any Special Redemption Date, all rights in respect of the
shares of Preferred Stock to be redeemed, except the right to receive the
applicable Special Redemption Price as herein provided, shall cease and
terminate (unless default shall be made by the Corporation in the payment of
the Special Redemption Price as herein provided, in which event such rights
shall be exercisable until such default is cured), and such shares shall no
longer be deemed to be outstanding, whether or not the certificates
representing such shares have been received by the Corporation.

(d) Anything contained herein to the contrary notwithstanding,
the provisions of this Section 4 may, at the option (the "Option") of the
holders of a majority in voting power of the Preferred Stock then outstanding,
exercised by delivery of written notice to the Corporation prior to the closing
of any Event of Sale, be waived, in which event the Corporation shall not
redeem any shares of Preferred Stock pursuant to this Section 4.

(e) No later than 30 days prior to an Event of Sale, the
Corporation shall give notice to the holders of shares of Preferred Stock,
substantially similar to the notice required by Section 3(c) hereof, which
notice shall include a statement by the Corporation of (i) the Special
Redemption Price which each holder of Preferred Stock shall be entitled to
receive upon the occurrence of a Special Redemption under this Section 4 and
(ii) the extent to which the Corporation will, if at all, be legally prohibited
from paying to each holder the Special Redemption Price.

(f) Anything contained in this Section 4 to the contrary
notwithstanding, the holders of shares of Preferred

-5-
<PAGE> 6
Stock to be redeemed in accordance with this Section 4 shall have the right,
exercisable at any time up to the close of business on the Special Redemption
Date (unless default shall be made by the Corporation in the payment of the
Special Redemption Price as herein provided, in which event such right shall be
exercisable until such default is cured), to convert all or any part of such
shares requested by such holder to be redeemed as herein provided into shares
of Common Stock pursuant to Section 6 hereof.

(g) For purposes of this Section 4, an "Event of Sale" shall
mean (A) the merger or consolidation of the Corporation into or with another
corporation, partnership, joint venture, trust or other entity or the merger or
consolidation of any other corporation into or with the Corporation (in which
consolidation or merger the stockholders of the Corporation receive
distributions of cash or securities as a result of such consolidation or merger
in exchange for shares of capital stock of the Corporation), or (B) the sale or
other disposition of all or substantially all the assets of the Corporation or
the purchase or other acquisition of all or substantially all the assets of any
other corporation, partnership, joint venture, trust or other entity, unless,
upon consummation of such merger, consolidation or sale of assets, the holders
of voting securities of the Corporation immediately prior to such transaction
continue to own directly or indirectly securities representing not less than a
majority of the voting power of the surviving corporation.

5. Voting. (a) In addition to the rights specified in Sections
5(b) and (c) hereof and any other rights provided in the Corporation's By-laws
or by law, each share of Preferred Stock shall entitle the holder thereof to
such number of votes per share as shall equal the number of shares of Common
Stock (including any fraction to two decimal places) into which each share of
Preferred Stock is then convertible and to vote on all matters as to which
holders of Common Stock shall be entitled to vote, in the same manner and with
the same effect as such holders of Common Stock, voting together with the
holders of Common Stock as one class.

(b) In addition to the rights specified in Sections 5(a) and
(c) hereof, the holders of a majority in voting power of the Preferred Stock,
voting separately as one class, shall have the exclusive and special right at
all times to elect three directors to the Board of Directors of the
Corporation. In any election of directors pursuant to this subsection (b), each
holder of shares of Preferred Stock shall be entitled to one vote for each
share of Preferred Stock held and no holder of Preferred Stock shall be
entitled to cumulate his votes by giving one candidate more than one vote per
share. The special and exclusive voting right of the holders of the Preferred
Stock, voting separately as one class, contained in this subsection (b) may be
exercised either at a special meeting of the holders of Preferred Stock called
as provided below, or at any annual or special

-6-

<PAGE> 7
meeting of the stockholders of the Corporation, or by written consent of such
holders in lieu of a meeting. The directors to be elected by the holders of the
Preferred Stock, voting separately as one class, pursuant to this subsection
(b), shall serve for terms extending from the date of their election and
qualification until the time of the next succeeding annual meeting of
stockholders and until their successors have been elected and qualified.

If at any time any directorship to be filled by the holders of
Preferred Stock, voting separately as one class, pursuant to this subsection
(b) has been vacant for a period of ten days, the Secretary of the Corporation
shall, upon the written request of the holders of record of shares representing
at least 25% of the voting power of the Preferred Stock then outstanding, call
a special meeting of the holders of Preferred Stock for the purpose of electing
a director or directors to fill such vacancy or vacancies. Such meeting shall
be held at the earliest practicable date at such place as is specified in the
By-laws of the Corporation. If such meeting shall not be called by the
Secretary of the Corporation within ten days after personal service of said
written request on him, then the holders of record of shares representing at
least 25% of the voting power of the Preferred Stock then outstanding may
designate in writing one of their number to call such meeting at the expense of
the Corporation, and such meeting may be called by such persons so designated
upon the notice required for annual meetings of stockholders and shall be held
at such specified place. Any holder of the Preferred Stock so designated shall
have access to the stock books of the Corporation for the purpose of calling a
meeting of the stockholders pursuant to these provisions.

At any meeting held for the purpose of electing directors at which the
holders of Preferred Stock shall have the special and exclusive right, voting
separately as one class, to elect directors as provided in this subsection (b),
the presence, in person or by proxy, of the holders of record of shares
representing a majority of the voting power of the Preferred Stock then
outstanding shall be required to constitute a quorum of the Preferred Stock for
such election. At any such meeting or adjournment thereof, the absence of such
a quorum of the Preferred Stock shall not prevent the election of directors
other than the directors to be elected by holders of the Preferred Stock,
voting separately as one class, pursuant to this subsection (b), and the
absence of a quorum for the election of such other directors shall not prevent
the election of the directors to be elected by the holders of the Preferred
Stock, voting separately as one class, pursuant to this subsection (b). In the
absence of either or both such quorums, the holders of record of shares
representing a majority of the voting power present in person or by proxy of
the class or classes of stock which lack a quorum shall have power to adjourn
the meeting for the election of directors which

-7-

<PAGE> 8
they are entitled to elect from time to time without notice other than
announcement at the meeting.

A vacancy in the directorships to be elected by the holders of the
Preferred Stock, voting separately as one class, pursuant to this subsection
(b), may be filled only by vote or written consent in lieu of a meeting of (i)
the holders of a majority in voting power of the Preferred Stock, acting
separately as one class, or (ii) the remaining directors elected by the holders
of the Preferred Stock (or by directors so elected).

(c) The Corporation shall not, without the affirmative consent
of the holders of shares representing at least a majority in voting power of
the Preferred Stock then outstanding, acting separately as one class, for so
long as the then outstanding shares of Preferred Stock are no less than 50% of
the number of shares of Preferred Stock outstanding on the Original Issuance
Date, given by written consent in lieu of a meeting or by vote at a meeting
called for such purpose for which notice shall have been given to the holders
of the outstanding Preferred Stock:

(i) directly or indirectly, sell, lease, transfer or otherwise
dispose of (whether in one transaction or in a series of transactions)
all or a substantial portion of its assets;

(ii) consolidate with or merge into any corporation or permit
any corporation to merge into it;

(iii) declare or pay any dividend on or make any other
distribution (whether by reduction of capital or otherwise) of cash or
property or both with respect to any shares of its Junior Stock, or
purchase, retire or otherwise acquire for value any shares of its
capital stock;

(iv) take any action to cause any amendment, alteration or
repeal of any provisions of the Certificate of Incorporation or By-Laws
of the Corporation if such action would alter, change or adversely
affect the preferences, rights, privileges or powers of, or
restrictions for the benefit of, the Preferred Stock;

(v) except for the issuance of shares of capital stock or other
securities constituting Excluded Securities (as defined in Section 7
hereof) or the issuance of shares of Preferred Stock pursuant to the
Purchase Agreement, authorize, create, issue or agree to issue any
shares of its capital stock or any security, right, option or warrant
convertible into, or exercisable or exchangeable for, shares of its
capital stock; or

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<PAGE> 9
(vi) voluntarily dissolve, liquidate or wind up or carry out
any partial liquidation or dissolution or transaction in the nature of a
partial liquidation or dissolution.

6. Option Conversion. (a) A holder of shares of Preferred Stock
shall have the right, at such holder's option, at any time or from time to
time, to convert any of such shares into such whole number of fully paid and
nonassessable shares of Common Stock as is equal to the quotient obtained by
dividing (A) the Liquidation Preference for the Preferred Stock multiplied by
the number of shares of Preferred Stock being converted by (B) the Preferred
Conversion Price (as hereinafter defined) as last adjusted and then in effect,
for the shares of Preferred Stock being converted, by surrender of the
certificates representing the shares of Preferred Stock so to be converted
in the manner provided in Section 6(b) hereof. The conversion price per share
at which shares of Common Stock shall be issuable upon conversion of shares of
Preferred Stock shall initially be the Liquidation Preference of the Preferred
Stock (the "Preferred Conversion Price"); provided, however, that such
Preferred Conversion Price shall be subject to adjustment as set forth in
Section 6(d) hereof. The holder of any shares of Preferred Stock exercising the
aforesaid right to convert such shares of Preferred Stock exercising the
aforesaid right to convert such shares of Preferred Stock into shares of Common
Stock shall be entitled to payment of Accrued Dividends, if any, payable with
respect to such shares of Preferred Stock up to and including the Conversion
Date (as hereinafter defined).

(b) A holder of shares of Preferred Stock may exercise the
conversion right pursuant to Section 6(a) hereof as to any such shares by
delivering to the Corporation during regular business hours, at the office of
any transfer agent of the Corporation for the Preferred Stock or at such other
place as may be designated by the Corporation, the certificate or certificates
for the shares to be converted, duly endorsed or assigned in blank or to the
Corporation (if required by it), accompanied by written notice stating that the
holder elects to convert such shares and stating the name or names (with
address) in which the certificate or certificates for the shares of Common
Stock are to be issued. Conversion shall be deemed to have been effected on the
date when the aforesaid delivery is made (the "Conversion Date"). As promptly
as practicable thereafter the Corporation shall issue and deliver to or upon
the written order of such holder, to the place designated by such holder, a
certificate or certificates for the number of full shares of Common Stock to
which such holder is entitled and a check or cash in respect of any fractional
interest in a share of Common Stock as provided in Section 6(c) hereof and a
check or cash in payment of all Accrued Dividends, if any (to the extent
permissible under law), payable with respect to the shares of Preferred Stock
so converted up to and including the Conversion Date. The person in whose name
the certificate or certificates for Common Stock are to be issued

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<PAGE> 10
shall be deemed to have become a stockholder of record on the applicable
Conversion Date unless the transfer books of the Corporation are closed on that
date, in which event he shall be deemed to have become a stockholder of record
on the next succeeding date on which the transfer books are open, but the
Preferred Conversion Price shall be that in effect on the Conversion Date. Upon
conversion of only a portion of the number of shares covered by a certificate
representing shares of Preferred Stock surrendered for conversion, the
Corporation shall issue and deliver to or upon the written order of the holder
of the certificate so surrendered for conversion, at the expense of the
Corporation, a new certificate covering the number of shares of Preferred Stock
representing the unconverted portion of the certificate so surrendered, which
new certificate shall entitle the holder thereof to dividends on the shares of
Preferred Stock represented thereby to the same extent as if the portion of the
certificate theretofore covering such unconverted shares had not been
surrendered for conversion.

(c) No fractional shares of Common Stock or scrip shall be
issued upon conversion of shares of Preferred Stock. If more than one share of
Preferred Stock shall be surrendered for conversion at any one time by the same
holder, the number of full shares of Common Stock issuable upon conversion
thereof shall be computed on the basis of the aggregate number of shares of
Preferred Stock so surrendered. Instead of any fractional shares of Common
Stock which would otherwise be issuable upon conversion of shares of
Preferred Stock, the Corporation shall pay a cash adjustment in respect of such
fractional interest in an amount equal to the then Current Market Price (as
defined in Section 6(d)(vii) hereof) of a share of Common Stock multiplied by
such fractional interest. Fractional interests shall not be entitled to
dividends, and the holders of fractional interests shall not be entitled to any
rights as stockholders of the Corporation in respect of such fractional
interest.

(d) The Preferred Conversion Price shall be subject to
adjustment from time to time as follows:

(i) If the Corporation shall at any time or from time to time
after the Original Issuance Date of the Preferred Stock issue any
shares of Common Stock other than Excluded Securities without
consideration or for a consideration per share less than the
Preferred Conversion Price in effect immediately prior to the
issuance of such Common Stock, the Preferred Conversion Price in
effect immediately prior to such issuance shall forthwith be lowered
to a price equal to the consideration per share, if any, received by
the Corporation upon such issuance; provided, however, that if the
Corporation issues any shares of Common Stock (other than Excluded
Stock) as contemplated by this Section 6(d)(i) without consideration,
such shares

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<PAGE> 11
shall be deemed solely for purposes of this Section 6(d)(i) to have
been issued for a consideration per share equal to $.01.

For the purposes of any adjustment of the Preferred Conversion Prices
pursuant to Section 6(d)(i), the following provisions shall be
applicable:

(A) In the case of the issuance of Common Stock for cash, the
consideration shall be deemed to be the amount of cash paid therefor
after deducting therefrom any discounts, commissions or other expenses
allowed, paid or incurred by the Corporation for any underwriting or
otherwise in connection with the issuance and sale thereof.

(B) In the case of the issuance of Common Stock for a
consideration in whole or in part other than cash, the consideration
other than cash shall be deemed to be the fair market value thereof as
determined in good faith by the Board of Directors, irrespective of any
accounting treatment.

(C) In the case of the issuance of (i) options to purchase or
rights to subscribe for Common Stock, (ii) securities by their terms
convertible into or exchangeable for Common Stock or (iii) options to
purchase or rights to subscribe for such convertible or exchangeable
securities:

(1) the shares of Common Stock deliverable upon exercise of
such options to purchase or rights to subscribe for Common Stock shall
be deemed to have been issued at the time such options or rights were
issued and for a consideration equal to the consideration (determined
in the manner provided in subdivisions (A) and (B) above), if any,
received by the Corporation upon the issuance of such options or rights
plus the minimum purchase price provided in such options or rights for
the Common Stock covered thereby;

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<PAGE> 12
Corporation for any such securities and related options or
rights (excluding any cash received on account of accrued
interest or accrued dividends), plus the additional
consideration, if any, to be received by the Corporation upon
the conversion or exchange of such securities or the exercise
of any related options or rights (the consideration in each
case to be determined in the manner provided in subdivisions
(A) and (B) above);

(3) on any change in the number of shares or exercise
price of Common Stock deliverable upon exercise of any such
options or rights or conversions of or exchanges for such
securities, other than a change resulting from the antidilution
provisions thereof, the Preferred Conversion Price shall
forthwith be readjusted to such Preferred Conversion Price as
would have obtained had the adjustment made upon the issuance
of such options, rights or securities not converted prior to
such change or options or rights related to such securities
not converted prior to such change been made upon the basis
of such change; and

(4) on the expiration of any such options or rights,
the termination of any such rights to convert or exchange or
the expiration of any options or rights related to such
convertible or exchangeable securities, the Preferred
Conversion Price shall forthwith be readjusted to such
Preferred Conversion Price as would have obtained had such
options, rights, securities or options or rights related to
such securities not been issued.

(ii) If, at any time after the Original Issuance Date of the
Preferred Stock, the number of shares of Common Stock outstanding is increased
by a stock dividend payable in shares of Common Stock or by a subdivision or
split-up of shares of Common Stock, then, following the record date fixed for
the determination of holders of Common Stock entitled to receive such stock
dividend, subdivision or split-up, the Preferred Conversion Price shall be
appropriately decreased so that the number of shares of Common Stock issuable
on conversion of each share of Preferred Stock shall be increased in proportion
to such increase in outstanding shares.

(iii) If, at any time after the Original Issuance Date of the
Preferred Stock, the number of shares of Common Stock outstanding is decreased
by a combination of the outstanding shares of Common Stock, then, following the
record date for such combination, the

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<PAGE> 13
Preferred Conversion Price shall be appropriately increased so that the
number of shares of Common Stock issuable on conversion of each share of
Preferred Stock shall be decreased in proportion to such decrease in
outstanding shares.

(iv) In case, at any time after the Original Issuance Date of
the Preferred Stock, the Corporation shall declare a cash dividend upon
its Common Stock payable otherwise than out of earnings or shall
distribute to holders of its Common Stock shares of its capital stock
(other than Common Stock), stock or other securities of other persons,
evidences of indebtedness issued by the Corporation or other persons,
other assets or options or rights (excluding options to purchase and
rights to subscribe for Common Stock or other securities of the
Corporation convertible into or exchangeable for Common Stock), then, in
each such case, immediately following the record date fixed for the
determination of the holders of Common Stock entitled to receive such
dividend or distribution, the Preferred Conversion Price in effect
thereafter shall be adjusted to be a price determined by multiplying the
Preferred Conversion Price in effect immediately prior to such record
date by a fraction of which the numerator shall be an amount equal to
the remainder of (x) the Current Market Price of one share of Common
Stock less (y) the fair market value (as determined by the Board of
Directors, whose determination shall be conclusive) of the stock,
securities, evidences of indebtedness, assets, options or rights so
distributed in respect of one share of Common Stock, and of which the
denominator shall be such Current Market Price. Such adjustment shall be
made on the date such dividend or distribution is made, and shall become
effective at the opening of business on the business day next following
the record date for the determination of stockholders entitled to such
dividend or distribution.

(v) In case, at any time after the Original Issuance Date of
the Preferred Stock, of any capital reorganization, or any
reclassification of the stock of the Corporation (other than a change in
par value or from par value to no par value or from no par value to par
value or as a result of a stock dividend or subdivision, split-up or
combination of shares), or the consolidation or merger of the
Corporation with or into another person (other than a consolidation or
merger in which the Corporation is the continuing corporation and which
does not result in any change in the Common Stock) or of the sale or
other disposition of all or substantially all the properties and assets
of the Corporation as an entirety to any other person, each

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<PAGE> 14
share of Preferred Stock shall after such reorganization,
reclassification, consolidation, merger, sale or other
disposition be (unless, in the case of a consolidation, merger,
sale or other disposition, payment shall have been made
to the holders of all shares of such series of Preferred Stock
of the full amount to which they shall have been entitled
pursuant to Section 4 hereof) convertible into the kind and
number of shares of stock or other securities or property of
the Corporation or of the corporation resulting from such
consolidation or surviving such merger or to which such
properties and assets shall have been sold or otherwise
disposed to which the holder or the number of shares of Common
Stock deliverable (immediately prior to the time of such
reorganization, reclassification, consolidation, merger, sale
or other disposition) upon conversion of such shares would have
been entitled upon such reorganization, reclassification,
consolidation, merger, sale or other disposition. The
provisions of this Section 6 shall similarly apply to
successive reorganizations, reclassifications, consolidations,
mergers, sales or other dispositions.

(vi) All calculations under this paragraph (d) shall
be made to the nearest one tenth (1/10) of a cent or to the
nearest one tenth (1/10) of a share, as the case may be.

(vii) For the purpose of any computation pursuant to
this Section 6(d) or Section 6(c) hereof, the Current Market
Price at any date of one share of Common Stock shall be deemed
to be the average of the daily closing prices for the 30
consecutive business days selected by the Board of Directors
of the Corporation ending no more than 15 days before the day in
question (as adjusted for any stock dividend, split-up,
combination or reclassification that took effect during such
period). The closing price for each day shall be the last
reported sales price regular way or, in case no such reported
sales took place on such day, the average of the last reported
bid and asked prices regular way, in either case on the
principal national securities exchange on which the Common
Stock is listed or admitted to trading or as reported in the
National Market List of the National Association of Securities
Dealers Automated Quotations System ("NASDAQ") (or if the
Common Stock is not at the time listed or admitted for trading
on any such exchange or reported in such National Market List,
then such price shall be equal to the average of the last
reported bid and asked prices, as reported by NASDAQ on such
day, or if, on any day in question, the security shall not be
quoted on NASDAQ, then such price shall be equal to the average
of the

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<PAGE> 15
last reported bid and asked prices on such day as reported by
the National Quotation Bureau, Inc., or any similar reputable
quotation and reporting service, or any similar reputable
quotation and reporting service, if such quotation is not
reported by the National Quotation Bureau, Inc.); provided,
however, that if the Common Stock is not traded in such a
manner that the quotations referred to in this clause (vii) are
available for the period required hereunder, the Current Market
Price as of the day in question shall be determined in good
faith by the Board of Directors of the Corporation, or if such
determination cannot be made, by a nationally recognized
independent investment banking firm selected jointly by the
holders of at least a majority of the voting power of the
Preferred Stock then outstanding and the Corporation (or, if
such selection cannot be made, by a nationally recognized
independent investment banking firm selected by the American
Arbitration Association in accordance with its rules).

(viii) In any case in which the provisions of this
Section 6(d) shall require that an adjustment shall become
effective immediately after a record date for an event, the
Corporation may defer until the occurrence of such event
(A) issuing to the holder of any share of Preferred Stock
converted after such record date and before the occurrence of
such event the additional shares of capital stock issuable upon
such conversion by reason of the adjustment required by such
event over and above the shares of capital stock issuable upon
such conversion before giving effect to such adjustment and (B)
paying to such holder any amount in cash in lieu of a
fractional share of capital stock pursuant to Section 6(c);
provided, however, that the Corporation shall deliver to such
holder a due bill or other appropriate instrument evidencing
such holder's right to receive such additional shares, and such
cash, upon the occurrence of the event requiring such
adjustment.

(e) Whenever the Preferred Conversion Price shall be
adjusted as provided in Section 6(d), the Corporation shall forthwith file, at
the office of the transfer agent for the Preferred Stock or at such other place
as may be designated by the Corporation, a statement, signed by its chief
financial officer, showing in detail the facts requiring such adjustment and
the Preferred Conversion Price. The Corporation shall also cause a copy of
such statement to be sent by first class certified mail, return receipt
requested, postage prepaid, to each holder of shares of Preferred Stock at his
or its address appearing on the Corporation's records. Where appropriate, such
copy may be given in advance and may be included as part of a notice required
to be mailed under the provisions of Section 6(f).

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<PAGE> 16
(f) In the event the Corporation shall propose to take any
action of the types described in clauses (i), (iv) or (v) or Section 6(d), the
Corporation shall give notice to each holder of shares of Preferred Stock, in
the manner set forth in Section 6(e), which notice shall specify the record
date, if any, with respect to any such action and the date on which such action
is to take place. Such notice shall also set forth such facts with respect
thereto as shall be reasonably necessary to indicate the effect of such action
(to the extent such effect may be known at the date of such notice) on the
Preferred Conversion Price and the number, kind or class of shares or other
securities or property which shall be deliverable or purchasable upon the
occurrence of such action or deliverable upon conversion of shares of Preferred
Stock. In the case of any action which would require the fixing of a record
date, such notice shall be given at least 25 days prior to the date so fixed,
and in case of all other action, such notice shall be given at least 35 days
prior to the taking of such proposed action. Failure to give such notice, or
any defect therein, shall not affect the legality or validity of any such
action.

(g) The Corporation shall pay all documentary, stamp or other
transactional taxes attributable to the issuance or delivery of shares of
capital stock of the Corporation upon conversion of any shares of Preferred
Stock.

(h) The Corporation shall reserve, free from preemptive rights,
out of its authorized but unissued shares of Common Stock solely for the
purpose of effecting the conversion of the shares of Preferred Stock sufficient
shares to provide for the conversion of all outstanding shares of Preferred
Stock.

(i) All shares of Common Stock which may be issued in
connection with the conversion provisions set forth herein will, upon issuance
by the Corporation, be validly issued, fully paid and nonassessable and free
from all taxes, liens or charges with respect thereto.

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

(a) The term "Accrued Dividends" with respect to any share of
Preferred Stock shall mean (whether or not there shall have been net profits or
net assets of the Corporation legally available for the payment of such
dividends) that amount which shall be equal to dividends at the full rate fixed
for the Preferred Stock as provided herein for the period of time elapsed from
the date of issuance of such share to the date as of which Accrued Dividends
are to be computed, less any payments made in respect of such dividends.

(b) "Excluded Securities" shall mean:

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<PAGE> 17
(i) up to 45,000 shares of Common Stock issued
to officers, employees or directors of, or consultants
to, the Corporation, pursuant to any agreement, plan or
arrangement approved by a majority of the Board of
Directors of the Corporation or options to purchase or
rights to subscribe to said Common Stock;

(ii) Common Stock issued as a stock dividend or
upon any subdivision or combination of shares of Common
Stock;

(iii) Common Stock issued upon conversion of
the Preferred Stock;

(iv) Warrants issued pursuant to the Warrant
Purchase Agreement dated March 31, 1988, among the
Corporation and certain purchasers named therein, and
Common Stock and Preferred Stock issued upon exercise of
such warrants;

(v) Options granted to employees of the
Corporation pursuant to stock option agreements dated as
of the Original Issuance Date;

(vi) Up to 50,000 shares of Common Stock
issuable under a stock option plan approved by a
majority of the Board of Directors; and

(vii) Common Stock issuable to Peter Hansen,
Ellenmae Hansen and Eileen Rex in the event of a public
offering of the Corporation's equity securities.

(c) The term "Junior Stock" shall mean the Common Stock
and any class or series of shares of capital stock of the
Corporation junior in right of payment of dividends or the
distribution of assets on liquidation to the Preferred stock.

(d) The term "Liquidation Preference" shall mean $6.66
per share.

(e) The term "Original Issuance Date" shall mean the
date as of which the first share of Preferred Stock has been
issued.

(f) The term "Purchase Agreement" shall mean the
Preferred Stock Purchase Agreement dated March 31, 1988 among
the Corporation and the persons named therein as investors.

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<PAGE> 18
B. COMMON STOCK

1. Voting. Except as otherwise expressly provided by law, and
subject to the voting rights provided to the holders of Preferred Stock by this
Certificate of Incorporation, the Common Stock shall have exclusive voting
rights on all matters requiring a vote of stockholders, voting together with
the holders of Preferred Stock, as one class.

2. Other Rights. Each share of Common Stock issued and outstanding
shall be identical in all respects one with the other, and no dividends shall be
paid on any shares of Common Stock unless the same is paid on any shares of
Common Stock outstanding at the time of such payment. Except for and subject to
those rights expressly granted to the holders of the Preferred Stock, or except
as may be provided by the laws of the State of Delaware, the holders of Common
Stock shall have exclusively all other rights of stockholders.

ARTICLE FIFTH

DIRECTORS

The number of directors of the Corporation shall be such as from time
to time shall be fixed in the manner provided in the By-laws of the
Corporation. The election of directors of the Corporation need not be by
ballot unless the By-laws so require.

ARTICLE SIXTH

LIMITATION ON LIABILITY

A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which the director derived
any improper personal benefit. If the Delaware General Corporation Law is
amended after the date of incorporation of the Corporation to authorize
corporate action further eliminating or limiting the personal liability of
directors, then the liability of a director of the Corporation shall be
eliminated or limited to the fullest extent permitted by the Delaware General
Corporation Law, as so amended.

Any repeal or modification of the foregoing paragraph by the
stockholders of the Corporation shall not adversely affect

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<PAGE> 19
any right or protection of a director of the Corporation existing at the time
of such repeal or modification.

ARTICLE SEVENTH

POWERS OF BOARD OF DIRECTORS

For the management of the business and for the conduct of the affairs
of the Corporation, and in further definition, limitation and regulation of
the powers of the Corporation and of its directors and stockholders, it is
further provided:

(a) In furtherance and not in limitation of the powers
conferred by the laws of the State of Delaware, the Board of Directors is
expressly authorized and empowered:

(i) to make, alter, amend or repeal the By-laws in any
manner not inconsistent with the laws of the State of Delaware
or this Certificate of Incorporation:

(ii) without the assent or vote of the stockholders, to
authorize and issue securities and obligations of the
Corporation, secured or unsecured, and to include therein such
provisions as to redemption, conversion or other terms thereof
as the Board of Directors in its Sole discretion may determine,
and to authorize the mortgaging or pledging, as security
therefor, of any property of the corporation, real or personal,
including after-acquired property;

(iii) to determine whether any, and if any, what part,
of the net profits of the Corporation or of its surplus shall
be declared in dividends and paid to the stockholders, and to
direct and determine the use and disposition of any such net
profits or such surplus; and

(iv) to fix from time to time the amount of net profits
of the Corporation or of its surplus to be reserved as working
capital or for any other lawful purpose.

In addition to the powers and authorities herein or by statute
expressly conferred upon it, the Board of Directors may exercise all such
powers and do all such acts and things as may be exercised or done by the
Corporation, subject, nevertheless, to the provisions of the laws of the
State of Delaware, of this

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<PAGE> 20
Certificate of Incorporation and of the By-laws of the Corporation.

(b) Any director or any officer elected or appointed by the
stockholders or by the Board of Directors may be removed at any time in
such manner as shall be provided in the By-laws of the Corporation.

(c) From time to time any of the provisions of this Certificate
of Incorporation may be altered, amended or repealed, and other
provisions authorized by the laws of the State of Delaware at the time
in force may be added or inserted, in the manner and at the time
prescribed by said laws, and all rights at any time conferred upon the
stockholders of the Corporation by this Certificate of Incorporation are
granted subject to the provisions of this paragraph (c).

ARTICLE EIGHTH

CREDITORS

Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for the Corporation under
the provisions of Section 291 of Title 8 of the Delaware Code of on the
application of trustees in dissolution or of any receiver or receivers
appointed for the Corporation under the provisions of Section 279 of Title 8 of
the Delaware Code order a meeting of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of the Corporation, as the
case may be, to be summoned in such manner as the said court directs. If a
majority in number representing three-fourths in value of the creditors or
class of creditors, and/or of the - stockholders or class of stockholders of
the Corporation, as the case may be, agree on any compromise or arrangement
and to any reorganization of the Corporation as the consequence of such
compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class of creditors, and/or on
all the stockholders or class of stockholders, of the Corporation, as the case
may be, and also on the Corporation.

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<PAGE> 21
IN WITNESS WHEREOF, this Restated Certificate of Incorporation, which
restates and integrates and also further amends the previously filed
Certificate of Incorporation of the Corporation, having been adopted in
accordance with the provisions of Sections 242 and 245 of the General
Corporation Law of the State of Delaware, has been signed by Gary Kerber, its
President, and attested by Morris C. Brown, its Secretary, this 30th day of
March, 1988.

EMI ACQUISITION CORP.

By Gary D. Kerber
--------------------------------
President

Attest:

By /s/ Morris C. Brown
----------------------------
Secretary

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<PAGE> 1
EXHIBIT 3.1 (b)

CERTIFICATE OF AMENDMENT

CERTIFICATE OF INCORPORATION

EMI Acquisition Corp.

______________

Pursuant to Section 242 of the Delaware
General Corporation Law

______________

1. EMI Acquisition Corp. (The "Corporation"), a corporation duly
organized and existing under by virtue of the General Corporation Law of
Delaware, hereby amends its Certificate of Incorporation, as follows:

Article 1 is deleted in its entirety and the following is substituted in
its place:

"Article I: The name of the Corporation is:

Educational Medical, Inc.

2. The foregoing amendment to the Certificate of Incorporation of the
Corporation was duly adopted by the Board of Directors and the sole stockholder
of the Corporation by written consent dated the 31st day of March, in accordance
with the applicable provisions of Sections 141(f) and 228 of the General
Corporation Law of the State of Delaware.

3. The capital of the Corporation will not be reduced under or by
reason of this Certificate of Amendment.
<PAGE> 2
IN WITNESS WHEREOF, EMI Acquisition Corp. has caused its corporate seal
to be hereunto affixed and this Certificate to be signed by its President and
attested by its Secretary this 1st day of March, 1988.

EDUCATIONAL MEDICAL, INC.
f/k/a EMI Acquisition Corp.

BY: /s/ GARY D. KERBER
-------------------------
Gary D. Kerber, President

[SEAL]

ATTEST:

/s/ Morris C. Brown
- ----------------------------
Secretary

STATE OF FLORIDA )
) SS
COUNTY OF DADE )

THE FOREGOING instrument was acknowledged and sworn to before me this
31st day of March 1988 by Gary D. Kerber, President of EMI Acquisition Corp.,
on behalf of the Corporation.

/s/ WENDY LOOMIS RIGGS
---------------------------
Notary Public, State of
Florida at Large

My Commission Expires:
[SEAL]

-2-

<PAGE> 1
EXHIBIT 3.1 (c)

SECOND AMENDMENT TO
RESTATED CERTIFICATE OF INCORPORATION
OF
EDUCATIONAL MEDICAL, INC.

THIS AMENDMENT to the Restated Certificate of Incorporation (the
"Corporation"), filed with the Secretary of State of the State of Delaware on
March 31, 1988 was duly adopted by the stockholders of the Corporation on
March 30, 1989, in accordance with the provisions Section 242 of the General
Corporation Law of the State of Delaware.

ARTICLE FOURTH of the Certificate is hereby amended to increase the
total number of shares of all classes of stock which the Corporation shall have
authority to issue to 2,215,000 shares, consisting of

a) 715,000 shares of Cumulative Convertible Preferred Stock,
par value $.01 per share, and

b) 1,500,000 shares of Common Stock, par value $.01 per share.

Section A7(b) of ARTICLE FOURTH of the Certificate is hereby
amended to add the following thereto after subparagraph A7(b)(vii):

(viii) Warrants issued pursuant to the Note and Warrant
Purchase Agreement dated March 31, 1989, among the Corporation and
certain purchasers named therein, and Units of Common Stock and
Preferred Stock issued upon exercise of such Warrants, the Common Stock
and Preferred Stock comprising Units, and the Common Stock
<PAGE> 2
issued upon conversion of the Preferred Stock included in the Units.

Except as specifically amended hereby, all provisions of the
Certificate shall remain in full force and effect.

IN WITNESS WHEREOF, the undersigned, as President of the Corporation,
certifies that the foregoing amendment was duly adopted in accordance with
Section 242 of the Delaware General Corporation Law, and the Corporation has
caused its corporate seal to be affixed hereto and attested to by the Secretary
of the Corporation, all as of the 30th day of March, 1989.

EDUCATIONAL MEDICAL, INC.

By: /s/ Gary D. Kerber
----------------------------------
President

Attest:

/s/ Morris C. Brown
- ------------------------------
Secretary

[Seal]

-2-

<PAGE> 3
STATE OF FLORIDA )
)
COUNTY OF DADE )

Before me personally appeared Morris C. Brown known to me to be the
individual described in and who executed the foregoing instrument as Secretary
of Educational Medical, Inc., and who acknowledged to me that he executed such
instrument in such capacity.

WITNESS my hand and official seal this 30th day of March, 1989.

/s/ WENDY LOOMIS RIGGS
------------------------------
Notary Public State of Florida
My Commission Expires: [SEAL]

-3-

<PAGE> 4
STATE OF GEORGIA )
)
COUNTY OF )

Before me personally appeared Gary D. Kerber known to me to be the
individual described in and who executed the foregoing instrument as President
of Educational Medical, Inc., and who acknowledged to me that he executed such
instrument in such capacity, that the seal of the corporation was affixed
thereto by due and regular corporate authority, that said instrument is the
free act and deed of said corporation and the facts stated therein are true.

WITNESS my hand and official seal this 30th day of March, 1989.

/s/ BOBBIE WHITE
--------------------------------
Notary Public State of Geogia
My Commission Expires:
June 3, 1991

-4-

<PAGE> 1
EXHIBIT 3.1(d)

EXECUTION A

THIRD AMENDMENT TO
RESTATED CERTIFICATE OF INCORPORATION
OF
EDUCATIONAL MEDICAL, INC.

THIS AMENDMENT to the Restated Certificate of Incorporation (the
"Certificate") of Educational Medical, Inc. (the "Corporation"), filed with the
Secretary of State of the State of Delaware was duly adopted by the
stockholders of the Corporation as of September 30, 1989, in accordance with
the provisions of Section 242 of the General Corporation Law of the State of
Delaware.

1. ARTICLE FOURTH of the Certificate is hereby amended to increase the
total number of shares of all class of stock which the Corporation shall have
authority to issue to 3,100,000 shares, consisting of:

(a) 1,100,000 shares of Cumulative Convertible Preferred
Stock, par value $.01 per share; and

(b) 2,000,000 shares of Common Stock, par value $.01 per share.

2. ARTICLE FOURTH, Section 7, of the Certificate is hereby amended to:

(a) delete subsection 7(b)(v), regarding options granted to
employees, from the definition of "Excluded Securities" in
Section 7(b); and

(b) add the following to the definition of "Excluded
Securities" in Section 7(b): (ix) Up to 105,000 shares of
Common Stock

<PAGE> 2
EXECUTION A

issuable pursuant to Restricted Stock Purchase Agreements, dated
as of March 31, 1988 between the Company and Gary Kerber and
John Lavery;

(x) Up to 245,710 shares of Common Stock issuable pursuant to
Restricted Stock Purchase Agreements, dated as of November 7,
1989, between the Company and Gary Kerber, John Lavery and
Michael Davis;

(xi) Up to 18,000 shares of Common Stock issuable pursuant to
an Incentive Compensation Agreement, dated as of November 7,
1989, among the Company, Gary Kerber, John Lavery and Michael
Davis, and

(xii) Up to 10,500 shares of Common Stock issuable to officers,
employees or directors of, or consultants to, the Corporation,
pursuant to any agreement, plan or arrangement, approved by a
majority of the Board of Directors or options to purchase or
rights to subscribe to said Common Stock.

Except as specifically amended hereby, all provisions of the Certificate
shall remain in full force and effect.

IN WITNESS WHEREOF, the undersigned, as President of the Corporation,
certifies that the foregoing Amendment was duly

-2-
<PAGE> 3
EXECUTION A

adopted in accordance with Section 242 of the Delaware General Corporation Law,
and the Corporation has caused its corporate seal to be affixed hereto and
attested by the Secretary of the Corporation, all as of the 30th day of
September, 1989.

EDUCATIONAL MEDICAL, INC.

By: /s/ Gary D. Kerber
-------------------------------
President

Attest:

- -----------------------
Secretary

[Seal]

STATE OF CALIFORNIA )
)
COUNTY OF SAN DIEGO )

Before me personally appeared Gary D. Kerber, known to me to be the
individual described in and who executed the foregoing instrument as President
of Educational Medical, Inc. and who acknowledged to me that he executed such
instrument in such capacity, that the seal of the corporation was affixed
thereto by due and regular corporate authority, that said instrument is the
free act and deed of said corporation and the facts stated therein are true.

-3-
<PAGE> 4
EXECUTION A

WITNESS my hand and official seal this 26th day of October, 1989.

/s/ Anna M. Iqual De Montijo
-----------------------------
Notary Public

My Commission Expires 4-5-1991 [SEAL]

STATE OF FLORIDA )
)
COUNTY OF DADE )

Before me personally appeared Morris C. Brown, known to me to be the
individual described in and who executed the foregoing instrument as Secretary
of Educational Medical, Inc. and who acknowledged to me that he executed such
instrument in such capacity.

WITNESS my hand and official seal this 30th day of October, 1989.

/s/ Wendy Loomis Riggs
-----------------------------
Notary Public

My Commission Expires [SEAL]

-4-

<PAGE> 1
EXHIBIT 3.1(e)

FOURTH AMENDMENT TO
RESTATED CERTIFICATE OF INCORPORATION
OF
EDUCATIONAL MEDICAL, INC.

THIS AMENDMENT to the Restated Certificate of Incorporation (the
"Certificate") of Educational Medical, Inc. (the "Corporation"), filed with the
Secretary of State of the State of Delaware was duly adopted by the
stockholders of the Corporation as of April 1, 1990, in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.

1. ARTICLE FOURTH, Section 7, of the Certificate is hereby amended to
add the following to the definition of "Excluded Securities" in Section 7(b):

(xiii) Up to 92,721 shares of Common Stock issuable pursuant to
Restricted Stock Purchase Agreements, dated as of April 1, 1990, and
amendments thereto, between the Corporation and Vince Pisano.

Except as specifically amended hereby, all provisions of the
Certificate shall remain in full force and effect.

IN WITNESS WHEREOF, the undersigned, as President of the Corporation,
certifies that the foregoing Amendment was duly adopted in accordance with
Section 242 of the Delaware General Corporation Law, and the Corporation has
caused its corporate seal to be affixed hereto and attested by the Secretary of
the Corpora-

<PAGE> 2
tion, all as of the 1st day of April, 1990.

EDUCATIONAL MEDICAL, INC.

By: /s/ Gary D. Kerber
-------------------------------
President

Attest:

/s/ Morris C. Brown
- --------------------------
Secretary

[SEAL]

STATE OF GEORGIA )
)
COUNTY OF FLOYD )

WITNESS my hand and official seal this 17th day of May, 1991.

/s/ Bobbie White
---------------------------
Notary Public

My Commission Expires: 6/3/91

-2-
<PAGE> 3
STATE OF FLORIDA )
)
COUNTY OF DADE )

WITNESS my hand and official seal this 20th day of June, 1991.

/s/ Gloria V. Crout
--------------------------------
Notary Public

My Commission Expires: [SEAL]

<PAGE> 1
EXHIBIT 3.1(f)
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 07/25/1991
51206055 - 2154556

EXECUTION A

FIFTH AMENDMENT TO
RESTATED CERTIFICATE OF INCORPORATION
OF
EDUCATIONAL MEDICAL, INC.

THIS AMENDMENT to the Restated Certificate of Incorporation (the
"Certificate") of Educational Medical, Inc. (the "Corporation"), filed with the
Secretary of State of the State of Delaware was duly adopted by the
stockholders of the Corporation as of July 23, 1991, in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.

1. ARTICLE FOURTH of the Certificate is hereby amended to
increase the total number of shares of all classes of stock that the
Corporation shall have the authority to issue to 4,600,000 shares, consisting
of:

(a) 1,100,000 shares of Cumulative Convertible Preferred
Stock, par value $.01 per share; and

(b) 3,500,000 shares of Common Stock, par value $.01 per
share.

2. ARTICLE FOURTH, Section A.1(a) of the Certificate is hereby
amended to read as follows:

1. Dividends. (a) During the period commencing with
the date of original issuance of each share of Preferred Stock through
and including July 22, 1991, the holder of such share of Preferred
Stock shall be entitled to receive, before any dividends shall be
declared and paid upon or set aside for the Junior Stock (as defined
in Section 7 hereof), out of funds legally available for that purpose,
dividends in cash at the annual rate per share equal to eight percent
(8%) of the Liquidation Preference (as defined in Section 7 hereof)
payable when and as declared by the Board of Directors of the
Corporation (any such dividend payment date being hereinafter referred
to as a "Dividend Payment Date"). Dividends on shares of Preferred
Stock shall be

<PAGE> 2
EXECUTION A

cumulative (whether or not there shall be net profits or net assets of
the Corporation legally available for the payment of such dividends), so
that, if at any time Accrued Dividends (as defined in Section 7 hereof)
upon the Preferred Stock shall not have been paid or declared and a sum
sufficient for payment thereof set apart, no dividend shall be declared
or paid or any other distribution ordered or made upon any Junior Stock
(other than a dividend payable in such Junior Stock) or any sum or sums
set aside for or applied to the purchase or redemption of any shares of
any Junior Stock.

3. ARTICLE FOURTH, Section A.3 of the Certificate is hereby amended
to add the following subsection 3(h):

(h) At the option of the holders of Preferred Stock, the rights
of the holders of Preferred Stock to receive payments pursuant to the
redemption provisions of this Section 3 may be made subject to the
restrictions set forth in any effective agreement to which the
Corporation and all of such holders are party, provided that such
agreement makes specific reference to this Article Fourth, and a copy of
such agreement signed by such holders and the Corporation is deposited
with the Secretary of the Corporation and shall be available for
inspection by holders of Preferred Stock. In the event and to the extent
that any such agreement, or the restrictions set forth in such
agreement, cease(s) to be effective, then ninety (90) days after the
cessation of effectiveness of such agreement or restrictions, as the
case may be, the rights of holders of Preferred Stock to receive
payments pursuant to the redemption provisions of this Section 3 shall
be restored to the extent permitted.

4. ARTICLE FOURTH, Section A.4 of the Certificate is hereby
amended to add the following subsection 4(h):

(h) At the option of the holders of Preferred Stock, the rights
of the holders of Preferred Stock to receive payments pursuant to the
special redemption provisions of this Section 4 may be made subject to
the restrictions set forth in any effective agreement to which the
Corporation and all of such holders are party, provided that such
agreement makes specific reference to this Article Fourth, and a copy of
such agreement signed by such holders and the Corporation is deposited
with the Secretary of the Corporation and shall be available for
inspection by holders of Preferred Stock. In the event

-2-

<PAGE> 3
EXECUTION A

and to the extent that any such agreement, or the restrictions set forth
in such agreement cease(s) to be effective, then immediately upon the
cessation of effectiveness of such agreement or restrictions, as the
case may be, the rights of holders of Preferred Stock to receive
payments pursuant to the special redemption provisions of this Section 4
shall be restored to the extent permitted.

5. ARTICLE FOURTH, Section A.7, of the Certificate is hereby amended
to add the following to the definition of "Excluded Securities"in Section 7(b):

(xiv) Warrants to purchase Common Stock issued pursuant to the
Securities Purchase Agreement, dated as of July 23, 1991, among
the Corporation and certain purchasers named therein, and 800,000
shares of the Common Stock issuable upon exercise of such warrants;

(xv) Up to 250,000 shares of Common Stock issued upon exchange
of the Accrued Dividends pursuant to the Letter Agreement, dated
as of July 23, 1991, among the holders of Cumulative Convertible
Preferred Stock of the Corporation and Trust for Defined Benefit
Plan of ICI American Holdings Inc. and State Employees' Retirement
Fund of the Sate of Delaware;

(xvi) Warrants to purchase up to 10,000 shares of Common Stock
to be issued to employment consultant of the Corporation; and

(xvii) Warrants to purchase Common Stock to be issued pursuant
to the Engagement Letter dated August 27, 1990, from Equitable
Securities Corporation to the Corporation and 16,000 shares of
Common Stock issuable upon exercise of such warrants.

Except as specifically amended hereby, all provisions of the
Certificate shall remain in full force and effect.

IN WITNESS WHEREOF, the undersigned, as President of the Corporation,
certifies that the foregoing Amendment was duly

-3-
<PAGE> 4
EXECUTION A

EDUCATIONAL MEDICAL, INC.

By: /s/ GARY D. KERBER
---------------------
President

Attest:

/s/ MORRIS C. BROWN
- ------------------------------
Secretary

[SEAL]

STATE OF GEORGIA )
)
COUNTY OF FULTON )

Before me personally appeared Gary D. Kerber, known to me to be the
individual described in and who executed the foregoing instrument as President
of Educational Medical, Inc. and who acknowledged to me that he executed such
instrument in such capacity, that the seal of the Corporation was affixed
thereto by due and regular corporate authority, that said instrument is the
free act and deed of said Corporation and the facts stated therein are true.

WITNESS my hand and official seal this 15th day of July, 1991.

/s/ MAGGIE K. WHITE
---------------------------
Notary Public

My Commission Expires: [SEAL]

-4-

<PAGE> 5
EXECUTION A

STATE OF FLORIDA )
)
COUNTY OF DADE )

WITNESS my hand and official seal this 24th day of July, 1991.

/s/ Wendy Loomis Riggs
--------------------------------
Notary Public

My Commission Expires: [SEAL]

-5-

<PAGE> 1
EXHIBIT 3.1(g)

SIXTH AMENDMENT TO
RESTATED CERTIFICATE OF INCORPORATION
OF
EDUCATIONAL MEDICAL, INC.

THIS AMENDMENT to the Restated Certificate of Incorporation (the
"Certificate") of Educational Medical, Inc. (the "Corporation"), filed with the
Secretary of State of the State of Delaware was duly adopted by the stockholders
of the Corporation as of March 30, 1995, in accordance with the provisions of
Section 242 of the General Corporation Law of the State of Delaware.

1. ARTICLE FOURTH, Section A.3 of the Certificate is hereby amended to
add the following subsection 3(i):

(i) The rights of the holders of Preferred Stock to receive
payments pursuant to the redemption provisions of this Section
are subject to the restrictions set forth in that certain Loan
Agreement (the "Agreement") dated as of March 31, 1995 between
the Corporation and Sirrom Capital Corporation, and any
amendments, modifications or extensions of it, a copy of such
instruments being deposited with the Secretary of the
Corporation which shall be available for inspection by holders
of Preferred Stock. In the event and to the extent that the
Agreement or the restrictions set forth (90) days after the
cessation of effectiveness of the Agreement or restrictions, as
the case may be, the rights of holders of Preferred Stock to
receive payments pursuant to the redemption provisions of this
Section 3 shall be restored to the extent permitted.
<PAGE> 2

2. ARTICLE FOURTH, Section A.7, of the Certificate is hereby
amended to add the following to the definition of "Excluded Securities" in
Section 7(b):

(xviii) Any and all Common Stock issued upon exercise of the
Stock Purchase Warrant dated as of March 31, 1995
between the Corporation and Sirrom Capital Corporation
providing for the issuance of up to 185,000 shares of
the Corporation's common stock.

Except as specifically amended hereby, all provisions of the Certificate
shall remain in full force and effect.

EDUCATIONAL MEDICAL, INC.

By: /s/ GARY D. KERBER
---------------------------
Gary D. Kerber, President

Attest:

/s/ MORRIS C. BROWN
- -----------------------------
Morris C. Brown, Secretary [CORPORATE SEAL]

-2-
<PAGE> 3

STATE OF GEORGIA )
)SS:
COUNTY OF FULTON )

Before me personally appeared Gary D. Kerber, known to me to be the
individual described in and who executed the foregoing instrument as President
of Educational Medical, Inc. and who acknowledged to me that he executed such
instrument in such capacity, that the seal of the Corporation was affixed
thereto by due and regular corporate authority, that said instrument is the free
act and deed of said Corporation and the facts stated therein are true.

WITNESS my hand and official seal this 30th day of March, 1995.

NOTARY PUBLIC

Sign /s/ Maggie K. White
-------------------------
Print Maggie K. White
-------------------------
State of Georgia at Large
My commission expires: (SEAL)
Serial Number, if any:

STATE OF FLORIDA )
)SS:
COUNTY OF PALM BEACH )

The foregoing instrument was acknowledged before me this 29th of March,
1995, by Morris C. Brown, as Secretary of Educational Medical, Inc., a Delaware
corporation, on behalf of said Corporation. Personally known _________________.

NOTARY PUBLIC

Sign /s/ Wendy L. Riggs
-------------------------
Print Wendy L. Riggs
------------------------

My commission expires: (SEAL)
Serial Number, if any:

-3-

<PAGE> 1
EXHIBIT 3.1 (h)

SEVENTH AMENDMENT TO
RESTATED CERTIFICATE OF INCORPORATION
OF
EDUCATIONAL MEDICAL, INC.

THIS AMENDMENT to the Restated Certificate of Incorporation (the
"Certificate") of Educational Medical, Inc. (the "Corporation"), filed with
the Secretary of State of the State of Delaware was duly adopted by the
stockholders of the Corporation as of March 27, 1996, in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.

1. ARTICLE FOURTH, Section A.7, of the Certificate is hereby amended
to add the following to the definition of "Excluded Securities" in Section
7(b):

(xix) In addition to the shares of Common Stock provided for
in Subsections (i) and (xii) of this Section, up
to 105,000 shares of Common Stock issuable to officers,
employees or directors of, or consultants to, the
Corporation, pursuant to any agreement, plan or
arrangement, approved by a majority of the Board of
Directors or options to purchase or rights to subscribe
to said Common Stock.

2. ARTICLE SIXTH of the Certificate is hereby amended in its
entirety to read as follows:

LIMITATION OF LIABILITY AND
INDEMNIFICATION OF DIRECTORS

The personal liability of the directors of the Corporation is
hereby eliminated to the fullest extent permitted by the
provisions of paragraph (7) of the subsection (b) of Section 102
of the General Corporation Law of the State of Delaware, as the
same may be amended and supplemented.

<PAGE> 2

The Corporation shall, to the fullest extent permitted by the
provisions of Section 145 of the General Corporation Law of the
State of Delaware, as the same may be amended and supplemented,
indemnify any and all persons whom it shall have power to
indemnify under said section from and against any and all of the
expenses, liabilities or other matters referred to in or covered
by said section, and the indemnification provided for herein shall
not be deemed exclusive of any other rights to which those
indemnified may be entitled under any Bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, both as to
action in his official capacity and as to action in another
capacity while holding such office, and shall continue as to a
person who has ceased to be a director, officer, employee or agent
and shall inure to the benefit of the heirs, executors and
administrators of such a person.

Except as specifically amended hereby, all provisions of the
Certificate shall remain in full force and effect.

IN WITNESS WHEREOF, the undersigned, as Secretary of the Corporation,
certifies that the foregoing Amendment was duly adopted in accordance with
Section 242 of the Delaware General Corporation Law, and the Corporation has
caused its corporate seal to be affixed hereto, all as of the 27th day of
March, 1996.

EDUCATIONAL MEDICAL, INC.

By: /s/ Morris C. Brown
--------------------------
Morris C. Brown, Secretary

(CORPORATE SEAL]

-2-

<PAGE> 1
EXHIBIT 3.1 (i)

EIGHTH AMENDMENT TO
RESTATED CERTIFICATE OF INCORPORATION
OF
EDUCATIONAL MEDICAL, INC.

THIS EIGHTH AMENDMENT to the Restated Certificate of Incorporation
(the "Certificate") of Educational Medical, Inc. (the "Corporation"), filed
with the Secretary of State of the State of Delaware was duly adopted by the
stockholders of the Corporation as of June 20, 1996, in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.

1. ARTICLE FOURTH of the Certificate is hereby amended in its entirety to
read as follows:

ARTICLE FOURTH

STOCK

The total number of shares of all classes of stock that the
Corporation shall have the authority to issue to 21,023,049 shares, consisting
of:

(a) 15,000,000 shares of Common Stock, par value $.01 per
share;

(b) a series of preferred stock to be known as "Series A
Preferred Stock," the number of shares constituting
Series A Preferred Stock shall be 1,023,049, par
value $.01 per share; and

The designations, powers, preferences and relative participating, optional or
other special rights, and the qualifications, limitations and restrictions
thereof in respect of the Series A Preferred Stock and the Common Stock are as
follows:

A. SERIES A PREFERRED STOCK

1. Dividends.

(a) During the period commencing with the date of original
issuance of each share of Series A Preferred Stock, originally issued as
Cumulative Convertible Preferred Stock, through and including June 22, 1991,
the holder of such

<PAGE> 2

holders of the Common Stock shall be entitled, to the exclusion of the holders
of shares of Series A Preferred Stock, to share ratably in all remaining assets
of the Corporation available for distribution to its stockholders.

3. Voting.

(a) In addition to the rights specified in Sections 3(b) and (c)
hereof and any other rights provided in the Corporation's By-laws or by law,
each share of Series A Preferred Stock shall entitle the holder thereof to such
number of votes per share as shall equal the number of shares of Common Stock
(including any fraction to two decimal places) into which each share of Series
A Preferred Stock is then convertible and to vote on all matters as to which
holders of Common Stock shall be entitled to vote, in the same manner and with
the same effect as such holders of Common Stock, voting together with the
holders of Common Stock as one class.

(b) In addition to the rights specified in sections 3(a) and
(c) hereof, the holders of a majority in voting power of the Series A Preferred
Stock, voting separately as one class, shall have the exclusive and special
right at all times to elect three directors to the Board of Directors of the
Corporation. In any election of directors pursuant to this subsection (b),
each holder of shares of Series A Preferred Stock shall be entitled to one vote
for each share of Series A Preferred Stock held and no holder of Series A
Preferred Stock shall be entitled to cumulate his votes by giving one candidate
more than one vote per share. The special and exclusive voting right of the
holders of the Series A Preferred Stock, voting separately as one class,
contained in this subsection (b) may be exercised either at a special meeting
of the holders of Series A Preferred Stock called as provided below, or at any
annual or special meeting of the stockholders of the Corporation, or by written
consent of such holders in lieu of a meeting. The directors to be elected by
the holders of the Series A Preferred Stock, voting separately as one class,
pursuant to this subsection (b), shall serve for terms extending from the date
of their election and qualification until the time of the next succeeding
annual meeting of stockholders and until their successors have been elected and
qualified.

If at any time any directorship to be filled by the holders of
Series A Preferred Stock, voting separately as one class, pursuant to this
subsection (b) has been vacant for a period of ten days, the Secretary of the
Corporation shall, upon the written request of the holders of record of shares
representing at least 25% of the voting power of the Series A Preferred Stock
then outstanding, call a special meeting of the holders of Series A Preferred
Stock for the purpose of electing a director or directors to fill such vacancy
or vacancies. Such meeting shall be held at the earliest practicable date at
such place as is specified in the By-laws of the Corporation. If such meeting
shall not be called by the Secretary of the Corporation within ten days after
personal

-3-
<PAGE> 3

service of said written request on him, then the holders of record of shares
representing at least 25% of the voting power of the Series A Preferred Stock
then outstanding may designate in writing one of their number to call such
meeting at the expense of the Corporation, and such meeting may be called by
such persons so designated upon the notice required for annual meetings of
stockholders and shall be held at such specified place. Any holder of the
Series A Preferred Stock so designated shall have access to the stock books of
the Corporation for the purpose of calling a meeting of the stockholders
pursuant to these provisions.

At any meeting held for the purpose of electing directors at
which the holders of Series A Preferred Stock shall have the special and
exclusive right, voting separately as one class, to elect directors as provided
in this subsection (b), the presence, in person or by proxy, of the holders of
record of shares representing a majority of the voting power of the Series A
Preferred Stock then outstanding shall be required to constitute a quorum of
the Series A Preferred Stock for such election. At any such meeting or
adjournment thereof, the absence of such a quorum of the Series A Preferred
Stock shall not prevent the election of directors other than the directors to
be elected by holders of the Series A Preferred Stock, voting separately as one
class, pursuant to this subsection (b), and the absence of a quorum for the
election of such other directors shall not prevent the election of the
directors to be elected by the holders of the Series A Preferred Stock, voting
separately as one class, pursuant to this subsection (b). In the absence of
either or both such quorums, the holders of record of shares representing a
majority of the voting power present in person or by proxy of the class or
classes of stock which lack a quorum shall have power to adjourn the meeting
for the election of directors which they are entitled to elect from time to
time without notice other than announcement at the meeting.

A vacancy in the directorships to be elected by the holders of
the Series A Preferred Stock, voting separately as one class, pursuant to this
subsection (b), may be filled only by vote or written consent in lieu of a
meeting of (i) the holders of a majority in voting power of the Series A
Preferred Stock, acting separately as one class, or (ii) the remaining
directors elected by the holders of the Series A Preferred Stock (or by
directors so elected).

(c) The Corporation shall not, without the affirmative consent
of the holders of shares representing at least a majority in voting power of
the Series A Preferred Stock then outstanding, acting separately as one class,
for so long as the then outstanding shares of Series A Preferred Stock are no
less than 50% of the number of shares of Series A Preferred Stock outstanding
on the original Issuance Date, given by written consent in lieu of a meeting or
by vote at a meeting called for such purpose for which notice shall have been
given to the holders of the outstanding Series A Preferred Stock:

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<PAGE> 4

(i) directly or indirectly, sell, lease, transfer or
otherwise dispose of (whether in one transaction or in a series of
transactions) all or a substantial portion of its assets;

(ii) consolidate with or merge into any corporation or
permit any corporation to merge into it;

(iv) take any action to cause any amendment, alteration or
repeal of any provisions of the Certificate of Incorporation or By-Laws
of the Corporation if such action would alter, change or adversely affect
the preferences, rights, privileges or powers of, or restrictions for the
benefit of, the Series A Preferred Stock;

(v) except for the issuance of shares of capital stock or
other securities constituting Excluded Securities (as defined in
Section 5 hereof) or the issuance of shares of Series A Preferred Stock
pursuant to the Purchase Agreement, authorize, create, issue or agree to
issue any shares of its capital stock or any security, right, option or
warrant convertible into, or exercisable or exchangeable for, shares of
its capital stock; or

(vi) voluntarily dissolve, liquidate or wind up or carry
out any partial liquidation or dissolution or transaction in the nature
of a partial liquidation or dissolution.

4. Conversion.

(a) A holder of shares of Series A Preferred Stock shall have
the right, at such holder's option, at any time or from time to time, to
convert any of such shares into such whole number of fully paid and
nonassessable shares of Common Stock as is equal to the quotient obtained by
dividing (A) the Liquidation Preference for the Series A Preferred Stock
multiplied by the number of shares of Series A Preferred Stock being converted
by (B) the Preferred Conversion Price (as hereinafter defined) as last
adjusted and then in effect, for the shares of Series A Preferred Stock being
converted, by surrender of the certificates representing the shares of Series A
Preferred Stock so to be converted in the manner provided in Section 4(b)
hereof. The conversion price per share at which shares of Common Stock shall
be issuable upon conversion of shares of Series A Preferred Stock shall
initially be the Liquidation Preference of the

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<PAGE> 5

Series A Preferred Stock (the "Preferred Conversion Price"); provided, however,
that such Preferred Conversion Price shall be subject to adjustment as set
forth in Section 4(d) hereof. The holder of any shares of Series A Preferred
Stock exercising the aforesaid right to convert such shares of Series A
Preferred Stock into shares of Common Stock shall be entitled to payment of
Accrued Dividends, if any, payable with respect to such shares of Series A
Preferred Stock up to and including the Conversion Date (as hereinafter
defined).

Immediately upon the Securities and Exchange Commission
declaring effective a registration statement under the Securities Exchange Act
of 1933, as amended, concerning the offering of shares of Common Stock in an
underwritten public offering, each share of Series A Preferred Stock shall
automatically be converted into such whole number of fully paid and
nonassessable shares of Common Stock on the same basis as if such conversion
were effected pursuant to the election of a holder of Series A Preferred Stock
to convert such Series A Preferred Stock pursuant to this Section 4(a).

(b) A holder of shares of Series A Preferred Stock may
exercise the conversion right pursuant to Section 4(a) hereof as to any such
shares by delivering to the Corporation during regular business hours, at the
office of any transfer agent of the Corporation for the Series A Preferred
Stock or at such other place as may be designated by the Corporation, the
certificate or certificates for the shares to be converted, duly endorsed or
assigned in blank or to the Corporation (if required by it), accompanied by
written notice stating that the holder elects to convert such shares and
stating the name or names (with address) in which the certificate or
certificates for the shares of Common Stock are to be issued. Conversion shall
be deemed to have been effected on the date when the aforesaid delivery is made
(the "Conversion Date"). As promptly as practicable thereafter, the
Corporation shall issue and deliver to or upon the written order of such
holder, to the place designated by such holder, a certificate or certificates
for the number of full shares of Common Stock to which such holder is entitled
and a check or cash in respect of any fractional interest in a share of Common
Stock as provided in Section 4(c) hereof and a check or cash in payment of all
Accrued Dividends, if any (to the extent permissible under law), payable with
respect to the shares of Series A Preferred Stock so converted up to and
including the Conversion Date. The person in whose name the certificate or
certificates for Common Stock are to be issued shall be deemed to have become a
stockholder of record on the applicable Conversion Date unless the transfer
books of the Corporation are closed on that date, in which event he shall be
deemed to have become a stockholder of record on the next succeeding date on
which the transfer books are open, but the Preferred Conversion Price shall be
that in effect on the Conversion Date. Upon conversion of only a portion of
the number of shares covered by a certificate representing shares of Series A
Preferred Stock surrendered for conversion, the Corporation shall issue and
deliver to

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<PAGE> 6

or upon the written order of the holder of the certificate so surrendered for
conversion, at the expense of the Corporation, a new certificate covering the
number of shares of Series A Preferred Stock representing the unconverted
portion of the certificate so surrendered, which new certificate shall entitle
the holder thereof to dividends on the shares of Series A Preferred Stock
represented thereby to the same extent as if the portion of the certificate
theretofore covering such unconverted shares had not been surrendered for
conversion.

(c) No fractional shares of Common Stock or scrip shall be
issued upon conversion of shares of Series A Preferred Stock. If more than one
share of Series A Preferred Stock shall be surrendered for conversion at any
one time by the same holder, the number of full shares of Common Stock issuable
upon conversion thereof shall be computed on the basis of the aggregate number
of shares of Series A Preferred Stock so surrendered. Instead of any
fractional shares of Common Stock which would otherwise be issuable upon
conversion of shares of Series A Preferred Stock, the Corporation shall pay a
cash adjustment in respect of such fractional interest in an amount equal to
the then Current Market Price (as defined in Section 4(d)(vii) hereof) of a
share of Common Stock multiplied by such fractional interest. Fractional
interests shall not be entitled to dividends, and the holders of fractional
interests shall not be entitled to any rights as stockholders of the
Corporation in respect of such fractional interest.

(d) The Preferred Conversion Price shall be subject to
adjustment from time to time as follows:

(i) If the Corporation shall at any time or from time to
time after the Original Issuance Date of the Series A Preferred Stock
issue any shares of Common Stock other than Excluded Securities without
consideration or for a consideration per share less than the Preferred
Conversion Price in effect immediately prior to the issuance of such
Common Stock, the Preferred Conversion Price in effect immediately prior
to such issuance shall forthwith be lowered to a price equal to the
consideration per share, if any, received by the Corporation upon such
issuance; Provided, however, that if the Corporation issues any shares of
Common Stock (other than Excluded Stock) as contemplated by this Section
4(d)(i) without consideration, such shares shall be deemed solely for
purposes of this Section 4(d)(i) to have been issued for a consideration
per share equal to $.01.

For the purposes of any adjustment of the Preferred Conversion Prices pursuant
to Section 4(d)(i), the following provisions shall be applicable:

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<PAGE> 7

(A) In the case of the issuance of Common Stock for
cash, the consideration shall be deemed to be the amount of
cash paid therefor after deducting therefrom any discounts,
commissions or other expenses allowed, paid or incurred by the
Corporation for any underwriting or otherwise in connection with the
issuance and sale thereof.

(B) In the case of the issuance of Common Stock for a
consideration in whole or in part other than cash, the
consideration other than cash shall be deemed to be the fair market
value thereof as determined in good faith by the Board of Directors,
irrespective of any accounting treatment.

(C) In the case of the issuance of (i) options to
purchase or rights to subscribe for Common Stock, (ii)
securities by their terms convertible into or exchangeable for
Common Stock or (iii) options to purchase or rights to subscribe for
such convertible or exchangeable securities:

(1) the shares of Common Stock deliverable upon
exercise of such options to purchase or rights to subscribe
for Common Stock shall be deemed to have been issued
at the time such options or rights were issued and for a
consideration equal to the consideration (determined in the
manner provided in subdivisions (A) and (B) above), if any,
received by the Corporation upon the issuance of such options
or rights plus the minimum purchase price provided in such
options or rights for the Common Stock covered thereby;

(2) the shares of Common Stock deliverable upon
conversion of or in exchange for any such convertible or
exchangeable securities or upon the exercise of options to
purchase or rights to subscribe for such convertible or
exchangeable securities and subsequent conversion or exchange
thereof shall be deemed to have been issued at the time such
securities were issued or such options or rights were issued and
for a consideration equal to the consideration received by the
Corporation for any such securities and related options or
rights (excluding any cash received on account of accrued
interest or accrued dividends), plus the additional
consideration, if any, to be received by the Corporation upon
the conversion or exchange of such securities or the exercise of
any related options or rights (the consideration in each case to
be

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<PAGE> 8

determined in the manner provided in subdivisions (A) and (B)
above);

(3) on any change in the number of shares or
exercise price of Common Stock deliverable upon exercise of any
such options or rights or conversions of or exchanges for such
securities, other than a change resulting from the antidilution
provisions thereof, the Preferred Conversion Price shall
forthwith be readjusted to such Preferred Conversion Price as
would have obtained had the adjustment made upon the issuance of
such options, rights or securities not converted prior to such
change or options or rights related to such securities not
converted prior to such change been made upon the basis of such
change; and

(4) on the expiration of any such options or
rights, the termination of any such rights to convert or
exchange or the expiration of any options or rights related to
such convertible or exchangeable securities, the Preferred
Conversion Price shall forthwith be readjusted to such Preferred
Conversion Price as would have obtained had such options,
rights, securities or options or rights related to such
securities not been issued.

(ii) If, at any time after the Original Issuance Date of
the Series A Preferred Stock, the number of shares of Common
Stock outstanding is increased by a stock dividend payable in
shares of Common Stock or by a subdivision or split-up of shares
of Common Stock, then, following the record date fixed for the
determination of holders of Common Stock entitled to receive such
stock dividend, subdivision or split-up, the Preferred Conversion
Price shall be appropriately decreased so that the number of
shares of Common Stock issuable on conversion of each share of
Series A Preferred Stock shall be increased in proportion to such
increase in outstanding shares.

(iii) if, at any time after the Original Issuance Date of
the Series A Preferred Stock, the number of shares of Common
Stock outstanding is decreased by a combination of the outstanding
shares of Common Stock, then, following the record date for such
combination, the Preferred Conversion Price shall be appropriately
increased so that the number of shares of Common Stock issuable on
conversion of each share of Series A Preferred Stock shall be
decreased in proportion to such decrease in outstanding shares.

(iv) In case, at any time after the Original Issuance Date
of the Series A Preferred Stock, the Corporation shall declare a
cash dividend

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<PAGE> 9

upon its Common Stock payable otherwise than out of earnings or
shall distribute to holders of its Common Stock shares of its
capital stock (other than Common Stock), stock or other securities
of other persons, evidences of indebtedness issued by the
Corporation or other persons, other assets or options or rights
(excluding options to purchase and rights to subscribe for Common
Stock or other securities of the Corporation convertible into or
exchangeable for Common Stock), then, in each such case,
immediately following the record date fixed for the determination
of the holders of Common Stock entitled to receive such dividend
or distribution, the Preferred Conversion Price in effect
thereafter shall be adjusted to be a price determined by
multiplying the Preferred Conversion Price in effect immediately
prior to such record date by a fraction of which the numerator
shall be an amount equal to the remainder of (x) the Current
Market Price of one share of Common Stock less (y) the fair market
value (as determined by the Board of Directors, whose
determination shall be conclusive) of the stock, securities,
evidences of indebtedness, assets, options or rights so
distributed in respect of one share of Common Stock, and of which
the denominator shall be such Current Market Price. Such
adjustment shall be made on the date such dividend or distribution
is made, and shall become effective at the opening of business on
the business day next following the record date for the
determination of stockholders entitled to such dividend or
distribution.

(v) In case, at any time after the original Issuance Date
of the Series A Preferred Stock, of any capital reorganization,
or any reclassification of the stock of the Corporation (other
than a change in par value or from par value to no par value or
from no par value to par value or as a result of a stock dividend
or subdivision, split-up or combination of shares), or the
consolidation or merger of the Corporation with or into another
person (other than a consolidation or merger in which the
Corporation is the continuing corporation and which does not
result in any change in the Common Stock) or of the sale or other
disposition of all or substantially all the properties and assets
of the Corporation as an entirety to any other person, each share
of Series A Preferred Stock shall after such reorganization,
reclassification, consolidation, merger, sale or other disposition
be convertible into the kind and number of shares of stock or
other securities or property of the Corporation resulting from
such consolidation or surviving such merger or to which such
properties and assets shall have been sold or otherwise disposed
to which the holder of the number of shares of Common Stock
deliverable (immediately prior to the time of such reorganization,
reclassification, consolidation, merger, sale or other
disposition) upon conversion of such shares would have been
entitled upon such reorganization, reclassification,
consolidation, merger, sale or other disposition. The provisions
of this Section 4 shall similarly apply to successive
reorganizations, reclassifications, consolidations, mergers, sales
or other dispositions.

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<PAGE> 10

(vi) All calculations under this paragraph (d) shall be
made to the nearest one tenth (1/10) of a cent or to the
nearest one tenth (1/10) of a share, as the case may be.

(vii) For the purpose of any computation pursuant to this
Section 4(d) or Section 4(c) hereof, the Current Market Price
at any date of one share of Common Stock shall be deemed to be the
average of the daily closing prices for the 30 consecutive
business days selected by the Board of Directors of the
Corporation ending no more than 15 days before the day in question
(as adjusted for any stock dividend, split-up, combination or
reclassification that took effect during such period). The
closing price for each day shall be the last reported sales price
regular way or, in case no such reported sales took place on such
day, the average of the last reported bid and asked prices regular
way, in either case on the principal national securities exchange
on which the Common Stock is listed or admitted to trading or as
reported in the National Market List of the National Association
of Securities Dealers Automated Quotations System ("NASDAQ") (or
if the Common Stock is not at the time listed or admitted for
trading on any such exchange or reported in such National Market
List, then such price shall be equal to the average of the last
reported bid and asked prices, as reported by NASDAQ on such day,
or if, on any day in question, the security shall not be quoted on
NASDAQ then such price shall be equal to the average of the last
reported bid and asked prices on such day as reported by the
National Quotation Bureau, Inc., or any similar reputable
quotation and reporting service, if such quotation is not reported
by the National Quotation Bureau, Inc.); provided, however, that
if the Common Stock is not traded in such a manner that the
quotations referred to in this clause (vii) are available for the
period required hereunder, the Current Market Price as of the day
in question shall be determined in good faith by the Board of
Directors of the Corporation, or if such determination cannot be
made, by a nationally recognized independent investment banking
firm selected jointly by the holders of at least a majority of the
voting power of the Series A Preferred Stock then outstanding and
the Corporation (or, if such selection cannot be made, by a
nationally recognized independent investment banking firm selected
by the American Arbitration Association in accordance with its
rules).

(viii) In any case in which the provisions of this Section
4(d) shall require that an adjustment shall become effective
immediately after a record date for an event, the Corporation may
defer until the occurrence of such event (A) issuing to the holder
of any share of Series A Preferred Stock converted after such
record date and before the occurrence of such event the additional
shares of capital stock issuable upon such conversion by reason of
the adjustment required by such event over and above the shares of
capital stock issuable upon

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<PAGE> 11

such conversion before giving effect to such adjustment and (B)
paying to such holder any amount in cash in lieu of a fractional
share of capital stock pursuant to Section 4(c); provided,
however, that the Corporation shall deliver to such holder a due
bill or other appropriate instrument evidencing such holder's
right to receive such additional shares, and such cash, upon the
occurrence of the event requiring such adjustment.

(e) Whenever the Preferred Conversion Price shall be
adjusted as provided in Section 4(d), the Corporation shall forthwith file, at
the office of the transfer agent for the Series A Preferred Stock or at such
other place as may be designated by the Corporation, a statement, signed by its
chief financial officer, showing in detail the facts requiring such adjustment
and the Preferred Conversion Price. The Corporation shall also cause a copy of
such statement to be sent by first class certified mail, return receipt
requested, postage prepaid, to each holder of shares of Series A Preferred
Stock at his or its address appearing on the Corporation's records. Where
appropriate, such copy may be given in advance and may be included as part of a
notice required to be mailed under the provisions of Section 4(f).

(f) In the event the Corporation shall propose to take
any action of the types described in clauses (i), (iv) or (v) of Section 4(d),
the Corporation shall give notice to each holder of shares of Series A
Preferred Stock, in the manner set forth in Section 4(e), which notice shall
specify the record date, if any, with respect to any such action and the date
on which such action is to take place. Such notice shall also set forth such
facts with respect thereto as shall be reasonably necessary to indicate the
effect of such action (to the extent such effect may be known at the date of
such notice) on the Preferred Conversion Price and the number, kind or class of
shares or other securities or property which shall be deliverable or
purchasable upon the occurrence of such action or deliverable upon conversion
of shares of Series A Preferred Stock. In the case of any action which would
require the fixing of a record date, such notice shall be given at least 25
days prior to the date so fixed, and in case of all other action, such notice
shall be given at least 35 days prior to the taking of such proposed action.
Failure to give such notice, or any defect therein, shall not affect the
legality or validity of any such action.

(g) The Corporation shall pay all documentary stamp or
other transactional taxes attributable to the issuance or delivery of shares of
capital stock of the Corporation upon conversion of any shares of Series A
Preferred Stock.

(h) The Corporation shall reserve, free from preemptive
rights, out of its authorized but unissued shares of Common Stock solely for
the purpose of effecting the conversion of the shares of Series A Preferred
Stock sufficient shares to provide for the conversion of all outstanding shares
of Series A Preferred Stock.

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<PAGE> 12

(i) All shares of Common Stock which may be issued in
connection with the conversion provisions set forth herein will, upon issuance
by the Corporation, be va!idly issued, fully paid and nonassessable and free
from all taxes, liens or charges with respect thereto.

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

(a) The term "Accrued Dividends" with respect to any share
of Series A Preferred Stock shall mean (whether or not there shall have been
net profits or net assets of the Corporation legally available for the payment
of such dividends) that amount which shall be equal to dividends at the full
rate fixed for the Series A Preferred Stock as provided herein for the period
of time elapsed from the date of issuance of such share to the date as of which
Accrued Dividends are to be computed, less any payments made in respect of such
dividends.

(b) "Excluded Securities" shall mean:

(i) up to 45,000 shares of Common Stock issued to
officers, employees or directors of, or consultants to, the
Corporation, pursuant to any agreement, plan or arrangement
approved by a majority of the Board of Directors of the
Corporation or options to purchase or rights to subscribe to said
Common Stock;

(ii) Common Stock issued as a stock dividend or upon
any subdivision or combination of shares of Common Stock;

(iii) Common Stock issued upon conversion of the
Series A Preferred Stock;

(iv) Warrants issued pursuant to the Warrant Purchase
Agreement dated March 31, 1988, among the Corporation and
certain purchasers named therein, and Common Stock and Series A
Preferred Stock issued upon exercise of such warrants;

(v) Up to 50,000 shares of Common Stock issuable
under a stock option plan approved by a majority of the Board of
Directors;

(vi) Common Stock issuable to Peter Hansen, Ellenmae
Hansen and Eileen Rex in the event of a public offering of the
Corporation's equity securities;

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<PAGE> 13

(vii) Warrants issued pursuant to the Note and Warrant
Purchase Agreement dated March 31, 1989, among the Corporation
and certain purchasers named therein, and Units of Common Stock
and Series A Preferred Stock issued upon exercise of such
Warrants, the Common Stock and Series A Preferred Stock comprising
Units, and the Common Stock issued upon conversion of the Series A
Preferred Stock included in the Units;

(viii) Up to 105,000 shares of Common Stock issuable
pursuant to Restricted Stock Purchase Agreements, dated as of
March 31, 1988, between the Company and Gary Kerber and John
Lavery;

(ix) Up to 245,710 shares of Common Stock issuable
pursuant to Restricted Stock Purchase Agreements, dated as of
November 7, 1989, between the Company and Gary Kerber, John
Lavery and Michael Davis;

(x) Up to 18,000 shares of Common Stock issuable
pursuant to an Incentive Compensation Agreement, dated as of
November 7, 1989, among the Company, Gary Kerber, John Lavery
and Michael Davis;

(xi) Up to 10,500 shares of Common Stock issuable
to officers, employees or directors or, or consultants to, the
Corporation, pursuant to any agreement, plan or arrangement,
approved by a majority of the Board of Directors or option to
purchase or rights to subscribe to said Common Stock;

(xii) Up to 92,721 shares of Common Stock issuable
pursuant to Restricted Stock Purchase Agreements, dated as of
April 1, 1990, and amendments thereto, between the Corporation and
Vince Pisano;

(xiii) Warrants to purchase Common Stock issued
pursuant to the Securities Purchase Agreement, dated as of July
23, 1991, among the Corporation and certain purchasers named
therein, and 800,000 shares of the Common Stock issuable upon
exercise of such warrants;

(xiv) Up to 250,000 shares of Common Stock issued
upon exchange of the Accrued Dividends pursuant to the Letter
Agreement, dated as of July 23, 1991, among the holders of Series
A Preferred Stock of the Corporation and Trust for Defined Benefit
Plan of ICI American Holdings Inc. and State Employees' Retirement
Fund of the State of Delaware;

(xv) Warrants to purchase up to 10,000 shares of
Common Stock to be issued to employment consultant of the
Corporation;

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<PAGE> 14

(xvi) Warrants to purchase Common Stock to be issued
pursuant to the Engagement Letter dated August 27, 1990, from
Equitable Securities Corporation to the Corporation and 16,000
shares of Common Stock issuable upon exercise of such warrants;
and

(xvii) Any and all Common Stock issued upon exercise
of the Stock Purchase Warrant dated as of March 31, 1995
between the Corporation and Sirrom Capital Corporation providing
for the issuance of up to 185,000 shares of the Corporation's
Common Stock.

(xviii) In addition to the shares of Common Stock
provided for in Subsections (i) and (xi) of this Section, up to
105,000 shares of Common Stock issuable to officers, employees or
directors of, or consultants to, the Corporation, pursuant to any
agreement, plan or arrangement, approved by a majority of the
Board of Directors or options to purchase or rights to subscribe
to said Common Stock.

(c) The term "Junior Stock" shall mean the Common Stock
and any class or series of shares of capital stock of the Corporation junior in
right of payment of dividends or the distribution of assets on liquidation to
the Series A Preferred Stock.

(d) The term "Liquidation Preference" shall mean $6.66 per
share.

(e) The term "Original Issuance Date" shall mean the date
as of which the first share of Series A Preferred Stock has been issued.

(f) The term "Purchase Agreement" shall mean the Preferred
Stock Purchase Agreement dated March 31, 1988 among the Corporation and the
persons named therein as investors.

B. COMMON STOCK

1. Voting. Except as otherwise expressly provided by law, and
subject to the voting rights provided to the holders of Series A Preferred
Stock by this Certificate of Incorporation, the Common Stock shall have
exclusive voting rights on all matters requiring a vote of stockholders, voting
together with the holders of Series A Preferred Stock, as one class.

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<PAGE> 15

expressly granted to the holders of the Series A Preferred Stock, or except as
may be provided by the laws of the State of Delaware, the holders of Common
Stock shall have exclusively all other rights of stockholders.

C. BLANK CHECK PREFERRED STOCK

1. Issuance. The blank check preferred stock may be issued
from time to time in one or more series. Subject to the limitations set
forth herein and any limitations prescribed by law, the Board of Directors is
expressly authorized, prior to issuance of any series of blank check preferred
stock, to fix by resolution or resolutions providing for the issue of any
series the number of shares included in such series and the designations,
relative powers, preferences and rights, and the qualifications, limitations or
restrictions of such series. Pursuant to the foregoing general authority
vested in the Board of Directors, but not in limitation of the powers conferred
on the Board of Directors thereby and by the General Corporation Law of the
State of Delaware, the Board of Directors is expressly authorized to determine
with respect to each series of blank check preferred stock:

(a) the designation or designations of such series and the
number of shares (which number from time to time may be decreased by the Board
of Directors, but not below the number of such shares then outstanding, or may
be increased by the Board of Directors unless otherwise provided in creating
such series) constituting such series;

(b) the rate or amount and times at which, and the
preferences and conditions under which, dividends shall be payable on shares of
such series, the status of such dividends as cumulative or noncumulative, the
date or dates from which dividends, if cumulative, shall accumulate, and the
status of such shares as participating or nonparticipating after the payment of
dividends as to which such shares are entitled to any preference;

(c) the rights and preferences, if any, of the holders of
shares of such series upon the liquidation, dissolution or winding up of the
affairs of, or upon any distribution of the assets of, the corporation, which
amount may vary depending upon whether such liquidation, dissolution or winding
up is voluntary or involuntary and, if voluntary, may vary at different dates,
and the status of the shares of such series as participating or
nonparticipating after the satisfaction of any such rights and preferences;

(d) the full or limited voting rights, if any, to be
provided for shares of such series, in addition to the voting rights provided
by law;

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<PAGE> 16

(e) the times, terms and conditions, if any, upon which
shares of such series shall be subject to redemption, including the amount the
holders of shares of such series shall be entitled to receive upon redemption
(which amount may vary under different conditions or at different redemption
dates) and the amount, terms, conditions and manner of operation of any
purchase, retirement or sinking fund to be provided for the shares of such
series;

(f) the rights, if any, of holders of shares of such series
to convert such shares into, or to exchange such shares for, shares of any
other class or classes or of any other series of the same class, the prices or
rates of conversion or exchange, and adjustments thereto, and any other terms
and conditions applicable to such conversion or exchange;

(g) the limitations, if any, applicable while such series is
outstanding on the payment of dividends or making of distributions on, or the
acquisition or redemption of, Common Stock or any other class of shares ranking
junior, either as to dividends or upon liquidation, to the shares of such
series;

(h) the conditions or restrictions, if any, upon the issue
of any additional shares (including additional shares of such series or any
other series or of any other class) ranking on a parity with or prior to the
shares of such series either as to dividends or upon liquidation; and

(i) any other relative powers, preferences and
participating, optional or other special rights, and the qualifications,
limitations or restrictions thereof, of shares of such series;

in each case, so far as not inconsistent with the provisions of this
Certificate of Incorporation or the General Corporation Law of the State of
Delaware as then in effect.

2. Stock Split. Upon the filing in the Office of the
Secretary of State of Delaware of the Eighth Amendment to the Certificate
whereby Article Fourth is amended to read as set forth herein, each issued and
outstanding three shares of Common Stock shall thereby and thereupon be split
into five shares of validly issued, fully paid nonassessable shares of Common
Stock. Each party at that time holding of record any issued and outstanding
shares of Common Stock shall receive upon surrender thereof to the
Corporation's authorized agent a stock certificate or certificates to evidence
and represent the number of shares of Common Stock to which said shareholder is
entitled after the split.

Except as specifically amended hereby, all provisions of the
Certificate shall remain in full force and effect.

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<PAGE> 17

EDUCATIONAL MEDICAL, INC.

By: /s/ Morris C. Brown
---------------------------
Morris C. Brown, Secretary

[CORPORATE SEAL]

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<PAGE> 1
EXHIBIT 3.2

EDUCATIONAL MEDICAL, INC.

RESTATED BYLAWS

ARTICLE I
OFFICES

1.1 Registered Office. The registered office of the Corporation
shall be located at such place in Delaware as the Board of Directors from time
to time determines.

1.2 Other Offices. The Corporation may also have offices or
branches at such other places as the Board of Directors from time to time
determines or the business of the Corporation requires.

ARTICLE II
MEETINGS OF STOCKHOLDERS

2.1 Time and Place. All meetings of the stockholders shall be
held at such place and time as the Board of Directors determines.

2.2 Annual Meetings. An annual meeting of stockholders shall be
held for the election of directors at such date, time and place, either within
or without the State of Delaware, as may be designated by resolution of the
Board of Directors from time to time. Any other proper business may be
transacted at the annual meeting.

2.3 Special Meetings. Special meetings of the stockholders, for
any purpose, may be called by the Corporation's Chairman of the Board and shall
be called by the Secretary or any Assistant Secretary upon written request
(stating the purpose for which the meeting is to be called) of a majority of
the Board of Directors.

2.4 Notice of Meetings. Except as provided in Section 2.5 below,
written notice of each stockholders' meeting, stating the place, date and time
of the meeting and, in the case of a special meeting, the purposes for which
the meeting is called, shall be given (in the manner described in Section 5.1
below) not less than 10 nor more than 60 days before the date of the meeting to
each stockholder of record entitles to vote at the meeting. Notice of
adjourned meetings is governed by Section 2.7 below.

2.5 Advance Notice Requirements for Stockholder Proposals and
Director Nominations. At an annual meeting of the stockholders, only such
business shall be conducted as shall have been properly brought before the
meeting. To be properly brought before an annual meeting business must be (a)
specified in the notice of meeting (or any supplement thereto) given by or at
the direction of the Board of Directors in accordance with Section 2.4 above,
(b) otherwise properly brought before the meeting by or at the direction of the
Board of Directors, or (c) otherwise properly brought before the meeting by a
stockholder. For business to be properly brought before an annual meeting by a
stockholder, or for a stockholder to nominate candidates
<PAGE> 2

for election as directors at an annual or special meeting of the stockholders,
the stockholder must have given timely notice thereof in writing to the
Secretary of the Corporation. To be timely, a stockholder's notice must be
delivered, mailed and received at the principal executive offices of the
Corporation, (a) in the case of an annual meeting that is called for a date
that is within 30 days before or after the anniversary date of the immediately
preceding annual meeting of stockholders, not less than 60 days nor more than
90 days prior to such anniversary date, and (b) in the case of an annual
meeting that is not called for a date that is not within 30 days before or
after the anniversary date of the immediately preceding annual meeting, or in
the case of a special meeting of the stockholders called for the purpose of
electing directors, not later than the close of business on the tenth day on
which notice of the date of the meeting was mailed or public disclosure of the
date of the meeting was made, whichever occurs first. A stockholder's notice
to the Secretary shall set forth as to each matter the stockholder proposes to
bring before the annual meeting (a) a brief description of the business desired
to be brought before the annual meeting and the reasons for conducting such
business at the annual meeting, (b) the name and address, as they appear on the
Corporation's books, of the stockholder proposing such business, (c) the class
and number of shares of the Corporation which are beneficially owned by the
stockholder, and (d) any material interest of the stockholder in such business.
Notwithstanding anything in the Bylaws to the contrary, no business shall be
conducted at any annual meeting or special meeting called for the purpose of
electing directors except in accordance with the procedures set forth in this
Section 2.5. The Chairman of the annual meeting shall, if the fact warrant,
determine and declare to the meeting that business was not properly brought
before the meeting and in accordance with the provisions of this Section 2.5,
and if he should so determine, he shall so declare to the meeting and any such
business not properly brought before the meeting shall not be transacted.

2.6 List of Stockholders. The officer or agent who has charge of
the stock ledger of the Corporation shall prepare and make, at least ten days
before every meeting of stockholders, a complete list of the stockholders
entitled to vote at the meeting or any adjournment of the meeting. The list
shall be arranged alphabetically within each class and series and shall show
the address of, and the number of shares registered in the name of, each
stockholder. Such list shall be open to the examination of any stockholder,
for any purpose germane to the meeting, during ordinary business hours, for a
period of at least ten days prior to the meeting, either at a place within the
city where the meeting is to be held, which place shall be specified in the
notice of the meeting, or if not so specified, at the place where the meeting
is to be held. The list shall also be produced and kept at the time and place
of the meeting during the whole time thereof and may be inspected by any
stockholder who is present. The stock ledger shall be the only evidence as to
who are the stockholders entitled to examine the stock ledger, the list of
stockholders or the books of the Corporation, or to vote in person or by proxy
at any meeting of stockholders.

2.7 Quorum; Adjournment. Except as otherwise provided by law, at
all stockholders' meetings, the stockholders present in person or represented
by proxy who, as of the record date for the meeting, were holders of shares
entitled to cast a majority of the votes at the meeting, shall constitute a
quorum. Once a quorum is present at a meeting, all stockholders present in
person or represented by proxy at the meeting may continue to do business until
adjournment, notwithstanding the withdrawal of enough stockholders to leave
less than a quorum. Regardless of whether a quorum is present, a stockholders'
meeting may be adjourned to another time and place by a vote of the shares
present in person or by proxy without notice other than announcement at the
meeting; provided, that (a) only such business may be transacted at the
adjourned meeting as might have been transacted at the original meeting and (b)
if the adjournment is for more than thirty days or if after the adjournment a
new record date is fixed for the adjourned meeting, a notice of the adjourned
meeting must be given to each stockholder of record entitled to vote at the
meeting.

2.8 Voting. Except as otherwise provided in the Certificate of
Incorporation, each stockholder shall at every meeting of the stockholders be
entitled to one vote in person or by proxy for each share having voting power
held by such stockholder and on each matter submitted to a vote. Voting at
meetings of stockholders need not be by written ballot. When an action, other
than the election of directors, is to be taken by vote of the stockholders, it
shall be authorized by a majority of the votes cast by the holders of shares
entitled to vote on

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<PAGE> 3

such action, unless a greater vote is required by the Certificate of
Incorporation, these Bylaws or by law. Except as otherwise provided by the
Certificate of Incorporation, directors shall be elected by a plurality of the
votes cast at any election.

2.9 Proxies. Each stockholder entitled to vote at a meeting of
stockholders may authorize another person or persons to act for him by proxy,
but no such proxy shall be voted or acted upon after three years from its date,
unless the proxy provides for a longer period. A proxy shall be irrevocable if
it states that it is irrevocable and if, and only as long as, it is coupled
with an interest sufficient in law to support an irrevocable power. A
stockholder may revoke any proxy which is not irrevocable by attending the
meeting and voting in person or by filing an instrument in writing revoking the
proxy or by delivering a proxy in accordance with applicable law bearing a
later date to the Secretary of the corporation.

2.10 Questions Concerning Elections. The Board of Directors may,
in advance of the meeting, or the presiding officer may, at the meeting,
appoint one or more inspectors to act at a stockholders' meeting or any
adjournment. If appointed, the inspectors shall determine the number of shares
outstanding and the voting power of each, the shares represented at the
meeting, the existence of a quorum, the validity and effect of proxies, and
shall receive votes, ballots or consents, hear and determine challenges and
questions arising in connection with the right to vote, count and tabulate
votes, ballots or consents, determine the result, and do such acts as are
proper to conduct the election or vote with fairness to all stockholders.

2.11 Action by Written Consent. No action required or permitted to
be taken at any annual or special meeting of the stockholders may be taken
without a meeting, and the power of stockholders to consent in writing, without
a meeting, to the taking of any action is specifically denied.

ARTICLE III
DIRECTORS

3.1 Number and Residence. The business and affairs of the
Corporation shall be managed by or under the direction of its Board of
Directors consisting of five directors or such greater or lesser number as may
be fixed from time to time by a majority of the total number of directors which
the Company will have if there were no vacancies on the Company's Board of
Directors; provided, however, that the number of directors shall not be reduced
so as to shorten the term of any director at the time in office. Directors
need not be stockholders. The Directors shall be elected at the annual meeting
of stockholders (or if so determined by the Board of Directors pursuant to
Section 2.3 hereof, at a special meeting of stockholders), by such stockholders
as have the right to vote at such election.

3.2 Election and Term. The term of office of each Director shall
end on the date of the annual stockholders' meeting following the annual
meeting at which such Director was elected. Each Director elected shall hold
office for the term for which he or she is elected and until his or her
successor is elected and qualified or until his or her resignation or removal.

3.3 Resignation. A Director may resign by written notice to the
Corporation. A Director's resignation is effective upon its receipt by the
Corporation or a later time set forth in the notice of resignation.

3.4 Removal. One or more Directors may be removed with cause by
vote of the holders of a majority of the shares entitled to vote at an election
of Directors cast at a meeting of the stockholders called for that purpose.

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3.5 Vacancies. During the intervals between annual meetings of
stockholders, any vacancy occurring in the Board of Directors caused by
resignation, death or other incapacity and any newly created directorships
resulting from an increase in the number of Directors may be filled by a
majority vote of the Directors then in office, whether or not a quorum. Each
Director chosen to fill a vacancy shall hold office for the unexpired term in
respect of which such vacancy occurred. Each Director chosen to fill a newly
created directorship shall hold office until the next election of directors and
until his or her successor is elected and qualified.

3.6 Place of Meetings. The Board of Directors may hold meetings
at any location. The location of annual and regular Board of Directors'
meetings shall be determined by the Board and the location of special meetings
shall be determined by the person calling the meeting.

3.7 Annual Meetings. Each newly elected Board of Directors may
meet promptly after the annual stockholders' meeting for the purposes of
electing officers and transacting such other business as may properly come
before the meeting. No notice of the annual Directors' meeting shall be
necessary to the newly elected Directors in order to legally constitute the
meeting, provided a quorum is present.

3.8 Regular Meetings. Regular meetings of the Board of Directors
or Board committees may be held without notice at such places and times as the
Board or committee determines at least 30 days before the date of the meeting.

3.9 Special Meetings. Special meetings of the Board of Directors
may be called by the Chief Executive Officer, and shall be called by the
President or Secretary upon the written request of two Directors, on two days
notice to each Director or committee member by mail or 24 hours notice by any
other means provided in Section 5.1. The notice must specify the place, date
and time of the special meeting, but need not specify the business to be
transacted at, nor the purpose of, the meeting. Special meetings of Board
committees may be called by the Chairperson of the committee or a majority of
committee members pursuant to this Section 3.9.

3.10 Quorum. At all meetings of the Board or a Board committee, a
majority of the Directors then in office, or of members of such committee,
constitutes a quorum for transaction of business, unless a higher number is
otherwise required. If a quorum is not present at any Board or Board committee
meeting, a majority of the Directors present at the meeting may adjourn the
meeting to another time and place without notice other than announcement at the
meeting. Any business may be transacted at the adjourned meeting which might
have been transacted at the original meeting, provided a quorum is present.

3.11 Voting. The vote of a majority of the members present at any
Board or Board committee meeting at which a quorum is present constitutes the
action of the Board of Directors or of the Board committee, unless a higher
vote is otherwise required.

3.12 Telephonic Participation. Members of the Board of Directors
or any Board committee may participate in a Board or Board committee meeting by
means of conference telephone or similar communications equipment through which
all persons participating in the meeting can communicate with each other.
Participation in a meeting pursuant to this Section 3.12 constitutes presence
in person at such meeting.

3.13 Action by Written Consent. Any action required or permitted
to be taken under authorization voted at a Board or Board committee meeting may
be taken without a meeting if, before or after the action, all members of the
Board then in office or of the Board committee consent to the action in
writing. Such consents

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<PAGE> 5

shall be filed with the minutes of the proceedings of the Board or committee
and shall have the same effect as a vote of the Board or committee for all
purposes.

3.14 Committees. The Board of Directors may, by resolution passed
by a majority of the entire Board, designate one or more committees, each
consisting of one or more Directors. The Board may designate one or more
Directors as alternate members of a committee, who may replace an absent or
disqualified member at a committee meeting. In the absence or disqualification
of a member of a committee, the committee members present and not disqualified
from voting, regardless of whether they constitute a quorum, may unanimously
appoint another member of the Board of Directors to act at the meeting in place
of such absent or disqualified member. Any committee, to the extent provided
in the resolution of the Board, may exercise all powers and authority of the
Board of Directors in management of the business and affairs of the
Corporation, except a committee does not have power or authority to:

(a) Amend the Certificate of Incorporation.

(b) Adopt an agreement of merger or consolidation.

(c) Recommend to stockholders the sale, lease or exchange
of all or substantially all of the Corporation's property and assets.

(d) Recommend to stockholders a dissolution of the
Corporation or a revocation of a dissolution.

(e) Amend the Bylaws of the Corporation.

(f) Fill vacancies in the Board.

(g) Unless the resolution designating the committee or a
later Board of Director's resolution expressly so provides, declare a
distribution or dividend or authorize the issuance of stock.

Each committee and its members shall serve at the pleasure of the Board, which
may at any time change the members and powers of, or discharge, the committee.
Each committee shall keep regular minutes of its meetings and report them to
the Board of Directors when required.

3.15 Compensation. The Board, by affirmative vote of a majority of
Directors in office and irrespective of any personal interest of any of them,
may establish reasonable compensation of Directors for services to the
Corporation as directors, officers or members of a Board committee. No such
payment shall preclude any Director from serving the Corporation in any other
capacity and receiving compensation for such service.

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ARTICLE IV
OFFICERS

4.1 Officers and Agents. The Board of Directors, at its first
meeting after each annual meeting of stockholders, shall elect a President, a
Secretary and a Treasurer and/or Chief Financial Officer, and may also elect
and designate as officers a Chairman of the Board, a Vice Chairman of the Board
and one or more Executive Vice Presidents, Vice Presidents, Assistant Vice
Presidents, Assistant Secretaries and Assistant Treasurers. The Board of
Directors may also from time to time appoint, or delegate authority to the
Corporation's Chief Executive Officer to appoint, such other officers and
agents as it deems advisable. Any number of offices may be held by the same
person, but an officer shall not execute, acknowledge or verify an instrument
in more than one capacity if the instrument is required by law to be executed,
acknowledged or verified by two or more officers. An officer has such
authority and shall perform such duties in the management of the Corporation as
provided in these Bylaws, or as may be determined by resolution of the Board of
Directors not inconsistent with these Bylaws, and as generally pertain to their
offices, subject to the control of the Board of Directors.

4.2 Compensation. The compensation of all officers of the
Corporation shall be fixed by the Board of Directors except to the extent
delegated by the Board of Directors to the President of the Company. In the
absence of a specific resolution to the contrary, authority regarding
compensation for all officers other than the Chairman of the Board, Vice
Chairman of the Board, President and Chief Financial Officer shall be deemed
delegated to the President.

4.3 Term. Each officer of the Corporation shall hold office for
the term for which he or she is elected or appointed and until his or her
successor is elected or appointed and qualified, or until his or her
resignation or removal. The election or appointment of an officer does not, by
itself, create contract rights.

4.4 Removal. An officer elected or appointed by the Board of
Directors or the President, as the case may be, may be removed by the Board of
Directors or the President with or without cause. The removal of an officer
shall be without prejudice to his or her contract rights, if any.

4.5 Resignation. An officer may resign by written notice to the
Corporation. The resignation is effective upon its receipt by the Corporation
or at a subsequent time specified in the notice of resignation.

4.6 Vacancies. Any vacancy occurring in any office of the
Corporation shall be filled by the Board of Directors.

4.7 Chairman of the Board. The Chairman of the Board, if such
office is filled, shall be a Director and shall preside at all stockholders'
and Board of Directors' meetings.

4.8 Chief Executive Officer. The Chairman of the Board, if any,
or the President, as designated by the Board, shall be the Chief Executive
Officer of the Corporation and shall have the general powers of supervision and
management of the business and affairs of the Corporation usually vested in the
Chief Executive Officer of a corporation and shall see that all orders and
resolutions of the Board of Directors are carried into effect. If no
designation of Chief Executive Officer is made, or if there is no Chairman of
the Board, the President shall be the Chief Executive Officer. The Chief
Executive Officer may delegate to the other officers such of his or her
authority and duties at such time and in such manner as he or she deems
advisable.

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4.9 President. If the office of Chairman of the Board is not
filled, the President shall perform the duties and execute the authority of the
Chairman of the Board. If the Chairman of the Board is designated by the Board
as the Corporation's Chief Executive Officer, the President shall be the chief
operating officer of the Corporation, shall assist the Chairman of the Board in
the supervision and management of the business and affairs of the Corporation
and, in the absence of the Chairman of the Board, shall preside at all
stockholders' and Board of Directors' meetings. The President may delegate to
the officers other than the Chairman of the Board, if any, such of his or her
authority and duties at such times and in such manner as he or she deems
appropriate.

4.10 Executive Vice Presidents and Vice Presidents. The Executive
Vice Presidents and Vice Presidents shall assist and act under the direction of
the Chairman of the Board and President. The Board of Directors or the
President, as the case may be, may designate one or more Executive Vice
Presidents and may grant other Vice Presidents titles which describe their
functions or specify their order of seniority. In the absence or disability of
the President, the authority of the President shall descend to the Executive
Vice Presidents or, if there are none, to the Vice Presidents in the order of
seniority indicated by their titles or otherwise specified by the Board. If
not specified by their titles or the Board, the authority of the President
shall descend to the Executive Vice Presidents or, if there are none, to the
Vice Presidents, in the order of their seniority in such office.

4.11 Secretary. The Secretary shall act under the direction of the
Corporation's Chief Executive Officer and President. The Secretary shall
attend all stockholders' and Board of Directors' meetings, record minutes of
the proceedings and maintain the minutes and all documents evidencing corporate
action taken by written consent of the stockholders and Board of Directors in
the Corporation's minute book. The Secretary shall perform these duties for
Board committees when required. The Secretary shall see to it that all notices
of stockholders' meetings and special Board of Directors' meetings are duly
given in accordance with applicable law, the Certificate of Incorporation and
these Bylaws. The Secretary shall have custody of the Corporation's seal and,
when authorized by the Corporation's Chief Executive Officer, President or the
Board of Directors, shall affix the seal to any instrument requiring it and
attest such instrument.

4.12 Treasurer and/or Chief Financial Officer. The Treasurer
and/or Chief Financial Officer shall act under the direction of the
Corporation's Chief Executive Officer and President. The Treasurer and/or
Chief Financial Officer shall have custody of the corporate funds and
securities and shall keep full and accurate accounts of the Corporation's
assets, liabilities, receipts and disbursements in books belonging to the
Corporation. The Treasurer and/or Chief Financial Officer shall deposit all
moneys and other valuables in the name and to the credit of the Corporation in
such depositories as may be designated by the Board of Directors. The
Treasurer and/or Chief Financial Officer shall disburse the funds of the
Corporation as may be ordered by the Corporation's Chief Executive Officer, the
President or the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the Corporation's Chief Executive Officer,
the President and the Board of Directors (at its regular meetings or whenever
they request it) an account of all his or her transactions as Treasurer and/or
Chief Financial Officer and of the financial condition of the Corporation. If
required by the Board of Directors, the Treasurer and/or Chief Financial
Officer shall give the Corporation a bond for the faithful discharge of his or
her duties in such amount and with such surety as the Board prescribes.

4.13 Assistant Vice Presidents, Secretaries and Treasurers. The
Assistant Vice Presidents, Assistant Secretaries and Assistant Treasurers, if
any, shall act under the direction of the Corporation's Chief Executive
Officer, the President and the officer they assist. In the order of their
seniority, the Assistant Secretaries shall, in the absence or disability of the
Secretary, perform the duties and exercise the authority of the Secretary. The
Assistant Treasurer, in the order of their seniority, shall, in the absence or
disability of the Treasurer, perform the duties and exercise the authority of
the Treasurer.

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4.14 Execution of Contracts and Instruments. The Board of
Directors may designate an officer or agent with authority to execute any
contract or other instrument on the Corporation's behalf; the Board may also
ratify or confirm any such execution. If the Board authorizes, ratifies or
confirms the execution of a contract or instrument without specifying the
authorized executing officer or agent, the Corporation's Chief Executive
Officer, the President, any Executive Vice President, the Treasurer and/or
Chief Financial Officer or Secretary may execute the contract or instrument in
the name and on behalf of the Corporation and may affix the corporate seal to
such document or instrument.

4.15 Voting of Shares and Securities of Other Corporations and
Entities. Unless the Board of Directors otherwise directs, the Corporation's
Chief Executive Officer shall be entitled to vote or designate a proxy to vote
all shares and other securities which the Corporation owns in any other
corporation or entity.

ARTICLE V
NOTICES AND WAIVERS OF NOTICE

5.1 Delivery of Notices. All written notices to stockholders,
Directors and Board committee members shall be given personally or by mail
(registered, certified or other first class mail, with postage pre-paid),
addressed to such person at the address designated by him or her for that
purpose or, if none is designated, at his or her last known address. Written
notices to Directors or Board committee members may also be delivered at his or
her office on the Corporation's premises, if any, or by overnight carrier,
telegram, telex, telecopy, radiogram, cablegram, facsimile, computer
transmission or similar form of communication, addressed to the address
referred to in the preceding sentence. Notices given pursuant to this Section
5.1 shall be deemed to be given when dispatched, or, if mailed, when deposited
in a post office or official depository under the exclusive care and custody of
the United States postal service. Notice given by overnight carrier shall be
deemed "dispatched" at 9:00 a.m. on the day the overnight carrier is reasonably
requested to deliver the notice. The Corporation shall have no duty to change
the written address of any Director, Board committee member or stockholder
unless the Secretary receives written notice of such address change.

5.2 Waiver of Notice. Whenever notice is required to be given
under the Certificate of Incorporation, these Bylaws or applicable law, a
written waiver, signed by the person entitled to notice, whether before or
after the time stated therein, shall be deemed equivalent to notice.
Attendance of a person at a meeting shall constitute a waiver of notice of such
meeting, except where the person attends a meeting for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened.

ARTICLE VI
SHARE CERTIFICATES AND STOCKHOLDERS OF RECORD

6.1 Certificates. The shares of the Corporation shall be
represented by certificates signed by the Chairman of the Board, Vice Chairman
of the Board, or the President or a Vice President and by the Treasurer or an
Assistant Treasurer, or by the Secretary or an Assistant Secretary representing
the number of shares registered in certificate form. Any of or all the
signatures on the certificate may be by facsimile. In case any officer,
transfer agent, or registrar who has signed or whose facsimile signature has
been placed upon a certificate shall have ceased to be such officer, transfer
agent, or registrar before such certificate is issued, it may be issued by the
Corporation with the same effect as if he were such officer, transfer agent, or
registrar at the date of issue.

6.2 Lost or Destroyed Certificates. The Corporation may issue a
new certificate of stock in the place of any certificates theretofore issued by
it, alleged to have been lost, stolen or destroyed, and the

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Corporation may require the owner of the lost, stolen or destroyed certificate,
or his legal representative, to give the Corporation a bond sufficient to
indemnify it against any claim that may be made against it on account of the
alleged loss, theft or destruction of any such certificate or the issuance of
such new certificate.

6.3 Transfer of Shares. Shares of the Corporation are
transferable only on the Corporation's stock ledger upon surrender to the
Corporation or its transfer agent of a certificate for the shares, duly
endorsed for transfer, and the presentation of such evidence of ownership and
validity of the transfer as the Corporation requires.

6.4 Record Date. The Board of Directors may fix, in advance, a
date as the record date for determining stockholders for any purpose, including
determining stockholders entitled to (a) notice of, and to vote at, any
stockholders' meeting or any adjournment of such meeting; or (b) receive
payment of a share dividend or distribution or allotment of a right. The
record date shall not be more than 60 nor less than 10 days before the date of
the meeting, nor more than 60 days before any other action.

If a record date is not fixed:

(a) the record date for determining the stockholders
entitled to notice of, or to vote at, a stockholders' meeting shall be
the close of business on the day next preceding the day on which
notice of the meeting is given, or, if no notice is given, the close
of business on the day next preceding the date on which the meeting is
held; and

(b) the record date for determining stockholders for any
other purpose shall be the close of business on the day on which the
resolution of the Board of Directors relating to the action is
adopted.

A determination of stockholders of record entitled to notice of, or to vote at,
a stockholders' meeting shall apply to any adjournment of the meeting, unless
the Board of Directors fixes a new record date for the adjourned meeting.

Only stockholders of record on the record date shall be entitled to
notice of, or to participate in, the action relating to the record date,
notwithstanding any transfer of shares on the Corporation's books after the
record date. This Section 6.4 shall not affect the rights of a stockholder and
the stockholder's transferor or transferee as between themselves.

6.5 Registered Stockholders. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of a share for all purposes, including notices, voting, consents, dividends and
distributions, and shall not be bound to recognize any other person's equitable
or other claim to interest in such share, regardless of whether it has actual
or constructive notice of such claim or interest.

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ARTICLE VII
INDEMNIFICATION

7.1 Indemnification. The Corporation shall, to the fullest extent
permitted by applicable law as it presently exists or may hereafter be amended,
(a) indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the fact
that he is or was a Director, officer, employee or agent of the Corporation, or
is or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, partnership, joint
venture, trust or other enterprise (collectively, "Covered Matters') against
all liability and loss suffered and expenses (including attorneys' fees)
reasonably incurred by such persons; and (b) pay or reimburse such expenses
incurred by such person in connection with any Covered Matter in advance of
final disposition of such Covered Matter. The Corporation may provide such
other indemnification of Directors, officers, employees and agents by
insurance, contract or otherwise as is permitted by law and authorized by the
Board of Directors.

7.2 Claims. If a claim for indemnification or payment of expenses
under this Article VII is not paid in full within sixty days after a written
claim therefor has been received by the Corporation, the claimant may file suit
to recover the unpaid amount of such claim and, if successful in whole or in
part, shall be entitled to be paid the expense of prosecuting such claim. In
any such action the Corporation shall have the burden of proving that the
claimant was not entitled to the requested indemnification or payment of
expenses under applicable law.

7.3 Non-Exclusivity of Rights. The rights conferred on any person
by this Article VII shall not be exclusive of any other rights which such
person may have or hereafter acquire under any statute, provision of the
Certificate of Incorporation, these Bylaws, agreement, vote of stockholders or
disinterested directors or otherwise.

ARTICLE VIII
GENERAL PROVISIONS

8.1 Checks and Funds. All checks, drafts or demands for money and
notes of the Corporation must be signed by such officer or officers or such
other person or persons as the Board of Directors from time to time designates.
All funds of the Corporation not otherwise employed shall be deposited or used
as the Board of Directors from time to time designates.

8.2 Fiscal Year. The fiscal year of the Corporation shall end on
such date as the Board of Directors from time to time determines.

8.3 Corporate Seal. The corporate seal shall have the name of the
Corporation inscribed thereon and shall be in such form as may be approved from
time to time by the Board of Directors.

8.4 Form of Records. Any records maintained by the Corporation in
the regular course of its business, including its stock ledger, books of
account, and minute books, may be kept on, or be in the form of, punch cards,
magnetic tape, photographs, microphotographs, or any other information storage
device, provided that the records so kept can be converted into clearly legible
form within a reasonable time.

10
<PAGE> 11

8.5 Interested Directors; Quorum. No contract or transaction
between the Corporation and one or more of its Directors or officers, or
between the Corporation and any other corporation, partnership, association, or
other organization in which one or more of its Directors or officers are
directors or officers, or have a financial interest, shall be void or voidable
solely for this reason, or solely because the Director or officer is present at
or participates in the meeting of the Board of Directors or committee thereof
which authorizes the contract or transaction, or solely because his or their
votes are counted for such purpose, if: (a) the material facts as to his
relationship or interest and as to the contract or transaction are disclosed or
are known to the Board of Directors or the committee, and the Board of
Directors or committee in good faith authorizes the contract or transactions by
the affirmative votes of a majority of the disinterested Directors, even though
the disinterested Directors be less than a quorum; or (b) the material facts as
to his relationship or interest and as to the contract or transaction are
disclosed or are known to the stockholders entitled to vote thereon, and the
contract or transaction is specifically approved in good faith by vote of the
stockholders; or (c) the contract or transaction is fair as to the Corporation
as of the time it is authorized, approved or ratified, by the Board of
Directors, a committee thereof, of the stockholders. Common or interested
Directors may be counted in determining the presence of a quorum at a meeting
of the Board of Directors or of a committee which authorizes the contract or
transaction.

ARTICLE IX
AMENDMENTS

These Bylaws may be amended or repealed, or new Bylaws may be adopted,
by the Board of Directors at any meeting the notice of which shall have stated
the amendment of the Bylaws as one of the purposes of the meeting, but the
stockholders may make additional Bylaws and may amend and repeal any Bylaws
whether adopted by them or otherwise.

ARTICLE X
SCOPE OF BYLAWS

These Bylaws govern the regulation and management of the affairs of
the Corporation to the extent that they are consistent with applicable law and
the Certificate of Incorporation; to the extent they are not consistent,
applicable law and the Certificate of Incorporation shall govern.

<PAGE> 1
EXHIBIT 4.1

<TABLE>
<CAPTION>
<S> <C> <C>
COMMON STOCK [LOGO] COMMON STOCK

EDUCATIONAL MEDICAL, INC.

INCORPORATED UNDER THE LAWS OF SEE REVERSE FOR
THE STATE OF DELAWARE CERTAIN DEFINITIONS
CUSIP 281490 10 2

THIS CERTIFIES THAT

IS THE OWNER OF

FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK OF THE PAR VALUE OF $0.01 PER SHARE, OF
EDUCATIONAL MEDICAL, INC.

transferable on the books of the Corporation in person or by duly authorized attorney upon surrender of this Certificate properly
endorsed. This Certificate and the shares represented hereby are issued and shall be held subject to all of the provisions of the
Articles of Incorporation and Bylaws of the Corporation, and all amendments thereto, to all of which the holder, by acceptance
hereof assents.
This Certificate is not valid unless countersigned and registered by the Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signature of its duly authorized officers. Dated

(SEAL) MORRIS C. BROWN Vince Pisano Gary D. Kerber

Secretary VICE PRESIDENT FINANCE TREASURER, AND CHAIRMAN, PRESIDENT AND
CHIEF FINANICAL OFFICER CHIEF EXECUTIVE OFFICER

COUNTERSIGNED AND REGISTERED:
FIRST UNION NTIONAL BANK OF NORTH CAROLINA
(CHARLOTTE, N.C.)
TRANSFER AGENT
AND REGISTRAR

AUTHORIZED SIGNATURE
</TABLE>

<PAGE> 2
EDUCATIONAL MEDICAL, INC.

THE AUTHORIZED CAPITAL STOCK OF EDUCATIONAL MEDICAL, INC. INCLUDES
PREFERRED STOCK. UPON REQUEST THE CORPORATION WILL FURNISH TO ANY SHAREHOLDER,
WITHOUT CHARGE, INFORMATION AS TO THE NUMBER OF SUCH SHARES AUTHORIZED AND
OUTSTANDING AND A COPY OF THE PORTION OF THE ARTICLES OF INCORPORATION OR
RESOLUTIONS CONTAINING THE DESIGNATIONS, PREFERENCES, LIMITATIONS AND RELATIVE
RIGHTS OF ALL SHARES AND ANY CLASS OR SERIES THEREOF. ANY SUCH REQUEST SHOULD
BE ADDRESSED TO THE SECRETARY OF THE CORPORATION.

The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:

TEN COM -- as tenants in common
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with right of survivorship and not as tenants
in common

UNIF GIFT MIN ACT -- ____________________ Custodian ____________________
(Cust) (Minor)
under Uniform Gift to Minors Act

___________________________________________________
(State)

Additional abbreviations may also be used though not in the above list.

For value received, _________________________________________ hereby
sell, assign and transfer unto

PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE

[______________________________________]

________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE OF ASSIGNEE)

________________________________________________________________________________

_________________________________________________________________________ shares

of the Common Stock evidenced by this Certificate, and do hereby irrevocably
consitute and appoint

_______________________________________________________________________ Attorney

to transfer the said shares on the books of the within named Corporation with
full power of substitution.

Dated __________________________________

______________________________________________
N0TICE: THE SIGNATURE TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME AS WRITTEN UPON THE
FACE OF THE CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ANY CHANGE WHATEVER.

SIGNATURE(S) GUARANTEED: ______________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN
ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS
AND CREDIT UNIONS WITH MEMBERSHIP IN AN
APPROVED SIGNATURE GUARANTEE MEDALLION
PROGRAM), PURSUANT TO S.E.C. RULE 17AG-15.

KEEP THIS CERTIFICATE IN A SAFE PLACE. IF IT IS LOST, STOLEN, MUTILATED OR
DESTROYED, THE CORPORATION WILL REQUIRE A BOND OF INDEMNITY AS A CONDITION TO
THE ISSUANCE OF A REPLACEMENT CERTIFICATE.

<PAGE> 1
EXHIBIT 5.1

October 21, 1996

Educational Medical, Inc.
1327 Northmeadow Parkway, Suite 132
Roswell, Georgia 30076

Ladies and Gentlemen:

We have acted as counsel to Educational Medical, Inc. (the
"Corporation") in connection with the preparation and filing with the
Securities and Exchange Commission of a registration statement on Form S-1
(Registration Statement No. 333-09777), and the amendments thereto (the
"Registration Statement"). The Registration Statement relates to a proposed
initial public offering pursuant to which up to 2,700,000 shares of Common
Stock of the Corporation (the "Shares") are being offered, of which 2,200,000
Shares are being offered directly by the Corporation (the "Corporation Shares")
and 500,000 Shares are being offered by certain stockholders of the
Corporation, and pursuant to which up to an additional 405,000 shares are being
offered by certain stockholders of the Corporation to cover the over-allotment
option (the "Over-allotment Shares"). Based upon and subject to the foregoing
and the other qualifications, limitations and assumptions contained herein, we
are of the opinion that:

The Shares and the Over-allotment Shares, when issued (in the case of
the Corporation's Shares) and sold as contemplated in the Registration
Statement, will be validly issued, fully paid and non-assessable.

We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement and to the Reference to us in the Prospectus contained
therein under the caption "Legal Matters."

Very truly yours,

GREENBERG TRAURIG HOFFMAN
LIPOFF ROSEN & QUENTEL, P.A.

<PAGE> 1
EXHIBIT 10.2

THE TRANSFER AND PAYMENT OF THIS NOTE IS SUBJECT TO CERTAIN
RESTRICTIONS SET FORTH IN A SECURITIES PURCHASE AGREEMENT, DATED AS OF JULY 16,
1991, AND ANY AMENDMENTS THERETO. THE NOTE REPRESENTED HEREBY HAS NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS, AND IT MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN
THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT AND
SUCH LAWS AND THE RESPECTIVE RULES AND REGULATIONS THEREUNDER.

EDUCATIONAL MEDICAL, INC.

13% SENIOR SUBORDINATED NOTE
DUE JULY 16, 1996

R-002 July 16, 1991
$2,900,000

FOR VALUE RECEIVED, the undersigned, EDUCATIONAL MEDICAL, INC., a
corporation organized and existing under the laws of the State of Delaware
(herein called the "Company"), hereby promises to pay to NAP & Company or
registered assigns, the principal sum of TWO MILLION NINE HUNDRED THOUSAND
DOLLARS on July 16, 1996, with interest (computed for the actual number of days
elapsed on the basis of a 365-day year) (a) on the unpaid balance thereof at the
rate of 13% per annum from the date hereof, payable quarterly on the last day of
March, June, September and December in each year, commencing with the March,
June, September or December next succeeding the date hereof, until the principal
hereof (or any portion thereof) shall have become due and payable, and (b) on
any overdue payment (including any overdue prepayment) of principal and, to the
extent permitted by applicable law, any overdue payment of interest, payable
quarterly as aforesaid (or, at the option of the registered holder hereof, on
demand), at a rate per annum from time to time equal to 16%.

This Note is issued pursuant to a Securities Purchase Agreement
dated as of July 16, 1991 (the "Agreement"), between the Company and the
Investors named on the signature page thereof and is entitled to the benefits of
the Agreement. As provided in the Agreement, this Note is subject to prepayment,
in whole or in part, in certain cases without premium and in other cases with a
premium as specified in the Agreement.

Payments of both principal and interest are to be made at and as
designated in the Purchaser Schedule to the Agreement in lawful money of the
United States of America.

PAYMENTS OF PRINCIPAL, PREMIUM (IF ANY) AND INTEREST IN RESPECT
OF THIS NOTE ARE SUBORDINATE, TO THE EXTENT SET FORTH IN THE AGREEMENT, TO
SENIOR DEBT (AS DEFINED IN THE AGREEMENT).

<PAGE> 2

This Note is a registered Note and, as provided in the
Agreement, upon surrender of this Note for registration of transfer, duly
endorsed, or accompanied by a written instrument of transfer duly executed, by
the registered holder hereof or such holder's attorney duly authorized in
writing, a new Note for a like principal amount will be issued to, and
registered in the name of, the transferee. Prior to due presentment for
registration of transfer, the Company may treat the person in whose name this
Note is registered as the owner hereof for the purpose of receiving payment and
for all other purposes, and the Company shall not be affected by any notice to
the contrary.

The Company agrees to make prepayments of principal of the Notes
on the dates and in the amounts specified in the Agreement.

In case an Event of Default, as defined in the Agreement, shall
occur and be continuing, the principal of this Note may be declared due and
payable in the manner and with the effect provided in the Agreement. The Company
agrees to pay, and save the holder hereof harmless against any liability for,
any expenses arising in connection with the enforcement by the holder hereof of
any of its rights under this Note or the Agreement.

This Note is intended to be performed in the State of New York,
and shall be construed and enforced in accordance with the law of such State.

EDUCATIONAL MEDICAL, INC

By: /s/ Gary D. Kerber
--------------------------------
Name: Gary D. Kerber
Title: CEO

-2-

<PAGE> 1
EXHIBIT 10.10

Warrant No. E-007

THE WARRANT REPRESENTED HEREBY HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS,
AND IT MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT
AND SUCH LAWS AND THE RESPECTIVE RULES AND REGULATIONS THEREUNDER.

EDUCATIONAL MEDICAL, INC.

WARRANT TO PURCHASE COMMON STOCK
Exercisable Commencing
July 23, 1991
Void After
July 31, 1996

THIS CERTIFIES that, for value received, Equitable Securities
Corporation, or registered assigns, is entitled, subject to the terms and
conditions set forth in this Warrant Certificate, to purchase from EDUCATIONAL
MEDICAL, INC., a Delaware corporation (the "Corporation"), 16,000 fully paid
and non-assessable shares of Common Stock of the Corporation (the "Common
Stock"), at any time commencing July 23, 1991 and continuing up to 5:00 p.m.
New York time on July 31, 1996, (the "Exercise Period"), at a price of $6.00
per share (the "Warrant Price").

SECTION 1. Exercise of Warrant. The Warrants represented by this
certificate shall vest immediately. The rights represented by this Warrant may
be exercised by the holder hereof, in whole at any time or in part from time to
time during the Exercise Period, but only in respect of a share or shares. No
fractional shares of Common Stock will be issued under this Warrant. The Holder
may exercise this Warrant by surrendering it (properly endorsed) at the office
of the Corporation at 1050 Cambridge Square, Suite C, Alpharetta, Georgia 30201
(or at such other agency or office of the Corporation in the United States of
America as it may designate by notice in writing to the holder hereof at the
address of such holder appearing on the books of the Corporation), and by
payment to the Corporation of the Warrant Price in cash or by check for each
Unit being purchased. In the event of any exercise of the rights represented by
this Warrant, certificates for the shares of Common Stock so purchased,
registered in the name of the person entitled to receive the same, shall be
delivered to the holder hereof within a

<PAGE> 2

reasonable time, not exceeding ten days after the rights represented by this
Warrant shall have been so exercised; and, unless this Warrant has expired, a
new Warrant representing the number of shares (except a remaining fractional
share of Common Stock, if any, with respect to which this Warrant shall not then
have been exercised shall also be issued to the holder hereof within such time.
The person in whose name any certificates for shares of Common Stock is issued
upon exercise of this Warrant shall for all purposes be deemed to have become
the holder of record of such shares on the date on which this Warrant was
surrendered and payment of the Warrant Price and any applicable taxes was made,
irrespective of the date of delivery of such certificate, except that, if the
date of such surrender and payment is a date when the stock transfer books of
the Corporation are closed, such person shall be deemed to have become the
holder of record of such shares at the close of business on the next succeeding
date on which the stock transfer books are open.

SECTION 2. Covenants as to Common Stock. The Corporation
covenants and agrees that all shares of Common Stock which may be issued upon
the exercise of the rights represented by this Warrant will, upon issuance, be
validly issued, fully paid and non-assessable, and free from all taxes, liens
and charges with respect to the issue thereof. If and so long as the Common
Stock issuable upon the exercise of this Warrant are listed on any national
securities exchange, the Corporation will, if permitted by the rules of such
exchange, list and keep listed on such exchange, upon official notice of
issuance, all shares of such Common Stock issuable upon exercise of this
Warrant.

SECTION 3. Adjustment of Number of Shares and Warrant Price. (a)
Upon the occurrence of any event which, under ARTICLE THIRD of the Certificate
of Incorporation of the Corporation as in effect on the date hereof, would
result in an increase in the number of shares of Common Stock of the Corporation
into which a share of Preferred Stock of the Corporation would be convertible
(whether or not any of such stock is then outstanding), the holder of this
Warrant shall thereafter be entitled to purchase (at the applicable Warrant
Price adjusted in the manner provided below) (i) the number of shares of Common
Stock obtained by multiplying the number of shares which the holder of this
Warrant was entitled to purchase hereunder immediately prior to such event by a
fraction the numerator of which shall be the number of shares of Common Stock
into which a share of Preferred Stock would be convertible immediately after
such event as calculated in accordance with such ARTICLE THIRD and the
denominator of which shall be the number of shares of Common Stock into which a

-2-
<PAGE> 3
share of such Preferred Stock would have been convertible immediately prior to
such event as calculated pursuant to such ARTICLE THIRD and (ii) the number of
shares of Preferred Stock calculated as set forth in clause (i) above (assuming
for the purposes of this clause (ii) the conversion of such shares of Preferred
Stock into shares of Common Stock). After any such adjustment in the number of
shares purchasable pursuant hereto, the applicable Warrant Price shall be
adjusted by dividing (i) the product of such Warrant Price hereunder in effect
immediately prior to such adjustment and the number of shares purchasable
pursuant hereto immediately prior to such adjustment by (ii) the number of
shares purchasable pursuant hereto immediately after such adjustment.

(b) All calculations under this Section 3 shall be made to the nearest
cent or to the nearest one-tenth (1/10) of a share, as the case may be.

(c) Whenever a Warrant price shall be adjusted as provided in this
Section 3, the Corporation shall forthwith prepare a statement showing the facts
requiring such adjustment and such Warrant Price that shall be in effect after
such adjustment. The Corporation shall cause a copy of such statement to be sent
by mail, first class postage prepaid, to each holder, of this Warrant at his
address appearing on the Corporations records.

(d) The Corporation shall pay all documentary, stamp or other
transactional taxes attributable to the issuance or delivery of shares of
capital stock of the Corporation upon exercise of all or any part of this
Warrant; provided, however, that the Corporation shall not be required to pay
any taxes which may be payable in respect of any transfer involved in the
issuance or delivery of any certificate for such shares in a name other than
that of the holder of this Warrant.

SECTION 4. No Stockholder Rights. This Warrant shall not entitle the
holder hereof to any voting rights or other rights as a stockholder of the
Corporation.

SECTION 5. Transfer of Warrant. This Warrant and all rights hereunder
are transferable, in whole or in part, at the agency or office of the
Corporation referred to in Section 1, by the holder hereof in person or by duly
authorized attorney, upon surrender of this Warrant properly endorsed. Each
talker and holder of this Warrant properly endorsed. Each taker and holder of
this Warrant, by taking or holding the same, consents and agrees that this
Warrant, when endorsed in blank, shall be deemed negotiable, and, when so
endorsed the holder hereof, may be treated by the Corporation and all other
persons dealing with this Warrant as the absolute owner hereof

-3-

<PAGE> 4

for any purposes and as the person entitled to exercise the rights represented
by this Warrant, or to the transfer hereof on the books of the Corporation, any
notice to the contrary notwithstanding; but until each transfer on such books,
the Corporation may treat the registered holder hereof as the owner hereof for
all purposes.

SECTION 6. Exchange of Warrant. This Warrant is exchangeable,
upon the surrender hereof by the holder hereof at the office or agency of the
Corporation designated in Section 1 hereof, for new Warrants of like tenor
representing in the aggregate the rights to subscribe for and purchase the
number of shares which may be subscribed for and purchased hereunder, each of
such new Warrants to represent the right to subscribe for and purchase such
number of shares as shall be designated by said holder hereof at the time of
such surrender.

SECTION 7. Lost, Stolen, Mutilated or Destroyed Warrant. If this
Warrant is lost, stolen, mutilated or destroyed, the Corporation may, on such
terms as to indemnity or otherwise as it may in its discretion impose (which
shall, in the case of a mutilated Warrant, include the surrender thereof), issue
a new Warrant of like denomination and tenor as the Warrant so lost, stolen,
mutilated or destroyed. Any such new Warrant shall constitute an original
contractual obligation of the Corporation, whether or not the allegedly lost,
stole, mutilated or destroyed Warrant shall be at any time enforceable by
anyone.

IN WITNESS WHEREOF, EDUCATIONAL MEDICAL, INC. has caused this
Warrant to be executed by its duly authorized officers under its corporate
seal, and this Warrant to be dated as of the date first set forth above.

EDUCATIONAL MEDICAL, INC.

(CORPORATE SEAL]

By: /s/ Gary D. Kerber
ATTEST: ----------------------------
/s/ Gary D. Kerber, President
- ---------------------------------
Secretary

-4-
<PAGE> 5

FORM OF ASSIGNMENT

[To be signed only upon transfer of Warrant]

For value received, the undersigned hereby sells, as signs and transfers
unto ________________, the rights represented by the within Warrant to purchase
____________ shares of Common Stock, $.01 par value, of EDUCATIONAL MEDICAL,
INC. to which the within Warrant relates, and appoints _________________________
Attorney to transfer such right on the books of EDUCATIONAL MEDICAL, INC. with
full power of substitution in the premises.

Dated:

----------------------------
(Signature)

----------------------------
(Address)
Signed in the presence of:

- -------------------------------

-5-
<PAGE> 6

FORM OF SUBSCRIPTION

[To be signed upon exercise of Warrant]

TO EDUCATIONAL MEDICAL, INC.

The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise the purchase right represented by such Warrant for, and to
purchase thereunder, ___________ shares of Common Stock, $.01 par value, of
EDUCATIONAL MEDICAL, INC. and herewith tenders payment of $__________ in full
payment of the purchase price for such shares, and requests that the
certificates for such shares be issued in the name of, and be delivered to,
____________, whose address is _______________.

Dated:

----------------------------
(Signature)

----------------------------
(Address)

-6-

<PAGE> 1
EXHIBIT 10.12

LOAN AGREEMENT

THIS LOAN AGREEMENT ("Agreement"), dated as of the 31st day of March,
1995, is made and entered into on the terms and conditions hereinafter set
forth, by and between EDUCATIONAL MEDICAL, INC., a Delaware corporation, ANDON
COLLEGES, INC. d/b/a Andon College, DBS ACQUISITION CORP. d/b/a Dominion
Business School, MARIC LEARNING SYSTEMS d/b/a Maric College of Medical Careers,
MTSX ACQUISITION CORP. d/b/a Modern Technology School of X-Ray, PALO VISTA
COLLEGE OF NURSING AND ALLIED HEALTH SCIENCES, INC. d/b/a Maric College of
Medical Careers, CALIFORNIA ACADEMY OF MERCHANDISING, ART AND DESIGN d/b/a
California Academy of Fashion Merchandising, Art and Design, ICM ACQUISITION
CORP. d/b/a ICM School of Business, MEADOWS ACQUISITION CORP. d/b/a Meadows
College of Business, OIOPT ACQUISITION CORP. d/b/a Ohio Institute of
Photography and Technology, SCOTTSDALE EDUCATIONAL CENTER FOR ALLIED HEALTH
CAREERS, INC. d/b/a Long Medical Institute, and DEST EDUCATION CORPORATION
d/b/a Andon College (individually, a "Borrower" and collectively the
"Borrowers"), and SIRROM CAPITAL CORPORATION, a Tennessee corporation
("Lender").

RECITALS:

WHEREAS, Borrowers have requested that Lender make available to
Borrowers a term loan in the original principal amount of Two Million Two
Hundred Thousand and No/100ths Dollars ($2,200,000.00) (the "Loan") on the
terms and conditions hereinafter set forth, and for the purpose(s) hereinafter
set forth; and

WHEREAS, in order to induce Lender to make the Loan to Borrowers,
Borrowers have made certain representations to Lender; and

WHEREAS, Lender, in reliance upon the representations and inducements
of Borrowers, has agreed to make the Loan upon the terms and conditions
hereinafter set forth.

AGREEMENT:

NOW, THEREFORE, in consideration of the agreement of Lender to make
the Loan, the mutual covenants and agreements hereinafter set forth, and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Borrowers and Lender hereby agree as follows:

ARTICLE 1
THE LOAN

1.1 Evidence of Loan Indebtedness and Repayment. Subject to the
terms and conditions hereof, the Lender shall make the Loan to Borrowers by wire
transfer in immediately

1
<PAGE> 2

available funds. The Loan shall be evidenced by a Secured Promissory Note in
the original principal amount of Two Million Two Hundred Thousand and No/100ths
Dollars ($2,200,000.00), substantially in the form of Exhibit A attached hereto
and incorporated herein by this reference (the "Note"), dated as of the date
hereof, executed by each Borrower, in favor of Lender. The Loan shall be
payable in accordance with the terms of the Note. The Note, this Agreement and
any other instruments and documents executed by Borrowers, now or hereafter
evidencing, securing or in any way related to the indebtedness evidenced by the
Note are herein individually referred to as a "Loan Document" and collectively
referred to as the "Loan Documents."

1.2 Processing Fee. Borrowers shall pay Lender a processing fee
of Forty Four Thousand Dollars ($44,000.00) on the date the Loan is funded.

1.3 Partial Prepayment. Borrowers may prepay the indebtedness
evidenced by the Note in whole or in part at any time and from time to time.

ARTICLE 2
REPRESENTATIONS AND WARRANTIES

2.1 Borrowers' Representations. Each Borrower hereby represents
and warrants to Lender as follows:

(a) Corporate Status. Each Borrower is a corporation duly
organized, validly existing and in good standing under the laws of the State of
its incorporation; and has the corporate power to own and operate its
properties, to carry on its business as now conducted and to enter into and to
perform its obligations under this Agreement and the other Loan Documents to
which it is a party. Each Borrower is duly qualified to do business and in
good standing in each state in which a failure to be so qualified would have a
material adverse effect on each Borrower's financial position or its ability to
conduct its business in the manner now conducted.

(b) Subsidiaries. Except as set forth on Schedule 2.1(b),
no Borrower owns, directly or indirectly, any capital stock or other equity
interest, or with respect to which such Borrower, alone or in combination with
others, is in a control position. Each Borrower, other than EMI, is a wholly
owned subsidiary of EMI or another Borrower and the outstanding capital stock
of each such Borrower is validly issued, fully paid and nonassessable and EMI
has good and valid title to the equity interests in each of them free and clear
of all liens, claims, charges, restrictions, security interests, equities,
proxies, pledges or encumbrances of any kind, except as indicated on Schedule
2.1(b).

(c) Authorization. Each Borrower has full legal right,
power and authority to conduct its business and affairs. Each Borrower has
full legal right, power and authority to enter into and perform its obligations
hereunder, without the consent or approval of any other person, firm,
governmental agency or other legal entity. The execution and delivery of this
Agreement, the borrowing hereunder, the execution and delivery of each Loan

2
<PAGE> 3

Document to which each Borrower is a party, and the performance by such
Borrower of its obligations thereunder are within the corporate powers of such
Borrower and have been duly authorized by all necessary corporate action
properly taken, have received all necessary governmental approvals, if any were
required, and do not and will not contravene or conflict with any provision of
law, any applicable judgment, ordinance, regulation or order of any court or
governmental agency, the charter or bylaws of such Borrower, or any agreement
binding upon such Borrower or its properties. The officer(s) executing this
Agreement, the Note and all of the other Loan Documents to which such Borrower
is a party are duly authorized to act on behalf of such Borrower.

(d) Validity and Binding Effect. This Agreement and the
other Loan Documents are the legal, valid and binding obligations of the each
Borrower, enforceable in accordance with their respective terms, subject to
limitations imposed by bankruptcy, insolvency, moratorium or other similar laws
affecting the rights of creditors generally or the application of general
equitable principles.

(e) Capitalization. The authorized capital stock of EMI
consists solely of 3,500,000 shares of common stock, $.01 par value per share
("Common Stock"), of which _____________________ shares (the "Common Shares")
are issued and outstanding and 1,100,000 shares of Cumulative Convertible
Preferred Stock (the "Preferred Shares"), __________ shares of which are issued
and outstanding (collectively the Shares and Preferred Shares are called the
"Shares"). All of the Shares are duly authorized, validly issued and
outstanding and fully paid and nonassessable and free of preemptive rights.
Except for the Shares, there are no shares of capital stock or other securities
of EMI issued or outstanding. There are no outstanding options, warrants or
rights to purchase or acquire from EMI any securities of EMI, and there are no
contracts, commitments, agreements, understandings, arrangements or
restrictions as to which EMI is a party or by which it is bound relating to any
shares of capital stock of EMI (including the Shares), whether or not
outstanding except as provided for in Schedule 2.1(e).

(f) Trademarks, Patents, Etc. Schedule 2.1(f) is an
accurate and complete list of all patents, trademarks, tradenames, trademark
registrations, service names, service marks, copyrights, licenses, formulas and
applications therefor owned by Borrowers or used or required by Borrowers in
the operation of Borrowers' businesses, title to each of which is, except as
set forth in Schedule 2.1(f) hereto, held by Borrowers free and clear of all
adverse claims, liens, security agreements, restrictions or other encumbrances.
There is no infringement action, lawsuit, claim or complaint which asserts that
Borrowers's operations violate or infringe the rights or the trade names,
trademarks, trademark registration, service name, service mark or copyright of
others with respect to any apparatus or method of Borrowers or any adversely
held trademark, trade name, trademark registration, service name, service mark
or copyright, and Borrowers is not in any way making use of any confidential
information or trade secrets of any person except with the consent of such
person.

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(g) No Conflicts. Consummation of the transactions hereby
contemplated and the performance of the obligations of Borrowers under and by
virtue of the Loan Documents will not result in any breach of, or constitute a
default under, any mortgage, security deed or agreement, deed of trust, lease,
bank loan or credit agreement, corporate charter or bylaws, agreement or
certificate of limited partnership, partnership agreement, license, franchise
or any other instrument or agreement to which any Borrower is a party or by
which any Borrower or its respective properties may be bound or affected or to
which such Borrower has not obtained an effective waiver.

(h) Litigation. Except as set forth in Schedule 2.1(h),
there are no actions, suits or proceedings pending, or, to the knowledge of
Borrowers threatened, against or affecting Borrowers or involving the validity
or enforceability of any of the Loan Documents at law or in equity, or before
any governmental or administrative agency; and to Borrowers' knowledge, no
Borrower is in default with respect to any order, writ, injunction, decree or
demand of any court or any governmental authority.

(i) Financial Statements. The consolidated financial
statements of Borrowers dated December 31, 1994, which are attached hereto as
Schedule 2.1(i)(A), are true and correct in all material respects have been
prepared on the basis of accounting principles consistently applied, and fairly
present the financial condition of the Borrowers as of the date(s) thereof. No
material adverse change has occurred in the financial condition of Borrowers
since the date(s) thereof, and no additional borrowings have been made by
Borrowers since the date(s) thereof other than as set forth on Schedule
2.1(i)(B).

(j) Other Agreements; No Defaults. Except as set forth in
Schedule 2.1(j), Borrowers are not a party to any indenture, loan or credit
agreement, lease or other agreement or instrument, or subject to any charter or
corporate restriction, that could have a material adverse effect on the
business, properties, assets, operations or conditions, financial or otherwise,
of the Borrowers when taken as a whole, or the ability of the Borrowers to
carry out their obligations under the Loan Documents to which they are a party.
No Borrower is in default in any respect in the performance, observance or
fulfillment of any of the obligations, covenants or conditions contained in any
agreement or instrument material to the Borrowers' business when taken as a
whole to which it is a party, including but not limited to this Agreement and
the other Loan Documents, and no other default or event has occurred and is
continuing that with notice or the passage of time or both would constitute a
default or event of default under any of same.

(k) Compliance With Law. Borrowers have obtained all
necessary licenses, permits and approvals and authorizations necessary or
required in order to conduct their business and affairs as heretofore conducted
and as hereafter intended to be conducted. To Borrowers' knowledge, each
Borrower is in compliance with all laws, regulations, decrees and orders
applicable to it (including but not limited to laws, regulations, decrees and
orders relating to environmental, occupational and health standards and
controls, antitrust, monopoly, restraint of trade or unfair competition), to
the extent that noncompliance, in the aggregate, cannot reasonably be expected
to have a material adverse

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effect on its respective business, operations, property or financial condition
and will not materially adversely affect Borrowers' ability to perform its
obligations under the Loan Documents.

(l) Debt. Schedule 2.1(l) is a complete and correct list
of all credit agreements, indentures, purchase agreements, promissory notes and
other evidences of indebtedness, guaranties, capital leases and other
instruments, agreements and arrangements presently in effect providing for or
relating to extensions of credit (including agreements and arrangements for the
issuance of letters of credit or for acceptance financing) in respect of which
the Borrowers or any of the properties thereof is in any manner directly or
contingently obligated; and the maximum principal or face amounts of the credit
in question that are outstanding and that can be outstanding are correctly
stated, and all liens of any nature given or agreed to be given as security
therefore are correctly described or indicated in such Schedule other than
leases and similar arrangements for incidental office equipment which in the
aggregate do not exceed $600,000.

(m) Taxes. Each Borrower has filed or caused to be filed
all tax returns that to its knowledge are required to be filed (except for
returns that have been appropriately extended), and has paid, or will pay when
due, all taxes shown to be due and payable on said returns and all other taxes,
impositions, assessments, fees or other charges imposed on them by any
governmental authority, agency or instrumentality, prior to any delinquency
with respect thereto (other than taxes, impositions, assessments, fees and
charges currently being contested in good faith by appropriate proceedings, for
which appropriate amounts have been reserved). No tax liens have been filed
against Borrowers or any of the property thereof.

(n) Small Business Concern. The information set forth in
the Small Business Administration Forms 480, 652 and Part A of Form 1031
regarding Borrowers upon delivery, pursuant to Section 4.1 hereof, will be
accurate and complete.

(o) Certain Transactions. Except as set forth on
Schedule 2.1(o) hereto, no Borrower is indebted, directly or indirectly, to any
of its officers or directors or to their respective spouses or children, in any
amount whatsoever; none of said officers or directors or any members of their
immediate families, are indebted to Borrowers or have any direct or indirect
ownership interest in any firm or corporation with which Borrower has a
business relationship, or any firm or corporation which competes with any
Borrower, except that officers and/or directors of Borrowers may own no more
than 4.9% of outstanding stock of publicly traded companies which may compete
with Borrowers. No officer or director or any member of their immediate
families, is, directly or indirectly, interested in any material contract with
Borrowers. Except as set forth on Schedule 2.1(o), no Borrower is a guarantor
or indemnitor of any indebtedness of any other person, firm or corporation.

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(p) Statements Not False or Misleading. No
representation or warranty given as of the date hereof by Borrowers contained
in this Agreement or any schedule attached hereto or any statement in any
document, certificate or other instrument furnished or to be furnished to
Lender pursuant hereto, taken as a whole, contains or will (as of the time so
furnished) contain any untrue statement of a material fact, or omits or will
(as of the time so furnished) omit to state any material fact which is
necessary in order to make the statements contained therein not misleading.

(q) Margin Regulations. No Borrower is engaged in the
business of extending credit for the purpose of purchasing or carrying margin
stock. No proceeds received pursuant to this Agreement will be used to
purchase or carry any equity security of a class which is registered pursuant
to Section 12 of the Securities Exchange Act of 1934, as amended.

(r) Significant Contracts. Schedule 2.1(r) is a complete
and correct list of all contracts, agreements and other documents pursuant to
which Borrowers receive revenue in excess of $25,000 per year. Each such
contract, agreement and other document is in full force and effect as of the
date hereof and Borrowers know of no reason why such contracts, agreements and
other documents would not remain in full force and effect pursuant to the terms
thereof.

(s) Environment. Each Borrower to the best of its
knowledge has duly complied with, and its business, operations, assets,
equipment, property, leaseholds or other facilities are in compliance with, the
provisions of all federal, state and local environmental, health, and safety
laws, codes and ordinances, and all rules and regulations promulgated
thereunder except for incidental incidences of non-compliance of which
Borrowers are unaware. Each Borrower has been issued and will maintain all
required federal, state and local permits, licenses, certificates and approvals
relating to (1) air emissions; (2) discharges to surface water or groundwater;
(3) noise emissions; (4) solid or liquid waste disposal; (5) the use,
generation, storage, transportation or disposal of toxic or hazardous
substances or wastes (which shall include any and all such materials listed in
any federal, state or local law, code or ordinance and all rules and
regulations promulgated thereunder as hazardous or potentially hazardous); or
(6) other environmental, health or safety matters. No Borrower has received
notice of, or knows of facts which might constitute any violations of any
federal, state or local environmental, health or safety laws, codes or
ordinances, and any rules or regulations promulgated thereunder with respect to
its businesses, operations, assets, equipment, property, leaseholds, or other
facilities. Except in accordance with all applicable laws, codes and
ordinances and rules and regulations promulgated thereunder, or a valid
governmental permit, license, certificate or approval, there has been no
emission, spill, release or discharge into or upon (1) the air; (2) soils, or
any improvements located thereon; (3) surface water or groundwater; or (4) the
sewer, septic system or waste treatment, storage or disposal system servicing
the premises, of any toxic or hazardous substances or wastes at or from the
premises. There has been no complaint, order, directive, claim, citation or
notice to any Borrower by any governmental authority or any person or entity

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<PAGE> 7

with respect to (1) air emissions; (2) spills, releases or discharges to soils
or improvements located thereon, surface water, groundwater or the sewer,
septic system or waste treatment, storage or disposal systems servicing the
premises; (3) noise emissions; (4) solid or liquid waste disposal; (5) the use,
generation, storage, transportation or disposal of toxic or hazardous
substances or waste; or (6) other environmental, health or safety matters
affecting any Borrower or its business, operations, assets, equipment,
property, leaseholds or other facilities. No Borrower has any indebtedness,
obligation or liability (absolute or contingent, matured or not matured), with
respect to the storage, treatment, cleanup or disposal of any solid wastes,
hazardous wastes or other toxic or hazardous substances (including without
limitation any such indebtedness, obligation, or liability with respect to any
current regulation, law or statute regarding such storage, treatment, cleanup
or disposal).

ARTICLE 3
COVENANTS AND AGREEMENTS

Borrowers covenant and agree, jointly and severally, that during the
term of this Agreement:

3.1 Payment of Obligations. Borrowers shall pay the indebtedness
evidenced by the Note according to the terms thereof, and shall timely pay or
perform, as the case may be, any other obligations of Borrowers to Lender,
direct or contingent, however evidenced or denominated, and however and
whenever incurred, including but not limited to indebtedness incurred pursuant
to any present or future commitment of Lender to Borrowers, together with
interest thereon, and any extensions, modifications, consolidations and/or
renewals thereof and any notes given in payment thereof.

3.2 Financial Statements and Reports. EMI shall furnish to Lender
(i) as soon as practicable and in any event within ninety (90) days after the
end of each fiscal year of EMI, a consolidated audited balance sheet of EMI as
of the close of such fiscal year, a consolidated audited statement of earnings
and retained earnings of EMI as of the close of such fiscal year and a
consolidated audited statement of cash flows for EMI for such fiscal year,
prepared in accordance with generally accepted accounting principles
consistently applied and accompanied by an unqualified audit report prepared by
an independent certified public accountant acceptable to Lender showing the
financial condition of Borrowers at the close of such year and the results of
their consolidated operations during such year and accompanied by a certificate
of the President of EMI, stating that to the best of the knowledge of such
officer, Borrowers have fulfilled each covenant, term and condition of this
Agreement and the other Loan Documents during the preceding fiscal year and
that no Event of Default has occurred and is continuing (or if an Event of
Default has occurred and is continuing, specifying the nature of same, the
period of existence of same and the action Borrowers proposes to take in
connection therewith), (ii) within twenty (20) days of the end of each calendar
month, a status report indicating the consolidated financial performance of EMI
during such month and the financial position of EMI as of the end of such
month, (iii) within forty-five (45) days of the end of each quarter, a

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<PAGE> 8

consolidated balance sheet of Borrowers as of the close of such quarter and a
consolidated statement of earnings and retained earnings of Borrowers as of the
close of such quarter, all in reasonable detail, and prepared substantially in
accordance with generally accepted accounting principles consistently applied
(except for the absence of footnotes and subject to year-end adjustments), and
(iv) with reasonable promptness, such other financial data as Lender may
reasonably request.

3.3 Maintenance of Books and Records; Inspection. Borrowers shall
maintain their consolidated and consolidating books, accounts and records in
accordance with generally accepted accounting principles consistently applied,
and permit Lender, its officers and employees and any professionals designated
by Lender in writing, at Lender's expense, to visit and inspect any of its
properties, corporate books and financial records, and to discuss its accounts,
affairs and finances with Borrowers or the principal officers of Borrowers
during reasonable business hours, all at such times as Lender may reasonably
request; provided that no such inspection shall materially interfere with the
conduct of Borrowers's business.

3.4 Insurance. Without limiting any of the requirements of any of
the other Loan Documents, Borrowers shall maintain, in amounts customary for
entities engaged in comparable business activities, (i) to the extent required
by applicable law, worker's compensation insurance (or maintain a legally
sufficient amount of self insurance against worker's compensation liabilities,
with adequate reserves, under a plan approved by Lender, such approval not to
be unreasonably withheld or delayed), and (ii) fire and "all risk" casualty
insurance on its properties against such hazards and in at least such amounts
as are customary in Borrowers' business. Borrowers will make reasonable
efforts to obtain and maintain public liability insurance in an amount, and at
a cost, deemed reasonable to EMI's Board of Directors. At the request of
Lender, Borrowers will deliver forthwith a certificate specifying the details
of such insurance in effect.

3.5 Taxes and Assessments. Borrowers shall (i) file all tax
returns and appropriate schedules thereto that are required to be filed under
applicable law, prior to the date of delinquency, (ii) pay and discharge all
taxes, assessments and governmental charges or levies imposed upon Borrowers
upon their income and profits or upon any properties belonging to them, prior
to the date on which penalties attach thereto, and (iii) pay all taxes,
assessments and governmental charges or levies that, if unpaid, might become a
lien or charge upon any of their properties; provided, however, that Borrowers
in good faith may contest any such tax, assessment, governmental charge or
levy described in the foregoing clauses (ii) and (iii) so long as appropriate
reserves are maintained with respect thereto.

3.6 Corporate Existence. Each Borrower shall maintain its
corporate existence and good standing in the state of its incorporation, and
its qualification and good standing as a foreign corporation in each
jurisdiction in which such qualification is necessary pursuant to applicable
law.

3.7 Compliance with Law and Other Agreements. Except where the
failure to do so would not materially adversely affect Borrowers' operations
when taken as a whole or their ability to fulfill their obligations under the
Loan Documents, Borrowers shall maintain their

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business operations and property owned or used in connection therewith in
compliance with (i) all applicable federal, state and local laws, regulations
and ordinances governing such business operations and the use and ownership of
such property, in each case to the extent material to the conduct of the
Borrowers' business and (ii) all agreements, licenses, franchises, indentures
and mortgages to which each Borrower is a party or by which each Borrower or
any of its properties is bound. Without limiting the foregoing, Borrowers
shall pay all of their indebtedness promptly in accordance with the terms
thereof.

3.8 Notice of Default. EMI shall give written notice to Lender of
the occurrence of any default, event of default or Event of Default under this
Agreement or any other Loan Document promptly upon the occurrence thereof.

3.9 Notice of Litigation. EMI shall give notice, in writing, to
Lender of (i) any actions, suits or proceedings wherein the amount at issue is
in excess of Twenty-Five Thousand and No/100ths Dollars ($25,000.00) instituted
by any persons whomsoever against any Borrower or affecting any of the assets
of any Borrower, and (ii) any dispute, not resolved within sixty (60) days of
the commencement thereof, between any Borrower on the one hand and any
governmental regulatory body on the other hand, which dispute might materially
interfere with the normal operations of any Borrower.

3.10 Conduct of Business. Borrowers will continue to engage in a
business of the same general type and manner as conducted by them on the date
of this Agreement.

3.11 ERISA Plan. If any Borrower has in effect, or hereafter
institutes, a pension plan that is subject to the requirements of Title IV of
the Employee Retirement Income Security Act of 1974, Pub. L. No. 93-406,
September 2, 1974, 88 Stat. 829, 29 U.S.C.A. Section 1001 et seq. (1975), as
amended from time to time ("ERISA"), then the following warranty and covenants
shall be applicable during such period as any such plan (the "Plan") shall be
in effect: (i) each Borrower hereby warrants that no fact that might constitute
grounds for the involuntary termination of the Plan, or for the appointment by
the appropriate United States District Court of a trustee to administer the
Plan, exists at the time of execution of this Agreement, (ii) each Borrower
hereby covenants that throughout the existence of the Plan, each Borrower's
contributions under the Plan will meet the minimum funding standards required
by ERISA and each Borrower will not institute a distress termination of the
Plan, and (iii) each Borrower covenants that it will send to Lender a copy of
any notice of a reportable event (as defined in ERISA) required by ERISA to be
filed with the Labor Department or the Pension Benefit Guaranty Corporation, at
the time that such notice is so filed.

3.12 Dividends, Stock Rights, etc. Except as set forth on Schedule
3.12, Borrowers shall not declare or pay any dividend of any kind (other than
stock dividends payable to all holders of any class of capital stock), in cash
or in property, on any class of the capital stock of Borrowers, or purchase,
redeem, retire or otherwise acquire for value any shares of such stock, nor
make any distribution of any kind in cash or property in respect thereof
(except for the redemption of stock from employees upon termination of
employment that in the aggregate amount does not exceed $25,000), nor make any
return of capital of shareholders, nor make any

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payments in cash or property in respect of any stock options, stock bonus or
similar plan (except as required or permitted hereunder), nor grant any
preemptive rights with respect to the capital stock of Borrowers, without the
prior written consent of Lender.

3.13 Guaranties; Loans; Payment of Debt. Except as set forth on
Schedule 3.13, Borrowers shall not, without Lender's prior express written
consent, guarantee nor be liable in any manner, whether directly or indirectly,
or become contingently liable after the date of this Agreement in connection
with the obligations or indebtedness of any person or entity whatsoever, except
for the endorsement of negotiable instruments payable to Borrower for deposit
or collection in the ordinary course of business. Except as set forth on
Schedule 3.13, Borrowers shall not, without Lender's prior express written
consent, which shall not be unreasonably withheld, (i) make any loan, advance
or extension of credit to any person other than in the normal course of its
business or (ii) make any payment on any indebtedness that is subordinate by
its terms to the indebtedness owed to Lender; provided, however, that Borrower
may make quarterly payments of $100,000 of principal and accrued interest with
respect to the 13% Senior Subordinated Notes listed on Schedule 2.1(l) hereto
until such notes are fully amortized.

3.14 Debt. Without the express prior written consent of Lender,
Borrowers shall not create, incur, assume or suffer to exist indebtedness of
any description whatsoever, excluding (i) the indebtedness evidenced by the
Note, (ii) the endorsement of negotiable instruments payable to Borrowers for
deposit or collection in the ordinary course of business, (iii) debts incurred
in the ordinary course of business (each of which, individually, does not
exceed $25,000), and (iv) the indebtedness listed on Schedule 2.1(l) hereto.
Notwithstanding the foregoing, Borrowers may establish up to a $3,000,000
credit facility (which amount shall include amounts outstanding to Bank South
as listed on Schedule 2.1(l)) without Lender's prior consent provided that it
receives Lender's prior written consent to any draw under such facility.

3.15 No Liens. Borrowers shall not create, incur, assume or suffer
to exist any lien, security interest, security title, mortgage, deed of trust
or other encumbrance upon or with respect to any of its properties, now owned
or hereafter acquired, except:

(a) liens in favor of Lender;

(b) liens for taxes or assessments or other governmental
charges or levies if not yet due and payable;

(d) liens described on Schedule 2.1(l) hereto.

3.16 Mergers, Consolidations, Acquisitions and Sales. Without the
prior written consent of Lender, Borrowers shall not (a) be a party to any
merger, consolidation or corporate reorganization, nor (b) sell, transfer,
convey, grant a security interest in or lease all or any substantial

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part of its assets, nor (c) create any subsidiaries nor convey any of their
assets to any subsidiary unless such subsidiary is wholly owned by EMI and
becomes a party to this Agreement.

3.17 Transactions With Affiliates. Borrowers shall not enter into
any transaction, including, without limitation, the purchase, sale or exchange
of property or the rendering of any service, with any affiliate, except in the
ordinary course of and pursuant to the reasonable requirements of EMI's
business when taken as a whole and upon fair and reasonable terms no less
favorable to Borrower than Borrower would obtain in a comparable arm's length
transaction with a person not an affiliate. For the purposes of this Section
3.17, "affiliate" shall mean a person, corporation, partnership or other entity
controlling, controlled by or under common control with EMI.

3.18 Environment. Borrowers shall be and remain in compliance with
the provisions of all federal, state and local environmental, health, and
safety laws, codes and ordinances, and all rules and regulations issued
thereunder except for incidental incidences of noncompliance not material to
the Borrowers' business when considered as a whole; notify Lender immediately
of any notice of a hazardous discharge or environmental complaint received from
any governmental agency or any other party; notify Lender immediately of any
hazardous discharge from or affecting its premises; immediately contain and
remove the same, in compliance with all applicable laws; promptly pay any fine
or penalty assessed in connection therewith; permit Lender to inspect the
premises, to conduct tests thereon, and to inspect all books, correspondence,
and records pertaining thereto; and at Lender's request, and at Borrowers'
expense, provide a report of a qualified environmental engineer, satisfactory
in scope, form, and content to Lender, and such other and further assurances
reasonably satisfactory to Lender that the condition has been corrected.

ARTICLE 4
CONDITIONS TO CLOSING

4.1 Closing of the Loan. The obligation of Lender to fund the
Loan on the date hereof (the "Closing Date") is subject to the fulfillment, on
or prior to the Closing Date, of each of the following conditions:

(a) Borrowers shall have performed and complied in all
material respects with all of the covenants, agreements, obligations
and conditions required by this Agreement.

(b) Lender shall have received an opinion of the
Borrowers' counsel, Honigman Miller Schwartz and Cohn, dated the
Closing Date, in form and substance satisfactory to Lender's counsel,
Bass, Berry & Sims.

(c) Borrowers shall have delivered to Lender a Note
executed by Borrower, substantially in the form of Exhibit A attached
hereto and incorporated herein by this reference.

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<PAGE> 12

(d) Borrowers shall have delivered to Lender a Stock
Purchase Warrant executed by EMI, substantially in the form of Exhibit
B attached hereto and incorporated herein by this reference.

(e) Borrowers shall have delivered to Lender a Security
Agreement executed by Borrower and related UCC-1 Financing Statements
executed by Borrowers, each of which is substantially in the form of
Exhibit C attached hereto and incorporated herein by this reference.

(f) EMI shall have delivered to Lender the Small Business
Administration Forms 480, 652 and 1031 (Part A) completed by EMI.

(g) EMI shall have delivered to Lender the Small Business
Administration Economic Impact Assessment completed by EMI, a form of
which is attached hereto as Exhibit D and incorporated herein by this
reference.

(h) EMI shall have delivered to Lender a Pledge Agreement
executed by EMI and one executed by Andon Colleges, Inc. and related
stock certificates endorsed in blank or Consent to Pledge Agreement to
Hold as Agent for Second Lien or, each of which is substantially in
the form of Exhibit E attached hereto and incorporated herein by this
reference.

(i) Lender shall have received copies of the corporate
charter and other publicly filed organizational documents of
Borrowers, certified by the Secretary of State or other appropriate
public official in the jurisdiction in which Borrower is incorporated.

(j) Lender shall have received certified (as of the date
of this Agreement) copies of all corporate action taken by Borrowers,
including resolutions of their Board of Directors, authorizing the
execution, delivery and performance of the Loan Documents.

(k) Lender shall have received a certificate as to the
legal existence and good standing of each Borrower, issued by the
Secretary of State or other appropriate public official in the
jurisdiction in which each Borrower is incorporated.

(l) Lender shall have received certificates of the
Secretaries of State or other appropriate public officials as to
Borrowers' qualification to do business and good standing in each
jurisdiction in which a failure to be so qualified would have a
material adverse effect on their financial position or its ability to
conduct its business in the manner now conducted and as hereafter
intended to be conducted.

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ARTICLE 5
DEFAULT AND REMEDIES

5.1 Events of Default. The occurrence of any of the following shall
constitute an Event of Default hereunder:

(a) Default in the payment of the principal of or
interest on the indebtedness evidenced by the Note in accordance with
the terms of the Note, which default is not cured within ten (10) days;

(b) Any misrepresentation by Borrowers as to any matter
hereunder or under any of the other Loan Documents which is material
to Borrowers' consolidated business, or delivery by Borrowers of any
schedule, statement, resolution, report, certificate, notice or
writing to Lender that is untrue in any respect material to the
Borrowers' consolidated business on the date as of which the facts set
forth therein are stated or certified;

(c) Failure of Borrowers to perform any of its
obligations, covenants or agreements under this Agreement, the Note or
any of the other Loan Documents;

(d) Any Borrower (i) shall generally not pay or shall be
unable to pay its debts as such debts become due; or (ii) shall make
an assignment for the benefit of creditors or petition or apply to any
tribunal for the appointment of a custodian, receiver or trustee for
it or a substantial part of its assets; or (iii) shall commence any
proceeding under any bankruptcy, reorganization, arrangement,
readjustment of debt, dissolution or liquidation law or statute of any
jurisdiction, whether now or hereafter in effect; or (iv) shall have
had any such petition or application filed or any such proceeding
commenced against it in which an order for relief is entered or an
adjudication or appointment is made; or (v) shall indicate, by any act
or intentional and purposeful omission, its consent to, approval of or
acquiescence in any such petition, application, proceeding or order
for relief or the appointment of a custodian, receiver or trustee for
it or a substantial part of its assets; or (vi) shall suffer any such
custodianship, receivership or trusteeship to continue undischarged
for a period of sixty (60) days or more;

(e) Any Borrower shall be liquidated, dissolved,
partitioned or terminated, or the charter thereof shall expire or be
revoked;

(f) A default or event of default shall occur under any
of the other Loan Documents and, if subject to a cure right, such
default or event of default shall not be cured within the applicable
cure period;

(g) Borrowers shall default in the timely payment or
performance of any obligation now or hereafter owed to Lender in
connection with any other indebtedness of Borrowers now or hereafter
owed to Lender;

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(h) Any Borrower shall have defaulted and continue to be
in default beyond any applicable cure period in the timely payment or
performance of any other indebtedness or obligation, which in the
aggregate exceeds Twenty-Five Thousand and No/100ths Dollars
($25,000.00) or materially adversely affects Borrower's financial
condition; or

(i) A significant change in the executive staff or
management of EMI shall occur.

With respect to any Event of Default described above that is capable
of being cured and that does not already provide its own cure procedure (a
"Curable Default"), the occurrence of such Curable Default shall not constitute
an Event of Default hereunder if such Curable Default is fully cured and/or
corrected within thirty (30) days (ten (10) days, if such Curable Default may
be cured by payment of a sum of money) of notice thereof to EMI given in
accordance with the provisions hereof; provided, however, that this provision
shall not require notice to EMI and an opportunity to cure any Curable Default
of which any Borrower have had actual knowledge for the requisite number of
days set forth.

5.2 Acceleration of Maturity; Remedies. Upon the occurrence of
any Event of Default described in subsection 5.1(d), the indebtedness evidenced
by the Note as well as any and all other indebtedness of Borrowers to Lender
shall be immediately due and payable in full; and upon the occurrence of any
other Event of Default described above, Lender at any time thereafter may at
its option accelerate the maturity of the indebtedness evidenced by the Note as
well as any and all other indebtedness of Borrowers to Lender; all without
notice of any kind. Upon the occurrence of any such Event of Default and the
acceleration of the maturity of the indebtedness evidenced by the Note:

(a) Lender shall be immediately entitled to exercise any
and all rights and remedies possessed by Lender pursuant to the terms
of the Note and all of the other Loan Documents; and

(b) Lender shall have any and all other rights and
remedies that Lender may now or hereafter possess at law, in equity or
by statute.

5.3 Remedies Cumulative; No Waiver. No right, power or remedy
conferred upon or reserved to Lender by this Agreement or any of the other Loan
Documents is intended to be exclusive of any other right, power or remedy, but
each and every such right, power and remedy shall be cumulative and concurrent
and shall be in addition to any other right, power and remedy given hereunder,
under any of the other Loan Documents or now or hereafter existing at law, in
equity or by statute. No delay or omission by Lender to exercise any right,
power or remedy accruing upon the occurrence of any Event of Default shall
exhaust or impair any such right, power or remedy or shall be construed to be a
waiver of any such Event of Default or an acquiescence therein, and every
right, power and remedy given by this Agreement and the other Loan Documents to
Lender may be exercised from time to time and as often as may be deemed
expedient by Lender.

5.4 Proceeds of Remedies. Any or all proceeds resulting from the
exercise of any or all of the foregoing remedies shall be applied as set forth
in the Loan Document(s) providing the remedy

14
<PAGE> 15

or remedies exercised; if none is specified, or if the remedy is provided by
this Agreement, then as follows:

First, to the costs and expenses, including reasonable
attorney's fees, incurred by Lender in connection with the
exercise of its remedies;

Second, to the expenses of curing the default that has
occurred, in the event that Lender elects, in its sole
discretion, to cure the default that has occurred;

Third, to the payment of the obligations of Borrowers
under the Loan Documents (the "Obligations"), including but
not limited to the payment of the principal of and interest on
the indebtedness evidenced by the Note, in such order of
priority as Lender shall determine in its sole discretion; and

Fourth, the remainder, if any, to Borrowers or to any
other person lawfully thereunto entitled.

ARTICLE 6
TERMINATION

6.1 Termination of this Agreement. This Agreement shall
remain in full force and effect until the later of (i) the Maturity Date (as
defined in the Note), or (ii) the payment by Borrowers of all amounts owed to
Lender, at which time Lender shall cancel the Note and deliver it to Borrowers;
provided, however, that if at any time Borrowers have satisfied all obligations
to Lender, Borrower may terminate this Agreement by providing written notice to
Lender.

ARTICLE 7
MISCELLANEOUS

7.1 Performance By Lender. If Borrowers shall default in
the payment, performance or observance of any covenant, term or condition of
this Agreement, which default is not cured within the applicable cure period,
then Lender may, at its option, pay, perform or observe the same, and all
payments made or costs or expenses incurred by Lender in connection therewith
(including but not limited to reasonable attorney's fees), with interest
thereon at the highest default rate provided in the Note (if none, then at the
maximum rate from time to time allowed by applicable law), shall be immediately
repaid to Lender by Borrowers and shall constitute a part of the Obligations.
Lender in its reasonable discretion shall be the sole judge of the necessity
for any such actions and of the amounts to be paid.

7.2 Successors and Assigns Included in Parties. Whenever
in this Agreement one of the parties hereto is named or referred to, the heirs,
legal representatives, successors, successors-in-title and assigns of such
parties shall be included, and all covenants and agreements contained in this
Agreement by or on behalf of Borrowers or by or on behalf of Lender shall bind
and inure to the

15
<PAGE> 16

benefit of their respective heirs, legal representatives, successors-in-title
and assigns, whether so expressed or not.

7.3 Costs and Expenses. Borrowers agree to pay all reasonable
costs and expenses incurred by Lender in connection with the making of the
Loan, including but not limited to filing fees, recording taxes and reasonable
attorneys' fees (not to exceed $15,000), promptly upon demand of Lender.
Borrowers further agree to pay all premiums for insurance required to be
maintained by Borrowers pursuant to the terms of the Loan Documents and all of
the out-of-pocket costs and expenses incurred by Lender in connection with the
collection of the Loan, amendment to the Loan Documents, or prepayment of the
Loan, including but not limited to reasonable attorneys' fees, promptly upon
demand of Lender.

7.4 Assignment. The Note, this Agreement and the other Loan
Documents may be endorsed, assigned and/or transferred in whole or in part by
Lender, and any such holder and/or assignee of the same shall succeed to and be
possessed of the rights and powers of Lender under all of the same to the
extent transferred and assigned. Lender may grant participations in all or any
portion of its interest in the indebtedness evidenced by the Note, and in such
event Borrowers shall continue to make payments due under the Loan Documents to
Lender and Lender shall have the sole responsibility of allocating and
forwarding such payments in the appropriate manner and amounts. Borrower,
shall not assign any of their rights nor delegate any of their duties hereunder
or under any of the other Loan Documents without the prior express written
consent of Lender.

7.5 Time of the Essence. Time is of the essence with respect to
each and every covenant, agreement and obligation of Borrowers hereunder and
under all of the other Loan Documents.

7.6 Severability. If any provision(s) of this Agreement or the
application thereof to any person or circumstance shall be invalid or
unenforceable to any extent, the remainder of this Agreement and the
application of such provisions to other persons or circumstances shall not be
affected thereby and shall be enforced to the greatest extent permitted by law.

7.7 Interest and Loan Charges Not to Exceed Maximum Allowed by
Law. Anything in this Agreement, the Note or any of the other Loan Documents
to the contrary notwithstanding, in no event whatsoever, whether by reason of
advancement of proceeds of the Loan, acceleration of the maturity of the unpaid
balance of the Loan or otherwise, shall the interest and loan charges agreed to
be paid to Lender for the use of the money advanced or to be advanced hereunder
exceed the maximum amounts collectible under applicable laws in effect from
time to time. It is understood and agreed by the parties that, if for any
reason whatsoever the interest or loan charges paid or contracted to be paid by
Borrowers in respect of the indebtedness evidenced by the Note shall exceed the
maximum amounts collectible under applicable laws in effect from time to time,
then ipso facto, the obligation to pay such interest and/or loan charges shall
be reduced to the maximum amounts collectible under applicable laws in effect
from time to time, and any amounts collected by Lender that exceed such maximum
amounts shall be applied to the reduction of the principal balance of the
indebtedness evidenced by the Note and/or refunded to Borrowers so that at no
time shall the interest or loan charges paid or payable in respect of the
indebtedness evidenced by the Note exceed the maximum amounts permitted from
time to time by applicable law.

16
<PAGE> 17

7.8 Article and Section Headings; Defined Terms. Numbered and
titled article and section headings and defined terms are for convenience only
and shall not be construed as amplifying or limiting any of the provisions of
this Agreement.

7.9 Notices. Any and all notices, elections or demands permitted
or required to be made under this Agreement shall be in writing, signed by the
party giving such notice, election or demand and shall be delivered personally,
telecopied, telexed, or sent by certified mail or overnight via nationally
recognized courier service (such as Federal Express), to the other party at the
address set forth below, or at such other address as may be supplied in writing
and of which receipt has been acknowledged in writing. The date of personal
delivery, telecopy or telex or two (2) business days after the date of mailing
(or the next business day after delivery to such courier service), as the case
may be, shall be the date of such notice, election or demand. For the purposes
of this Agreement:

The Address of Lender is: Sirrom Capital Corporation
Nashville City Center
Suite 2310
511 Union Street
Nashville, TN 37219
Attention: George M. Miller, II

with a copy to: Bass, Berry & Sims
First American Center
Nashville, TN 37238
Attention: Maria-Lisa Caldwell, Esq.

The Address of Borrowers is: Educational Medical, Inc.
1327 North Meadow Parkway
Suite 132
Roswell, GA 30076
Attention: Vincent Pisano

with a copy to: Honigman Miller Schwartz and Cohn
222 Lakewood Avenue
Suite 800
West Palm Beach, FL 33401-6112
Attention: Morris Brown, Esq.

7.10 Entire Agreement. This Agreement and the other written
agreements between Borrowers and Lender represent the entire agreement between
the parties concerning the subject matter hereof, and all oral discussions and
prior agreements are merged herein; provided, if there is a conflict between
this Agreement and any other document executed contemporaneously herewith with
respect to the Obligations, the provision of this Agreement shall control. The
execution and delivery of this Agreement and the other Loan Documents by the
Borrowers were not based upon any fact or material provided by Lender, nor were
the Borrowers induced or influenced to enter into

17
<PAGE> 18

this Agreement or the other Loan Documents by any representation, statement,
analysis or promise by Lender.

7.11 Governing Law and Amendments. This Agreement shall be
construed and enforced under the laws of the State of Tennessee applicable to
contracts to be wholly performed in such State. No amendment or modification
hereof shall be effective except in a writing executed by each of the parties
hereto.

7.12 Survival of Representations and Warranties. All
representations and warranties contained herein or made by or furnished on
behalf of the Borrowers in connection herewith shall survive the execution and
delivery of this Agreement and all other Loan Documents.

7.13 Jurisdiction and Venue. Borrowers hereby consent to the
jurisdiction of the courts of the State of Tennessee and the United States
District Court for the Middle District of Tennessee, as well as to the
jurisdiction of all courts from which an appeal may be taken from such courts,
for the purpose of any suit, action or other proceeding arising out of any of
their obligations arising under this Agreement or any other Loan Documents or
with respect to the transactions contemplated hereby, and expressly waives any
and all objections it may have as to venue in any of such courts.

7.14 Waiver of Trial by Jury. LENDER AND BORROWERS HEREBY WAIVE
TRIAL BY JURY IN ANY ACTION, PROCEEDINGS, CLAIMS OR COUNTER-CLAIMS, WHETHER IN
CONTRACT OR TORT, AT LAW OR IN EQUITY, ARISING OUT OF OR IN ANY WAY RELATING TO
THIS AGREEMENT OR THE LOAN DOCUMENTS.

7.15 Counterparts. This Agreement may be executed in any number of
counterparts and by different parties to this Agreement in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same Agreement.

7.16 Construction and Interpretation. Should any provision of this
Agreement require judicial interpretation, the parties hereto agree that the
court interpreting or construing the same shall not apply a presumption that
the terms hereof shall be more strictly construed against one party by reason
of the rule of construction that a document is to be more strictly construed
against the party that itself or through its agent prepared the same, it being
agreed that the Borrowers, Lender and their respective agents have participated
in the preparation hereof.

18
<PAGE> 19

IN WITNESS WHEREOF, the parties hereto have executed this Agreement,
or have caused this Agreement to be executed by their duly authorized officers,
as of the day and year first above written.

LENDER:

SIRROM CAPITAL CORPORATION, a Tennessee
corporation

By: /s/ Carolyn Peruone
-------------------------------------

Title: CFO
----------------------------------

BORROWERS:

EDUCATIONAL MEDICAL, INC., a Delaware
corporation, ANDON COLLEGES, INC.
d/b/a Andon College, DBS ACQUISITION
CORP. d/b/a Dominion Business School,
MARIC LEARNING SYSTEMS d/b/a Maric
College of Medical Careers, MTSX
ACQUISITION CORP. d/b/a Modern
Technology School of X-Ray, PALO VISTA
COLLEGE OF NURSING AND ALLIED HEALTH
SCIENCES, INC. d/b/a Maric College of
Medical Careers, CALIFORNIA ACADEMY OF
MERCHANDISING, ART AND DESIGN d/b/a
California Academy of Fashion
Merchandising, Art and Design, ICM
ACQUISITION CORP. d/b/a ICM School of
Business, MEADOWS ACQUISITION CORP.
d/b/a Meadows College of Business, OIOPT
ACQUISITION CORP. d/b/a Ohio Institute
of Photography and Technology,
SCOTTSDALE EDUCATIONAL CENTER FOR
ALLIED HEALTH CAREERS, INC. d/b/a Long
Medical Institute, DEST EDUCATION
CORPORATION d/b/a Andon College

By: /s/ Gary D. Kerber
-------------------------------------

Title: President
----------------------------------

19
<PAGE> 20

SCHEDULE 2.1(A)

FINANCIAL STATEMENTS OF BORROWER

Consolidated Statement of Operations of Educational Medical, Inc. as of
December 31, 1994

Educational Medical, Inc. and Subsidiaries Consolidated Financial Statements
for years ended March 31, 1994 and 1993 with Report of Independent Auditors

COPIES OF EACH OF THE ABOVE-REFERENCED STATEMENTS ARE ATTACHED HERETO AND MADE
A PART HEREOF.
<PAGE> 21
<TABLE>
<CAPTION>
EDUCATIONAL MEDICAL, INC.

===================================================================================================================================
3 MONTHS 3 MONTHS 9 MONTHS 9 MONTHS
CONSOLIDATED STATEMENT OF OPERATIONS ENDED 12/31/94 ENDED 12/31/93 ENDED 12/31/94 ENDED 12/31/93
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET REVENUES $ 8,397,106 $ 6,992,174 $ 22,758,523 $ 19,177,234

COSTS AND EXPENSES
Training 2,676,118 2,226,384 7,317,470 5,986,989
Facilities 1,290,481 1,047,944 3,692,302 2,784,726
Selling and Promotion 1,582,617 1,141,617 4,007,818 2,979,661
General and Administrative 2,582,887 2,255,380 7,392,216 6,558,491
===================================================================================================================================
OPERATING INCOME (LOSS) 265,003 320,849 348,717 867,367
===================================================================================================================================
Amortization of Acquired Intangible Assets 417,238 432,072 914,612 1,085,860
Interest Expense 240,355 223,634 737,610 556,709
- -----------------------------------------------------------------------------------------------------------------------------------

INCOME (LOSS) BEFORE SCHOOL CLOSURE (392,590) (334,857) (1,303,505) (775,202)
School Closure - - - 1,086,493
- -----------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES (392,590) (334,857) (1,303,505) (1,861,695)
Income Taxes (Benefit) 22,776 (172,922) 22,776 (628,022)
- -----------------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ (415,366) $ (161,935) $ (1,326,281) $ (1,233,673)
===================================================================================================================================
CONDENSED CONSOLIDATED BALANCE SHEETS 12/31/94 3/31/94
- -----------------------------------------------------------------------------------------------------------------------------------

Cash and Cash Equivalents $ 1,027,217 $ 2,745,288
Receivables - Net 3,050,007 2,972,275
Other Current Assets 586,558 676,664
- -----------------------------------------------------------------------------------------------------------------------------------
Total Current Assets 4,663,782 6,394,227
- -----------------------------------------------------------------------------------------------------------------------------------

Land, Buildings, and Equipment - Net 4,092,245 2,830,689
Identifiable Intangibles and Goodwill 8,298,780 9,113,803
Other Assets 102,524 102,524
- -----------------------------------------------------------------------------------------------------------------------------------

TOTAL ASSETS $ 17,157,331 $ 18,441,243
===================================================================================================================================

Current Liabilities $ 4,217,641 $ 3,303,576
Deferred Tuition Income 1,998,302 2,411,298
Long-Term Debt 5,249,768 5,752,354
Other Non-Current Liabilities 507,544 463,652
- -----------------------------------------------------------------------------------------------------------------------------------
Total Liabilities 11,973,255 11,930,880
- -----------------------------------------------------------------------------------------------------------------------------------
Stockholders' Equity 5,184,076 6,510,363
- -----------------------------------------------------------------------------------------------------------------------------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 17,157,331 $ 18,441,243
===================================================================================================================================
</TABLE>
<PAGE> 22
[LOGO] EDUCATIONAL MEDICAL, INC.

Revenue for the third quarter ended December 31, 1994 reached $8,397,000, a 20%
increase over the $6,992,000 for the third quarter of last year. Year-to-date
revenue of $22,759,000 is up 9% compared to last year's revenue of $19,177,000.
Revenue benefited from seven acquisitions which produced $7,499,000 in
year-to-date revenue compared to $5,256,000 for a partial period in the prior
year. EMI's existing schools or year-to-date same-school revenue of $15,260,000
was up 10% compared to the prior year to date.

The company had operating income for the third quarter of $265,000 compared to
$321,000 for the prior year. The decline was primarily a result of an increase
in overhead, as school contribution increased by $106,000. Year-to-date
operating income of $349,000 continued to lag the prior-year amount of $867,000
due to the decline incurred in the first quarter, a result of the seasonality
and underperformance of our seven new acquisitions. Full-year results of the
acquired operations are expected to positively impact our results of operations.
Year-to-date same-school operating income is up 17% compared to the prior year
to date.

Our new acquisitions have changed the seasonality of our business whereby new
student starts occur principally in the fall and winter, as is the case for
traditional colleges and universities. We look forward to the final quarter of
our fiscal year which is, by a substantial amount, our most profitable quarter.

/s/ Gary D. Kerber

Gary D. Kerber
Chairman & President

/s/ Vince Pisano

Educational Medical, Inc., headquartered in Atlanta, Georgia, operates fourteen
schools offering training in medical, business, photography, and fashion
curricula.

Maric College of Medical Careers Modern Technology School of X-ray
Vista, California North Hollywood, California

Maric College of Medical Careers Dominion Business School
San Diego, California Roanoke, Virginia

Maric College of Medical Careers Dominion Business School
San Marcos, California Harrisonburg, Virginia

Long Medical Institute Dominion Business School
Phoenix, Arizona Staunton, Virginia

Andon College ICM School of Business
Stockton, California Pittsburgh, Pennsylvania

Andon College Ohio Institute of Photography
Modesto, California & Technology
Dayton, Ohio
Bauder College
Atlanta, Georgia California Academy of Merchandising,
Art, & Design
Sacramento, California

Educational Medical, Inc. strives to provide each student with the knowledge and
practical job skills necessary for successful employment, and to facilitate
their development as competent self-directed individuals.
<PAGE> 23
Educational Medical, Inc.
and Subsidiaries

Consolidated Financial Statements

Years ended March 31, 1994 and 1993
with Report of Independent Auditors

<PAGE> 24

Educational Medical, Inc. and Subsidiaries

Consolidated Financial Statements

Years ended March 31, 1994 and 1993

CONTENTS

<TABLE>
<S> <C>
Report of Independent Auditors .......................................... 1

Consolidated Financial Statements

Consolidated Balance Sheets ............................................. 2
Consolidated Statements of Operations ................................... 4
Consolidated Statements of Shareholders' Equity ......................... 5
Consolidated Statements of Cash Flows ................................... 6
Notes to Consolidated Financial Statements .............................. 7
</TABLE>

<PAGE> 25
[ERNST & YOUNG LETTERHEAD]

REPORT OF INDEPENDENT AUDITORS

Board of Directors
Educational Medical, Inc.

We have audited the accompanying consolidated balance sheets of Educational
Medical, Inc. and subsidiaries as of March 31, 1994 and 1993 and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the three years in the period ended March 31, 1994. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Educational
Medical, Inc. and subsidiaries at March 31, 1994 and 1993, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended March 31, 1994, in conformity with the generally accepted
accounting principles.

/s/ ERNST & YOUNG

June 14, 1994

<PAGE> 26

Educational Medical, Inc. and Subsidiaries

Consolidated Balance Sheets

<TABLE>
<CAPTION>
MARCH 31
1994 1993
------------------------------
<S> <C> <C>
ASSETS (Note 2)
Current assets:
Cash and cash equivalents $ 2,745,288 $ 6,533,006
Accounts receivable:
Trade, less allowance for doubtful accounts of
$780,000 and $875,000, respectively 2,292,275 1,614,438
Income taxes refundable 680,000 --
Prepaid expenses 676,664 458,875
Deferred income taxes (Note 7) -- 177,548
------------------------------
Total current assets 6,394,227 8,783,867

Property and equipment, net (Note 5) 2,830,689 1,146,364

Other assets:
Deferred debt issuance costs, net of accumulated
amortization of $173,000 and $97,000,
respectively 166,506 180,378
Covenants not to compete, net of accumulated
amortization of $312,000 and $50,000,
respectively 1,564,724 1,199,996
Goodwill and other intangible assets, net of
accumulated amortization of $4,155,000 and
$4,045,000, respectively 7,382,573 4,968,889
Other assets 102,524 20,237
------------------------------
Total assets $18,441,243 $16,299,731
==============================
</TABLE>

2
<PAGE> 27

<TABLE>
<CAPTION>
MARCH 31
1994 1993
----------------------------

<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 80,236 $ 116,092
Refunds payable -- 57,204
Accrued expenses 1,673,906 856,272
Income taxes payable 292,476
Deferred tuition income 2,411,298 1,600,866
Current portion of long-term debt 1,549,434 1,023,078
-----------------------------
Total current liabilities 5,714,874 3,945,988

Long-term debt (Note 2) 5,752,354 4,119,118
Other liabilities 463,652 163,077

Shareholders' equity (Notes 2 and 3):
Convertible preferred stock, $.01 par value -
authorized 1,100,000 shares; issued and
outstanding 1,023,049 and 1,023,031 shares at
March 31, 1994 and 1993, respectively 10,230 10,230
Additional paid-in capital on preferred stock 5,502,862 5,502,777
Common stock, $.01 par value - authorized
3,500,000 shares; issued and outstanding
1,006,096 shares and 1,006,088 shares at
March 31, 1994 and 1993, respectively 10,061 10,061
Additional paid-in capital on common stock 1,236,040 1,236,005
Stock purchase warrants 1,724,400 1,441,124
Accumulated deficit (1,938,230) (93,649)
Less treasury stock, at cost (17,499 common
shares) (35,000) (35,000)
-----------------------------
Total shareholders' equity 6,510,363 8,071,548
-----------------------------
Total liabilities and shareholders' equity $18,441,243 $16,299,731
=============================
</TABLE>

See accompanying notes.

<PAGE> 28

Educational Medical, Inc. and Subsidiaries

Consolidated Statements of Operations

<TABLE>
<CAPTION>
YEAR ENDED MARCH 31
1994 1993 1992
-------------------------------------------

<S> <C> <C> <C>
Net revenues $ 26,475,125 $ 19,112,640 $ 13,256,200

School operating costs:
Training 8,242,944 5,231,394 3,335,935
Facilities 4,073,460 2,365,090 1,288,436
5elling and promotional 4,059,217 2,592,726 1,764,440
Administrative 6,567,893 3,811,930 2,861,379
-------------------------------------------
22,943,514 14,001,140 9,250,190
-------------------------------------------
School contribution 3,531,611 5,111,500 4,006,010

General and administrative expenses 2,071,123 1,688,297 1,623,379
-------------------------------------------
1,460,488 3,423,203 2,382,631

Loss on closure of school (Note 10) 1,125,518 -- --
Consulting fees 33,331 -- 4,167
Amortization of goodwill and intangibles 1,235,362 1,071,737 820,915
Interest expense (net of interest income of
$150,000 in 1994, $207,000 in 1993 and
$163,000 in 1992) 797,548 574,093 388,503
-------------------------------------------
(Loss) income before income taxes and
extraordinary credit (1,731,271) 1,777,373 1,169,046

(Benefit) provision for income taxes (Note 7) (169,966) 748,891 519,448
-------------------------------------------
(Loss) income before extraordinary credit (1,561,305) 1,028,482 649,598

Extraordinary credit - utilization of net
operating loss carryforward (Note 7) -- -- 435,000
-------------------------------------------
Net (loss) income $ (1,561,305) $ 1,028,482 $ 1,084,598
===========================================
</TABLE>

See accompanying notes.

<PAGE> 29

Educational Medical, Inc. and Subsidiaries

Consolidated Statements of Shareholders' Equity

<TABLE>
<CAPTION>
ADDITIONAL
CUMULATIVE CONVERTIBLE PAID-IN
PREFERRED STOCK CAPITAL ON
SHARES AMOUNT PREFERRED STOCK
----------------------------------------

<S> <C> <C> <C>
Balance at March 31, 1991 1,020,000 $ 10,200 $ 6,721,050
Repurchase and retirement of
common stock - - -
Issuance of common stock - - -
Issuance of stock purchase warrants - - -
Accretion of value of stock purchase
warrants - - -
Conversion of $1,232,498 of accrued
preferred dividends to common
stock - - (1,232,498)
Purchase of common stock for
treasury - - -
Net income - - -
----------------------------------------
Balance at March 31, 1992 1,020,000 10,200 5,488,552
Accretion of value of stock purchase
warrants - - -
Conversion of stock purchase
warrants 3,031 30 14,225
Net income - - -
----------------------------------------
Balance at March 31, 1993 1,023,031 10,230 5,502,777
Accretion of value of stock purchase
warrants - - -
Conversion of stock purchase
warrants 18 - 85
Net loss - - -
----------------------------------------
Balance at March 31, 1994 1,023,049 $ 10,230 $ 5,502,862
========================================
</TABLE>

See accompanying notes.

<PAGE> 30

<TABLE>
<CAPTION>
ADDITIONAL
COMMON STOCK PAID-IN STOCK RETAINED
----------------------------- CAPITAL ON PURCHASE EARNINGS
SHARES AMOUNT COMMON STOCK WARRANTS (DEFICIT)
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at March 31, 1991 731,261 $ 7,313 $ 49 $ -- $ (1,815,605)
Repurchase and retirement of
common stock (78,973) (790) -- -- --
Issuance of common stock 106,041 1,060 -- -- --
Issuance of stock purchase warrants -- -- -- 1,050,000 --
Accretion of value of stock purchase
warrants -- -- -- 154,556 (154,556)
Conversion of $1,232,498 of accrued
preferred dividends to common
stock 246,500 2,465 1,230,033 -- --
Purchase of common stock for
treasury -- -- -- -- --
Net income -- -- -- -- 1,084,598
--------------------------------------------------------------------------------
Balance at March 31, 1992 1,004,829 10,048 1,230,082 1,204,556 (885,563)
Accretion of value of stock purchase
warrants -- -- -- 236,568 (236,568)
Conversion of stock purchase
warrants 1,259 13 5,923 -- --
Net income -- -- -- -- 1,028,482
--------------------------------------------------------------------------------
Balance at March 31, 1993 1,006,088 10,061 1,236,005 1,441,124 (93,649)
Accretion of value of stock purchase
warrants -- -- -- 283,276 (283,276)
Conversion of stock purchase
warrants 8 -- 35 -- --
Net loss -- -- -- -- (1,561,305)
--------------------------------------------------------------------------------
Balance at March 31, 1994 1,006,096 $10,061 $1,236,040 $ 1,724,400 $ (1,938,230)
================================================================================
</TABLE>

<PAGE> 31
SCHEDULE 2.1(b)

<TABLE>
<CAPTION>
EDUCATIONAL MEDICAL, INC.,
A DELAWARE CORPORATION BAUDER ACQUISITION CORP. MERGED INTO
DOI - 03/11/88 EDUCATIONAL MEDICAL, INC. ON 06/11/92
EIN - 65-0038445 D/B/A BAUDER COLLEGE
-------------------------- -------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>

*
DBS ACQUISITION CORP.,
A VIRGINIA CORPORATION
F/K/A A-DBS ACQ. CORP.
D/B/A DOMINION BUSINESS *
SCHOOL MTSX ACQUISITION
DOI - 04/13/93 CORP., A DELAWARE PALO VISTA COLLEGE OF
ANDON COLLEGES, INC. EIN - 68-2132496 MARIC LEARNING SYSTEMS, CORPORATION NURSING AND ALLIED HEALTH
A CALIFORNIA CORPORATION *ORIGINALLY A DELAWARE A CALIFORNIA CORPORATION D/B/A MODERN SCIENCES, INC., A CALIFORNIA
D/B/A ANDON COLLEGE CORPORATION KNOWN AS D/B/A MARIC COLLEGE OF TECHNOLOGY SCHOOL OF CORPORATION
DOI - 11/28/89 DBS ACQUISITION CORP. MEDICAL CAREERS X-RAY D/B/A MARIC COLLEGE OF
EIN - 68-0205914 WAS FORMED. DOI - 05/06/81 QUALIFIED - CALIFORNIA MEDICAL CAREERS
ON 09/07/94, THE EIN - 96-3633570 DOI - 03/10/93 DOI - 12/01/78
DELAWARE CORPORATION EIN - 58-2044179 EIN - 95-3302882
WAS MERGED INTO THE
VIRGINIA CORPORATION
AND THE VIRGINIA
CORPORATION WAS THE
SUCCESSOR CORPORATION
- ------------------------ ----------------------- ------------------------ ---------------------- ----------------------------

CALIFORNIA ACADEMY OF ICM ACQUISITION OIOPT ACQUSITION
MERCHANDISING, ART AND DESIGN, CORP., A DELAWARE MEADOWS ACQUISITION CORP., A DELAWARE SCOTTSDALE EDUCATIONAL
INC., A DELAWARE CORPORATION CORPORATION CORP., A DELAWARE CORPORATION CENTER FOR ALLIED HEALTH
F/K/A CAMAD ACQUISITION CORP. D/B/A ICM SCHOOL CORPORATION D/B/A OHIO CAREERS, INC., AN ARIZONA
D/B/A CALIFORNIA ACADEMY OF OF BUSINESS D/B/A MEADOWS INSTITUTE OF CORPORATION
FASHION MERCHANDISING, ART AND QUALIFIED - COLLEGE OF BUSINESS PHOTOGRAPHY AND D/B/A LONG MEDICAL
DESIGN PENNSYLVANIA QUALIFIED - GEORGIA TECHNOLOGY INSITUTE
QUALIFIED - CALIFORNIA DOI - 04/27/93 DOI - 11/06/99 QUALIFIED - OHIO DOI - 07/27/79
DOI - 06/14/93 EIN - 58-2049587 EIN - 58-1869721 DOI - 05/21/93 EIN - 86-0370806
EIN - 58-2056947 EIN - 68-2062766
------------------------------ ----------------- ------------------- ---------------- -------------------------

DEBT EDUCATION
CORPORATION,
A CALIFORNIA CORPORATION
D/B/A ANDON COLLEGE
DOI - 10/10/84
EIN - 86-0370806
- ------------------------
</TABLE>

DOI - DATE OF INCORPORATION
EIN - EMPLOYER IDENTIFICATION NUMBER
* - SUBJECT TO PRIOR PLEDGE SEE SCHEDULE 2.1(1)
<PAGE> 32

Educational Medical, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
YEAR ENDED MARCH 31
1994 1993 1992
--------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net (loss) income $(1,561,305) $ 1,028,482 $ 1,084,598
Adjustments to reconcile net (loss) income to net
cash provided by (used in) operating activities:
Depreciation 649,171 256,769 147,279
Amortization of intangibles and goodwill 1,255,106 1,071,737 816,746
Loss on closure of school 1,125,518 - -
Provision for losses on accounts receivable 1,144,361 878,581 742,305
Deferred income taxes 177,548 (84,548) (92,000)
Accretion of discount on long-term debt 212,445 212,444 146,674
Changes in operating assets and liabilities, net
of assets acquired and liabilities assumed:
Accounts receivable (2,520,951) (1,037,154) (1,187,401)
Prepaid expenses (141,327) (171,378) (27,189)
Other assets (79,332) - (50,188)
Accounts payable, refunds payable, and
accrued expenses 159,038 (120,327) 80,396
Deferred tuition income 202,707 73,075 (268,270)
Income taxes payable (972,476) 116,476 176,000
Other liabilities 255,528 58,421 (31,241)
----------------------------------------------------
Net cash (used in) provided by operating activities (93,969) 2,282,578 1,537,709

INVESTING ACTIVITIES
Purchase of businesses, net of cash acquired (490,650) - (1,045,065)
Purchases of property and equipment, net (678,125) (542,193) (282,507)
Additions to goodwill and intangibles (556,129) (77,384) -
----------------------------------------------------
Net cash used in investing activities (1,724,904) (619,577) (1,327,572)

FINANCING ACTIVITIES
Repurchase of common stock - - (790)
Issuance of common stock 35 5,936 1,060
Issuance of preferred stock 85 14,255 -
Proceeds from notes payable and long-term debt 178,979 - 2,950,000
Principal payments on acquisition notes payable (1,684,228) - -
Principal payments on senior subordinated debt (401,588) - (90,000)
Purchase of treasury stock - - (35,000)
Issuance of stock purchase warrants - - 1,050,000
Increase in deferred financing costs (62,128) - (277,879)
----------------------------------------------------
Net cash (used in) provided by financing activities (1,968,845) 20,191 3,597,391
----------------------------------------------------

(Decrease) increase in cash and cash equivalents (3,787,718) 1,683,192 3,807,528
Cash and cash equivalents at beginning of year 6,533,006 4,849,814 1,042,286
----------------------------------------------------
Cash and cash equivalents at end of year $2,745,288 $6,533,006 $4,849,814
====================================================
</TABLE>

See accompanying notes.

6
<PAGE> 33

Educational Medical, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

March 31, 1994

1. ORGANIZATION AND ACCOUNTING POLICIES

ORGANIZATION AND BUSINESS

Educational Medical, Inc. (the "Company") operates various vocational schools
primarily offering allied health, business, fashion and photography training.
The Company presently operates fourteen schools in the states of California,
Georgia, Virginia, Ohio, Pennsylvania, and Arizona.

Students attending the Company's schools generally finance the cost of their
education through government grants and guaranteed loans. Such financial
assistance generally covers a significant portion of the total cost of the
programs offered by the Company. The U.S. Department of Education has various
requirements for operators of vocational schools including certain financial
covenants. Recently issued government regulations also limit the percentage
of tuition revenue which individual schools can derive from these government
programs; violations could limit a school's ability to obtain governmental
financial assistance at the particular school. Presently the new regulations
are difficult to interpret, modifications have been proposed and the
regulations are being challenged in a lawsuit to be heard in July 1994. If the
regulations and related financial covenants are implemented in their present
form without modification, it is management's belief that the Company and
certain of their schools may be in violation and hence the Company could
experience a materially adverse effect on its future operations.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.

CASH EQUIVALENTS

Cash equivalents includes overnight investments in a bank and an investment in
bond mutual funds. These investments are recorded at cost, which approximates
market. The Company considers investments with maturities of three months or
less at the date of purchase to be cash equivalents for purposes of the
statements of cash flows.

7
<PAGE> 34

Educational Medical, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

1. ORGANIZATION AND ACCOUNTING POLICIES (CONTINUED)

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost. Depreciation and amortization are
calculated on the straight-line method over the estimated useful lives of the
related assets or the remaining lease term for leasehold improvements, if
shorter.

COVENANTS NOT TO COMPETE

Non-compete agreements obtained from the sellers of certain acquired schools
are being amortized on the straight-line basis over the life of the agreement,
generally from two to fifteen years.

GOODWILL AND OTHER INTANGIBLE ASSETS

In fiscal 1994, the Company changed its estimate of the life of goodwill to 15
years. Previously, goodwill was amortized over 40 years. The effect of the
change was not material.

Other intangible assets, which are similar in character to goodwill (acquired
student contracts, training curriculum, favorable leases assumed, non-compete
contracts, accreditation and acquired tradenames) are being amortized using the
straight-line method over periods ranging generally from two years to ten
years.

DEFERRED TUITION INCOME

Deferred tuition income represents the portion of student tuitions received in
advance of services being performed.

REFUNDS PAYABLE

Refunds payable are refunds due to terminated students. These funds are paid
in accordance with the prescribed policies of the regulatory and accrediting
organizations of the individual school and represent the refund due under the
terms of the enrollment contract based on the student's attendance through the
termination date.

8
<PAGE> 35

Educational Medical, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

1. ORGANIZATION AND ACCOUNTING POLICIES (CONTINUED)

REVENUE RECOGNITION

Tuition revenue is recognized monthly on a straight-line basis over the term of
the course of study. Certain fees and charges are fully recognized as revenue
at the time a student begins classes.

NON CASH TRANSACTIONS

As discussed in Note 4, the Company has acquired certain assets and assumed
certain liabilities of various schools. In fiscal year 1994 and 1993, the
Company issued $3,873,000 and $1,483,000, respectively, in notes payable and
long-term debt in conjunction with these acquisitions. During 1994, the
Company also acquired certain equipment under capital lease. Such transactions
have been excluded from the statements of cash flows.

INCOME TAXES

In February 1992, the Financial Accounting Standards Board issued Statement No.
109, "Accounting for Income Taxes." The Company adopted the provisions of the
new standard in its financial statements for the year ended March 31, 1993.
The effect of adopting Statement 109 was immaterial. As permitted by the
Statement, prior year financial statements have not been restated to reflect
the change in accounting method.

Under Statement 109, the liability method is used in accounting for income
taxes. Under this method, deferred tax assets and liabilities are determined
based on differences between financial reporting and tax basis of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse. Prior to the adoption
of Statement 109, income tax expense was determined using the deferred method.
Deferred tax expense was based on items of income and expense that were
reported in different years in the financial statements and tax returns and
were measured at the tax rate in effect in the year the difference originated.

RECLASSIFICATIONS

Certain reclassifications were made to the 1993 financial statements to conform
with the 1994 presentation.

9
<PAGE> 36

Educational Medical, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

2. LONG-TERM DEBT

Long-term debt is summarized as follows:

<TABLE>
<CAPTION>
March 31
1994 1993
---------------------------
<S> <C> <C>
8% to 11% unsecured promissory notes
payable to sellers of various schools
acquired, principal and interest payable
periodically through July 1999 $2,100,000 $1,300,000

Notes payable due for non-competition
agreements, payable periodically through
July 1999 1,242,500 500,000

13% senior subordinated debt, $4,000,000
principal, quarterly interest-only payments
through March 31, 1993, quarterly principal
payments of $100,000 plus interest
beginning June 30, 1993 with final payment
of $2,800,000 on June 30, 1996 3,121,563 3,309,118

6.67% mortgage payable due in monthly
installments of $6,881, secured by land and
building 707,487 -

12% capitalized lease, payable in installments
of $2,390; secured by equipment 130,238 -

Other - 33,078
----------------------------
7,301,788 5,142,196
Less current portion 1,549,434 1,023,078
----------------------------
$5,752,354 $4,119,118
============================
</TABLE>

10
<PAGE> 37

Educational Medical, Inc. Subsidiaries

Notes to Consolidated Financial Statements (continued)

2. LONG-TERM DEBT (CONTINUED)

Included in promissory notes payable is a 10.91% promissory note payable for
$350,000, due October 31, 1994, secured by all the outstanding corrunon stock
of Meadows Acquisition Corp., a wholly-owned subsidiary formed solely to
acquire Meadows College of Business; subject to the occurrence of certain
future events as defined in the note, the unpaid balance is convertible into
Common Stock based on a predetermined formula; no amounts are convertible as of
March 31, 1994.

On July 23, 1991 the Company entered into a Securities Purchase Agreement,
("the Agreement") under which it issued $4,000,000 of 13% Senior Subordinated
Debt Notes ("the Notes") and warrants to purchase a total of 800,000 shares of
common stock to certain outside investors ("the Investors"). Pursuant to this
transaction, $1,050,000 was recorded as debt discount and warrants (see Note
3). The carrying value of the Notes represents the principal at maturity less
the unamortized discount. The discount amount of $1,050,000 attributable to
the notes is being amortized using the straight-line method through the
maturity date of the notes. Amortization of the discount of $212,000, $212,000
and $147,000 were included in interest expense for the years ended March 31,
1994, 1993 and 1992, respectively. The Notes are secured by substantially all
the assets of the Company. Such security is subordinate to all senior debt, as
defined.

Under the terms of the Agreement, the Company must meet certain restrictive
covenants. Under the most restrictive of such covenants, the Company must
maintain specified levels of net worth, total debt to shareholders' equity and
a fixed charge coverage ratio.

The Company is also restricted as to the incurrence of certain other debt and
restricted payments, as defined. In addition, without the approval of a
majority of Investors the Company is restricted as to: the consolidation,
merger or sale of the Company; the issuance of indebtedness subordinate to
senior debt and senior to the Notes; the amendment of its articles of
incorporation or bylaws; the increase in the number of authorized directors;
the redemption or repurchase of outstanding stock (except as in employment
contracts); and the payment of any dividends on Common Stock.

11
<PAGE> 38

Educational Medical, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

2. LONG-TERM DEBT (CONTINUED)

The Company, the Preferred Shareholders, and the Investors have entered into a
Coinvestors Agreement which, among other things, entitles the Investors to
select one representative on the Company's Board of Directors as long as a
certain minimum investment amount is maintained by the Investors.

During the year ended March 31, 1994, the Company entered into a $2,000,000
revolving loan agreement (the "$2,000,000 loan") and a $1,000,000 revolving
loan agreement (the "$1,000,000 loan") with a bank. Borrowings under the
$2,000,000 loan bear interest at the rate of prime plus 1% and under the
$1,000,000 loan at the rate of prime plus 2%. The loans mature on September 1,
1994 and are secured by substantially all assets of the Company. No amounts
were outstanding under these agreements at March 31, 1994.

Aggregate maturities of long-term debt at March 31, 1994 are as follows:

<TABLE>
<CAPTION>
Year ending March 31,
<S> <C>
1995 $15,549,434
1996 1,178,513
1997 3,370,475
1998 575,350
1999 558,070
Thereafter 548,383
----------
7,780,225
Less discount on senior subordinated debt 478,437
----------
$7,301,788
==========
</TABLE>

Interest paid during the years ended March 31, 1994, 1993 and 1992 was
approximately $733,000, $520,000, and $363,000.

12
<PAGE> 39

Educational Medical, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

3. SHAREHOLDERS' EQUITY

CONVERTIBLE PREFERRED STOCK

Prior to March 31, 1990, the Company issued 1,020,000 shares of Cumulative
Convertible Preferred Stock, $.01 par value. At the option of the holder, each
share of Preferred Stock may be converted into one share of Common Stock at
$6.66 per share, subject to certain antidilution adjustments (1,023,049 shares
at March 31, 1994).

Through July 22, 1991, the shares of Preferred Stock accrued dividends at an
annual rate of 8%. Effective July 23, 1991, pursuant to the Securities
Purchase Agreement dated July 23, 1991 (see Note 4), the terms of the Preferred
Stock were amended to eliminate the cumulative dividends feature and redemption
requirement until an Initial Public Offering of Stock is completed and certain
other requirements are met, and the Company issued 246,500 shares of Common
Stock in full payment of accrued dividends through July 22, 1991 totaling
$1,232,498. Under certain circumstances, the Company is obligated to redeem
for cash all the outstanding Preferred Stock at $6.66 per share.

Except for the election of directors, the holders of Preferred Stock and Common
Stock shall vote as one class, with each share of Preferred Stock entitled to
one vote for each share of Common Stock issuable upon conversion. The
Preferred Shareholders voting separately as a class may elect three of the five
members of the Board of Directors.

COMMON STOCK

Effective December 15, 1991, certain shares of Common Stock previously
purchased by two officers became subject to a Restricted Stock Purchase
Agreement, as amended December 15, 1991. Under the terms of the amended
Restricted Stock Purchase Agreement, the Company has the rights to repurchase
certain shares of previously issued Common Stock in the event of termination of
employment at the original issue price of $.01 per share. The rights expire
ratably over a scheduled four year vesting period. As of March 31, 1994, a
total of 20,409 shares are subject to this repurchase option.

13
<PAGE> 40

Educational Medical, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

3. SHAREHOLDERS' EQUITY (CONTINUED)

COMMON STOCK (CONTINUED)

The Company has reserved the following shares of Common Stock at March 31,
1994:

<TABLE>
<S> <C>
Convertible Preferred Stock 1,023,049
Common Stock purchase warrants 948,000
---------
1,971,031
=========
</TABLE>

STOCK PURCHASE WARRANTS

As described in Note 2, concurrent with the issuance of the Notes, the
Investors were granted stock purchase warrants allowing the purchase of up to
800,000 shares of Common Stock at $5 per share, for a total amount of
$4,000,000. The $5 exercise price of the warrants is subject to adjustment for
any future issuances of equity or equity related securities at a per share
price less than the exercise price.

The warrants were assigned a value of $1,050,000. The difference between the
$1,050,000 and the exercise price of $4,000,000 is being accreted through the
date of earliest exercise (50% through March 31, 1998 and 50% through March 31,
1999). Accretion of $283,276 and $236,568 was charged to retained earnings
during the year ended March 31, 1994 and 1993, respectively. The warrants
expire June 30, 2001.

At any time after March 31, 1998, but on or before March 31, 1999, the
Investors may "put" to the Company warrants representing 50% of total warrants
then outstanding. At any time after March 31, 1999, the Investors may "put" to
the Company all then outstanding warrants. The Company may "call" the warrants
at the later of 2 years from closing (July 23, 1991) or after the Company's
stock has been publicly traded for six months. The put/call price is $5 per
share.

14
<PAGE> 41

Educational Medical, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

3. SHAREHOLDERS' EQUITY (CONTINUED)

STOCK PURCHASE WARRANTS (CONTINUED)

The Coinvestors Agreement (Note 2) specifies that, upon a change in control of
the Company, all Investors and Preferred Shareholders "put" amounts will be
paid and distributed by the Company as follows:

i) 50% of the Investors' "put" amounts shall be paid and
distributed by the Company to the Investors immediately.

ii) immediately thereafter, all shareholders' "put" amounts shall
be paid and distributed by the Company to the Preferred
Shareholders.

iii) immediately thereafter, the remaining Investors' "put" amounts
shall be paid and distributed by the Company to the Investors.

In the event of a change in control of the Company, the Notes are to be repaid
at par and the related warrants may be "put" to the Company by the Investors at
a price between $1 to $2.50 per Common Share depending on the date of the
change in control. The Preferred Shareholders are to be paid in cash all the
outstanding Preferred Stock at $6.66 per share.

In connection with the Securities Purchase Agreement described in Note 2, a
third party was granted warrants to purchase 16,000 shares of Common Stock
exercisable at $6 per share. These warrants expire July 23, 1996.

The Company has agreed in the event of an Initial Public Offering to issue to a
third party, warrants to purchase 10,000 shares of Common Stock at the offering
price of such shares in an Initial Public Offering. These warrants will expire
5 years from the date of such Initial Public Offering.

15
<PAGE> 42

Educational Medical, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

3. SHAREHOLDERS' EQUITY (CONTINUED)

STOCK OPTIONS

In fiscal year 1993 and 1994, the Company issued 102,000 and 20,000 stock
option grants, respectively, to certain management employees, which give the
holders rights to acquire the same number of shares of the Company's common
stock. The options vest incrementally over four years and are exercisable at
$4.00 per share for the 1993 options and $6.67 for the 1994 options. The
options expire on the fifth anniversary of the year in which such options
become vested. As of March 31, 1994, 48,000 options were exercisable.

4. ACQUISITIONS

On March 1, 1993, the Company, through a wholly-owned subsidiary, purchased
certain assets and assumed certain liabilities of Modern Technology School of
X-Ray ("Modern") for $1,550,000. The purchase price consisted of $950,000 of
notes payable to the seller (see Notes 2 and 3), a $500,000 non-compete
covenant payable over five years and $100,000 of cash. The acquisition was
accounted for as a purchase whereby the assets acquired and liabilities assumed
(net tangible assets of $140,000) were recorded at their estimated fair market
values. Approximately $500,000 was assigned to a covenant not to compete and
approximately $910,000 was assigned to goodwill. The results of operations of
Modern have been included in the Company's results of operations since March 1,
1993, the effective date for accounting purposes.

On May 29, 1993, the Company, through a wholly-owned subsidiary, purchased
certain assets and assumed certain liabilities of Dominion Business Schools,
Inc. (DBS) for up to $2,400,000. The purchase price consisted of promissory
notes totaling $1,650,000 to the seller, a $400,000 non-compete covenant
payable over five years and $350,000 of cash. The acquisition was accounted
for as a purchase whereby the assets acquired and the liabilities assumed (net
liabilities assumed of $725,000) were recorded at their estimated fair market
values. Approximately $400,000 was assigned to the covenant not to compete.
The results of operations of DBS have been included in the Company's results of
operations since June 1, 1993, the effective date of the acquisition for
accounting purposes.

16
<PAGE> 43

Educational Medical, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

4. ACQUISITIONS (CONTINUED)

On July 3, 1993, the Company, through a wholly-owned subsidiary, purchased
certain assets and assumed certain liabilities of Computer Management of
Baltimore, Inc. dba ICM School of Business (ICM) for $600,000. The purchase
price consisted of $500,000 of notes payable and a $100,000 non-compete
covenant payable over two years. The acquisition was accounted for as a
purchase whereby the assets acquired and the liabilities assumed (net
liabilities assumed of $481,000) were recorded at their estimated fair market
values. The results of operations of ICM have been included in the Company's
results of operations since July 1, 1993, the effective date of the acquisition
for accounting purposes.

On July 14, 1993, the Company, through a wholly-owned subsidiary, purchased
certain assets and assumed certain liabilities of the Ohio Institute of
Photography and Technology (OIPT) for $1,236,000. The purchase price consisted
of $200,000 of notes payable to the seller, a $325,000 non-compete covenant
payable over five years, the assumption of a $541,000 mortgage, and $170,000 of
cash. The acquisition was accounted for as a purchase whereby the assets
acquired and the liabilities assumed (net tangible assets of $1,127,000) were
recorded at their estimated fair market values. Approximately $62,000, net of
negative goodwill acquired, was assigned to the covenant not to compete. The
results of operations of OIPT have been included in the Company's results of
operations since July 1, 1993, the effective date of the acquisition for
accounting purposes. The Company entered into three year consulting agreements
with the former shareholders of OIPT for a total of $200,000, payable
semiannually. Consulting fees of $33,000 are included in the accompanying 1994
consolidated statement of operations.

On August 5, 1993, the Company, through a wholly-owned subsidiary, purchased
certain assets and assumed certain liabilities of California Academy of
Merchandising, Art & Design (CAMAD) for $50,000. The purchase price consisted
of $25,000 in cash and a $25,000 non-compete covenant payable over two years.
The acquisition was accounted for as a purchase whereby the assets acquired and
the liabilities assumed (net liabilities

17
<PAGE> 44

Educational Medical, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

4. ACQUISITIONS (CONTINUED)

assumed of $46,000) were recorded at their estimated fair market values. The
results of operations of CAMAD have been included in the Company's results of
operations since August 1, 1993, the effective date of the acquisition for
accounting purposes.

5. PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

<TABLE>
<CAPTION>
MARCH 31
1994 1993
---------------------------
<S> <C> <C>
Equipment, furniture and fixtures $ 2,384,552 $1,250,969
Leasehold improvements 679,085 477,591
Land 208,100 -
Buildings 787,000 -
---------------------------
4,058,737 1,728,560
Less accumulated depreciation and
amortization (1,228,048) (582,196)
---------------------------
$ 2,830,689 $1,146,364
===========================
</TABLE>

6. LEASES

The Company leases its office, classroom and dormitory space under operating
lease agreements expiring through 1998. Rent expense totaled approximately
$2,330,000, $1,249,000, and $613,000 for the years ended March 31, 1994, 1993
and 1992, respectively.

18
<PAGE> 45

Educational Medical, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

6. LEASES (CONTINUED)

Future minimum lease payments under noncancelable operating leases are as
follows for the years ended March 31:

<TABLE>
<S> <C>
1995 $1,829,502
1996 1,402,287
1997 1,300,038
1998 1,129,202
1999 715,815
Thereafter 3,258,204
----------
$9,635,048
==========
</TABLE>

7. INCOME TAXES

The (benefit) provision for income taxes consists of the following:

<TABLE>
<CAPTION>
YEAR ENDED MARCH 31
1994 1993 1992
------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ (584,479) $640,591 $483,448
State (166,618) 192,848 129,000
-------------------------------------------
(751,097) 833,439 612,448

Deferred:
Federal 580,868 (66,388) (75,000)
State 263 (18,160) (18,000)
-------------------------------------------
581,131 (84,548) (93,000)
-------------------------------------------
$ (169,966) $748,891 $519,448
===========================================
</TABLE>

The deferred tax provision in 1994 results primarily from the change in the
deferred tax asset valuation reserve. Deferred tax benefits result primarily
from the timing of deductions related to the allowance for doubtful accounts
receivable.

19
<PAGE> 46

Educational Medical, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

7. INCOME TAXES (CONTINUED)

The income tax provision for fiscal year 1992 includes a charge in lieu of
federal and state income taxes of $435,000, which represents taxes that would
have been paid in the absence of net operating loss carryforwards from prior
years. The offsetting income tax benefit from the utilization of these
carryforwards has been reported as an extraordinary credit, in accordance with
the deferred method of accounting for income taxes.

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax assets and liabilities at March 31 are as
follows:

<TABLE>
<CAPTION>
1994 1993
---------------------------
<S> <C> <C>
Allowance for doubtful accounts $ 218,996 $ 257,470
Tradenames 379,000 433,000
Prepaid expenses (137,664) (41,615)
Intangibles 178,740 -
Depreciation 49,440 25,186
Deferred rent - 25,928
AMT credit carryforwards 1,929,420 -
Other, net (22,021) 21,742
---------------------------
858,911 721,711
Valuation allowance for deferred
tax assets (858,911) (544,163)
---------------------------
$ - $ 177,548
===========================
</TABLE>

The Company paid approximately $383,500 and $650,000 of income taxes in the
years ended March 31, 1994 and 1993 and none in the year ended March 31, 1992.

20
<PAGE> 47

Educational Medical, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

8. EMPLOYEE BENEFIT PLAN

During 1992, the Company adopted a defined contribution plan covering
substantially all employees; the plan is qualified under Section 401(k) of the
Internal Revenue Code. Under the provisions of the plan, eligible
participating employees may elect to contribute up to the maximum amount of tax
deferred contribution allowed by the Internal Revenue Code. The Company
matches 25% of such contributions up to a maximum of 4% of the employees'
compensation. The Company's contributions to the plan were approximately
$45,600, $29,900 and $5,300 for the years ended March 31, 1994, 1993 and 1992
respectively.

9. CONTINGENCIES

The Company is involved in litigation in the normal course of business which in
the opinion of management will not have a material adverse effect on the
Company's financial condition.

10. LOSS ON CLOSURE OF SCHOOL

In September 1993, the Company decided to close its wholly-owned subsidiary,
Meadows College of Business in Albany, Georgia due to continued operating
losses and the anticipation that such losses would continue. A loss of
$1,125,518 is included as "Loss on Closure of School" in the accompanying 1994
consolidated statement of operations and relates primarily to the write-off of
the related goodwill and losses from September 1993 to September 1994 when the
school will close.

11. FUTURE TUITION INCOME (UNAUDITED)

Future tuition income on active student contracts is as follows as of March 31,
1994:

<TABLE>
<S> <C>
Deferred tuition income $ 2,456,345
Uncollected future tuition income 12,687,253
-----------
Future tuition income $15,143,598
===========
</TABLE>

Based upon prior experience, it is estimated that approximately 60% of the
future tuition income will be ultimately recognized and included in revenues in
fiscal year 1995 when the related services are rendered (see Note 1).

21
<PAGE> 48

SCHEDULE 2.1(i)(B)

MATERIAL ADVERSE CHANGES AND ADDITIONAL BORROWINGS
SINCE THE DATE OF FINANCIAL STATEMENTS

SEE EXHIBIT 2.1(h) WITH RESPECT TO EXISTING LITIGATION.

THE COMPANY IS CURRENTLY APPEALING A SUSPENSION OF CERTAIN FEDERAL FUNDING WITH
RESPECT TO ITS CAMPUS IN STOCKTON, CALIFORNIA, BASED ON DEFAULT RATES
PURPORTEDLY IN EXCESS OF 25% FOR LATEST LEAST THREE YEARS. SUSPENSION OF
FUNDING IS TOLLED PENDING THE RESOLUTION OF THESE APPEALS. UNDER CURRENT
REGULATION A SCHOOL MAY APPEAL SUSPENSION BASED ON SERVICING ERRORS OR
INACCURATE DATA. THE APPEAL ALLEGES BOTH FACTORS EXISTED AND, IF TAKEN INTO
ACCOUNT WOULD LOWER THE DEFAULT TO UNDER 25%. IN ADDITION, THE COMPANY HAS
APPEALED UNDER PROVISIONS PROVIDING FOR MITIGATING CIRCUMSTANCE RELIEF BASED
UPON ACCEPTABLE COMPLETION AND PLACEMENT RATES. THE APPEALS FILED ALLEGE THE
COMPLETION AND PLACEMENT RATES WERE WITHIN ACCEPTABLE LEVELS.

<PAGE> 49

SCHEDULE 2.1(e)

LIST OF OPTIONS

SEE FOOTNOTE 3 SET FORTH IN THE CONSOLIDATED FINANCIAL STATEMENTS FOR YEARS
ENDED MARCH 31, 1994 AND 1993 WITH REPORT OF INDEPENDENT AUDITORS ATTACHED TO
EXHIBIT 2.1(i)(A)
<PAGE> 50

SCHEDULE 2.1(f)

LIST OF TRADEMARKS, PATENTS, TRADENAMES, ETC.

NONE

<PAGE> 51

SCHEDULE 2.1(h)
TO LOAN AGREEMENT

EDUCATIONAL MEDICAL, INC.
THREATENED OR PENDING LITIGATION
AS OF MARCH 28, 1995

<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
DATE OF
NAME AND DESCRIPTION FILING STATUS
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Lingaraj Bahinipaty vs. Educational Medical, Inc., March 11, 1994 Voluntary Dismissal filed by
Maric College of Medical Careers, United States Plaintiff on Sept. 8, 1994.
District Court of the Southern District of Sanctions awarded by the Court
California, re: claims of alleged wages due, against Plaintiff in the amount of
defamation and the failure of Maric to meet its $18,896.72 on March 1, 1995.
purported obligations.
- ----------------------------------------------------------------------------------------------------------------------------------
Michael Bond, John Davis, Nicole Tilema, Marcia July 29, 1994 Second Amended Complaint filed
Hay, Robert Palumbo, Sean Ruby, May Russel and Don Dec. 13, 1994
Walker et al vs. Educational Medical, Inc., Maric Class Certification
Learning Systems, Inc., et al, re: class action granted Jan. 20, 1995
claims that Maric and its agents allegedly failed
to meet its obligations and made oral
misrepresentions with respect to orthopaedic
assistant program allegedly violating the Maxine
Waters School Reform Act and California Consumer
Legal Remedies Act.
- ----------------------------------------------------------------------------------------------------------------------------------
David Selinger v. Educational Medical, Inc. re: December 28, Plaintiff has been previously
claims of wrongful termination, violation of 1994 adjudicated a vexatious litigator
public policy, breach of the covenant of good and sanctioned by the California
faith and fair dealing and statutory violations. courts. Motion to dismiss has
been filed by the school.
- ----------------------------------------------------------------------------------------------------------------------------------
Tina Trevino v. Educational Medical, Inc. re: None filed only Last communication with counsel
claims of wrongful termination. threatened in November 1994. Claimant
may have abandoned claims.
==================================================================================================================================
</TABLE>

<PAGE> 52

SCHEDULE 2.1(j)

OTHER AGREEMENTS

NONE

<PAGE> 53

SCHEDULE 2.1(l)

CREDIT AGREEMENTS, INDENTURES,
PURCHASE AGREEMENTS, PROMISSORY NOTES, ETC.

1. PLEDGE AGREEMENT DATED AS OF JULY 14, 1993 AMONG EDUCATIONAL MEDICAL,
INC., OHIO INSTITUTE OF PHOTOGRAPHY AND TECHNOLOGY, INC. AND OIOPT
ACQUISITION CORP.

2. BUSINESS PURPOSE PROMISSORY NOTE EXECUTED BY OIOPT ACQUISITION CORP.
IN FAVOR OF BANK ONE, DAYTON, N.A. IN THE PRINCIPAL SUM OF $720,000.00
DATED JULY 14, 1993.

3. BUSINESS LOAN AGREEMENT BETWEEN BANK ONE, DAYTON, N.A. AND OIOPT
ACQUISITION CORP.

4. OHIO OPEN END MORTGAGE EXECUTED BY OIOPT ACQUISITION CORP. IN FAVOR OF
BANK ONE, DAYTON, N.A. THIS MORTGAGE SECURED THE $720,000.00
PROMISSORY NOTE REFERENCED ABOVE.

5. FINANCING STATEMENT REFLECTING OIOPT ACQUISITION CORP. AS THE DEBTOR
AND BANK ONE, DAYTON, N.A. AS THE SECURED PARTY FILED WITH THE OHIO
SECRETARY OF STATE'S OFFICE ON JULY 20, 1993, FILE NUMBER
00502307209317001.

6. CONTINUING GUARANTY EXECUTED BY EDUCATIONAL MEDICAL, INC. IN FAVOR OF
BANK ONE, DAYTON, N.A. IN CONJUNCTION WITH THE $720,000.00 LOAN
REFERENCED ABOVE.

7. PURCHASE MONEY PROMISSORY NOTE EXECUTED BY EDUCATIONAL MEDICAL, INC.
AND MTSX ACQUISITION CORP. IN FAVOR OF M.T. X-RAY, INC. IN THE
PRINCIPAL SUM OF $450,000.00 DATED JULY 23, 1993.

8. PLEDGE AGREEMENT DATED JULY 23, 1993 AMONG EDUCATIONAL MEDICAL, INC.,
M.T. X-RAY, INC. AND MTSX ACQUISITION CORP.

<PAGE> 54

9. LETTER ADDRESSED TO M.T. SCHOOL OF X-RAY, THE ESTATE OF MR. JEROME
KAPLAN AND MR. HARVEY KAPLAN FROM HONIGMAN MILLER SCHWARTZ AND COHN
DATED JULY 19, 1994 REGARDING DISCREPANCIES IN THE REPRESENTATION AND
WARRANTIES OF SELLER IN CONJUNCTION WITH THE CONVEYANCE TO MTSX
ACQUISITION CORP.

10. PURCHASE MONEY PROMISSORY NOTE EXECUTED BY DBS ACQUISITION CORP. AND
EDUCATIONAL MEDICAL, INC. IN FAVOR OF BETA SERVICES, INC. IN THE
PRINCIPAL SUM OF $900,000.00 DATED MAY 28, 1993.

11. PLEDGE AGREEMENT DATED AS OF MAY 28, 1993 AMONG EDUCATIONAL MEDICAL,
INC., BETA SERVICES, INC. AND DBS ACQUISITION CORP.

12. AMENDMENT ONE TO PLEDGE AGREEMENT DATED AS OF JULY 23, 1993 TO THE
PLEDGE AGREEMENT AMONG EDUCATIONAL MEDICAL, INC., BETA SERVICES, INC.,
AND DBS ACQUISITION CORP.

13. MASTER EQUIPMENT LEASE AGREEMENT BETWEEN BANK SOUTH LEASING, INC. AND
EDUCATIONAL MEDICAL, INC. DATED JULY 26, 1994.

14. FINANCING STATEMENTS REFLECTING EDUCATIONAL MEDICAL, INC. AS THE
DEBTOR AND BANK SOUTH LEASING, INC. AS THE SECURED PARTY FILED WITH
THE FOLLOWING STATES: OHIO, ARIZONA, VIRGINIA, CALIFORNIA AND
PENNSYLVANIA.

15. EQUIPMENT LEASE AGREEMENT BETWEEN BANK SOUTH LEASING, INC. AND MTSX
ACQUISITION CORP. FOR ULTRASOUND EQUIPMENT DATED DECEMBER 28, 1993.

16. GUARANTY EXECUTED BY EDUCATIONAL MEDICAL, INC. IN FAVOR OF BANK SOUTH
LEASING, INC. IN CONJUNCTION WITH THE EQUIPMENT LEASE FOR THE
ULTRASOUND EQUIPMENT WITH MTSX ACQUISITION CORP.

17. FINANCING STATEMENT REFLECTING MTSX ACQUISITION CORP. AS THE DEBTOR
AND BANK SOUTH LEASING, INC. AS A SECURED PARTY FILED IN CALIFORNIA.

-2-
<PAGE> 55

18. 13% SENIOR SUBORDINATED NOTE R-003 IN THE ORIGINAL PRINCIPAL SUM OF
$603,000 EXECUTED BY EDUCATIONAL MEDICAL, INC. IN FAVOR OF FUELSHIP &
COMPANY DATED JULY 23,1991, AS MODIFIED BY ALLONGE DATED MARCH __,
1995.

19. 13% SENIOR SUBORDINATED NOTE R-004 IN THE ORIGINAL PRINCIPAL SUM OF
$497,000 EXECUTED BY EDUCATIONAL MEDICAL, INC. IN FAVOR OF FUELSHIP &
COMPANY DATED JULY 23, 1991, AS MODIFIED BY ALLONGE DATED MARCH __,
1995.

20. 13% SENIOR SUBORDINATED NOTE R-002 IN THE ORIGINAL PRINCIPAL SUM OF
$2,900,000 EXECUTED BY EDUCATIONAL MEDICAL, INC. IN FAVOR OF NAP AND
COMPANY DATED JULY 16, 1991, AS MODIFIED BY ALLONGE DATED MARCH __,
1995.

21. CONSULTING AND NON COMPETITION AGREEMENTS WITH VARIOUS INDIVIDUALS AS
DESCRIBED IN FOOTNOTES 2 AND 4 TO THE CONSOLIDATED FINANCIAL
STATEMENTS FOR YEARS ENDED MARCH 31, 1994 AND 1993 WITH REPORT OF
INDEPENDENT AUDITORS ATTACHED TO SCHEDULE 2.1(i)(A).

-3-
<PAGE> 56

SCHEDULE 2.1(o)

INDEBTEDNESS BETWEEN BORROWER AND
OFFICERS OR DIRECTORS OF BORROWER

$75,000 PROMISSORY NOTE DATED SEPTEMBER 20, 1991 EXECUTED BY VINCE PISANO AND
GAIL PISANO, HIS WIFE, IN FAVOR OF EDUCATIONAL MEDICAL, INC. SECURED BY A DEED
OF TRUST COVERING REAL PROPERTY LOCATED AT 33831 GRENADA DRIVE, DANA POINT,
CALIFORNIA AND A DEED TO SECURE DEBT COVERING PROPERTY LOCATED AT 13446
PROVIDENCE ROAD, ALPHARETTA, GEORGIA.

THE BORROWER HAS CROSS-GUARANTEED VARIOUS OBLIGATIONS OF ITS SUBSIDIARIES.
<PAGE> 57

SCHEDULE 2.1(r)

CONTRACTS, AGREEMENTS AND OTHER DOCUMENTS
PURSUANT TO WHICH BORROWER RECEIVES
REVENUES IN EXCESS OF $25,000

PARTICIPATION AGREEMENTS BETWEEN DEPARTMENT OF EDUCATION AND EACH OF THE
BORROWERS WHICH OPERATE A SCHOOL WITH RESPECT TO FEDERAL FUNDING AND SIMILAR
AGREEMENTS WITH STATES IN WHICH THE BORROWERS' SCHOOLS OPERATE.

<PAGE> 58

SCHEDULE 3.12

GUARANTIES, LOANS, ETC.

NONE

<PAGE> 59

SCHEDULE 3.13

DIVIDENDS, STOCK, ETC.

NONE

<PAGE> 1
EXHIBIT 10.14

SECURED PROMISSORY NOTE

$2,200,000.00 March__, 1995

FOR VALUE RECEIVED, the undersigned, EDUCATIONAL MEDICAL, INC., a
Delaware corporation, ANDON COLLEGES, INC. d/b/a Andon College, DBS
ACQUISITION CORP. d/b/a Dominion Business School, MARIC LEARNING SYSTEMS d/b/a
Maric College of Medical Careers, MTSX ACQUISITION CORP. d/b/a Modem
Technology School of X-Ray, PALO VISTA COLLEGE OF NURSING AND ALLIED HEALTH
SCIENCES, INC. d/b/a Maric College of Medical Careers, CALIFORNIA ACADEMY OF
MERCHANDISING, ART AND DESIGN d/b/a California Academy of Fashion
Merchandising, Art and Design, ICM ACQUISITION CORP. d/b/a ICM School of
Business, MEADOWS ACQUISITION CORP. d/b/a Meadows College of Business, OIOPT
ACQUISITION CORP. d/b/a Ohio Institute of Photography and Technology,
SCOTTSDALE EDUCATIONAL CENTER FOR ALLIED HEALTH CAREERS, INC. d/b/a Long
Medical Institute, and DEST EDUCATION CORPORATION d/b/a Andon College
("Makers"), jointly and severally promise to pay to the order of SIRROM CAPITAL
CORPORATION, a Tennessee corporation ("Payee"; Payee and any subsequent
holder[s] hereof are hereinafter referred to collectively as "Holder"), at the
office of Payee at First American Trust Company, Custody Department, 800 First
American Center, Nashville, Tennessee 37237, Attn: Jeff Eubanks, or at such
other place as Holder may designate to Makers in writing from time to time, the
principal sum of TWO MILLION TWO HUNDRED THOUSAND AND NO/100THS DOLLARS
($2,200,000.00), together with interest on the outstanding principal balance
hereof from the date hereof at the rate of fourteen percent (14%) per annum
(computed on the basis of a 360-day year).

Interest only on the outstanding principal balance hereof shall be due
and payable quarterly, in arrears, with the first installment being payable on
the first (1st) day of July, 1995, and subsequent installments being payable on
the first (1st) day of each October, January, April and July thereafter until
March _, 2000 (the "Maturity Date"), at which time the entire outstanding
principal balance, together with all accrued and unpaid interest, shall be
immediately due and payable in full.

The indebtedness evidenced hereby may be prepaid in whole or in part, at
any time and from time to time, without penalty. Any such prepayments shall be
credited first to any accrued and unpaid interest and then to the outstanding
principal balance hereof.

Time is of the essence of this Note. It is hereby expressly agreed that
in the event that any default be made in the payment of principal or interest
as stipulated above, which default is not cured following the giving of any
applicable notice and within ten (10) days; or in the event that any default or
event of default shall occur under that certain Loan Agreement of even date
herewith, between Makers and Payee (the "Loan Agreement"), which default or
event of default is not cured following the giving of any applicable notice and
within any applicable cure period set forth in said Loan Agreement; or should
any default by Makers be made in the performance or observance of any covenants
or conditions contained in any other instrument or document now

<PAGE> 2

or hereafter evidencing, securing or otherwise relating to the indebtedness
evidenced hereby (subject to any applicable notice and cure period provisions
that may be set forth therein); then, and in such event, the entire outstanding
principal balance of the indebtedness evidenced hereby, together with any other
sums advanced hereunder, under the Loan Agreement and/or under any other
instrument or document now or hereafter evidencing, securing or in any way
relating to the indebtedness evidenced hereby, together with all unpaid
interest accrued thereon, shall, at the option of Holder and without notice to
Makers, at once become due and payable and may be collected forthwith,
regardless of the stipulated date of maturity. Upon the occurrence of any
default as set forth herein, at the option of Holder and without notice to
Makers, all accrued and unpaid interest, if any, shall be added to the
outstanding principal balance hereof, and the entire outstanding principal
balance, as so adjusted, shall bear interest thereafter until paid at an annual
rate (the "Default Rate") equal to the lesser of (i) the rate that is seven
percentage points (7.0%) in excess of the above-specified interest rate, or
(ii) the maximum rate of interest allowed to be charged under applicable law
(the "Maximum Rate"), regardless of whether or not there has been an
acceleration of the payment of principal as set forth herein. All such
interest shall be paid at the time of and as a condition precedent to the
curing of any such default.

In the event this Note is placed in the hands of an attorney for
collection, or if Holder incurs any costs incident to the collection of the
indebtedness evidenced hereby, Makers and any endorsers hereof agree to pay to
Holder an amount equal to all such costs, including without limitation all
actual reasonable attorney's fees and all court costs.

Presentment for payment, demand, protest and notice of demand, protest
and nonpayment are hereby waived by Makers and all other parties hereto. No
failure to accelerate the indebtedness evidenced hereby reason of default
hereunder, acceptance of a past-due installment or other indulgences granted
from time to time, shall be construed as a novation of this Note or as a waiver
of such right of acceleration or of the right of Holder thereafter to insist
upon strict compliance with the terms of this Note or to prevent the exercise
of such right of acceleration or any other right granted hereunder or by
applicable laws. No extension of the time for payment of the indebtedness
evidenced hereby or any installment due hereunder, made by agreement with any
person now or hereafter liable for payment of the indebtedness evidenced
hereby, shall operate to release, discharge, modify, change or affect the
original liability of Makers hereunder or that of any other person now or
hereafter liable for payment of the indebtedness evidenced hereby, either in
whole or in part, unless Holder agrees otherwise in writing. This Note may not
be changed orally, but only by an agreement in writing signed by the party
against whom enforcement of any waiver, change, modification or discharge is
sought.

The indebtedness and other obligations evidenced by this Note are
further evidenced by (i) the Loan Agreement and (ii) certain other instruments
and documents, as may be required to protect and preserve the rights of Makers
and Holder as more specifically described in the Loan Agreement.

2
<PAGE> 3

All agreements herein made are expressly limited so that in no event
whatsoever, whether by reason of advancement of proceeds hereof, acceleration
of maturity of the unpaid balance hereof or otherwise, shall the amount paid or
agreed to be paid to Holder for the use of the money advanced or to be advanced
hereunder exceed the Maximum Rate. If, from any circumstances whatsoever, the
fulfillment of any provision of this Note or any other agreement or instrument
now or hereafter evidencing, securing or in any way relating to the
indebtedness evidenced hereby shall involve the payment of interest in excess
of the Maximum Rate, then, ipso facto, the obligation to pay interest hereunder
shall be reduced to the Maximum Rate; and if from any circumstance whatsoever,
Holder shall ever receive interest, the amount of which would exceed the amount
collectible at the Maximum Rate, such amount as would be excessive interest
shall be applied to the reduction of the principal balance remaining unpaid
hereunder and not to the payment of interest. This provision shall control
every other provision in any and all other agreements and instruments existing
or hereafter arising between Makers and Holder with respect to the indebtedness
evidenced hereby.

This Note is intended as a contract under and shall be construed and
enforceable in accordance with the laws of the State of Tennessee, except to
the extent that federal law may be applicable to the determination of the
Maximum Rate.

As used herein, the terms "Makers" and "Holder" shall be deemed to
include their respective successors, legal representatives and assigns, whether
by voluntary action of the parties or by operation of law.

MAKERS:

EDUCATIONAL MEDICAL, INC., a Delaware
corporation, ANDON COLLEGES, INC. d/b/a
Andon College, DBS ACQUISITION CORP. d/b/a
Dominion Business School, MARIC LEARNING
SYSTEMS d/b/a Maric College of Medical
Careers, MTSX ACQUISITION CORP. d/b/a Modern
Technology School of X-Ray, PALO VISTA
COLLEGE OF NURSING AND ALLIED HEALTH
SCIENCES, INC. d/b/a Maric College of
Medical Careers, CALIFORNIA ACADEMY OF
MERCHANDISING, ART AND DESIGN d/b/a
California Academy of Fashion
Merchandising, Art and Design, ICM
ACQUISITION CORP. dba ICM School of
Business, MEADOWS ACQUISITION CORP d/b/a
Meadows College of Business, OIOPT
ACQUISITION CORP. d/b/a Ohio Institute of
Photography and Technology, SCOTTSDALE
EDUCATIONAL CENTER FOR ALLIED HEALTH
CAREERS, INC. d/b/a Long Medical

<PAGE> 4

Institute, DEST EDUCATION CORPORATION
d/b/a Andon College

By: /s/ Gary D. Kerber
----------------------------------
Title: President

<PAGE> 1

EXHIBIT 10.15

SECURITY AGREEMENT

THIS SECURITY AGREEMENT ("Agreement") is dated as of the ________ day of
March, 1995, by and between EDUCATIONAL MEDICAL, INC., a Delaware corporation,
ANDON COLLEGES, INC. d/b/a Andon College, DBS ACQUISITION CORP. d/b/a Dominion
Business School, MARIC LEARNING SYSTEMS d/b/a Maric College of Medical
Careers, MTSX ACQUISTION CORP. d/b/a Modern Technology School of X-Ray, PALO
VISTA COLLEGE OF NURSING AND ALLIED HEALTH SCIENCES, INC. d/b/a Maric College
of Medical Careers, CALIFORNIA ACADEMY OF MERCHANDISING, ART AND DESIGN d/b/a
California Academy of Fashion Merchandising, Art and Design, ICM ACQUISITION
CORP. d/b/a ICM School of Business, MEADOWS ACQUISITION CORP. d/b/a Meadows
College of Business, OIOPT ACQUISITION CORP. d/b/a Ohio Institute of
Photography and Technology, SCOTTSDALE EDUCATIONAL CENTER FOR ALLIED HEALTH
CAREERS, INC. d/b/a Long Medical Institute, and Dest Education Corporation
d/b/a Andon College (individually, a "Borrower" and collectively, the
"Borrowers"), and SIRROM CAPITAL CORPORATION, a Tennessee corporation
("Lender").

WITNESSETH:

WHEREAS, Lender is making a loan (the "Loan") in the amount of $2,200,000
to Borrowers, pursuant to that certain Loan Agreement of even date herewith by
and between Borrowers and Lender (the "Loan Agreement"); and

WHEREAS, in connection with the making of the Loan, Lender desires to
obtain from Borrowers and Borrowers desires to grant to Lender a security
interest in certain collateral more particularly described below.

AGREEMENT:

NOW, THEREFORE, in consideration of the foregoing premises and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:

1. Grant of Security Interest. Each Borrower hereby grants to Lender
a security interest in the following described property and any and all proceeds
and products thereof and accessions thereto (collectively the "Collateral"):

(a) Equipment. All equipment of Borrower of any kind and
description, whether now owned or hereafter acquired and wherever located,
together with all parts, accessories and attachments and all replacements
thereof and additions thereto;

<PAGE> 2

(b) Inventory, Accounts, Contract Rights, Chattel Paper and
General Intangibles. All of Borrower's inventory and any agreements for
lease of same and rentals therefrom, and all of Borrower's accounts,
accounts receivable, contract rights, chattel paper and general
intangibles and the proceeds therefrom, whether now in existence or owned
or hereafter arising or acquired, entered into or created, and wherever
located; and whether held for lease or sale, or furnished or to be
furnished under contracts of service;

(c) Trademarks, Etc. All trademarks and service marks now held or
hereafter acquired by Borrower, both those that are registered with the
United States Patent and Trademark Office and any unregistered marks used
by Borrower in the United States, and trade dress, including logos and
designs, in connection with which any such marks are used, together with
all registrations regarding such marks and the rights to renewals
thereof, and the goodwill of the business of Borrower symbolized by
such marks;

(d) Copyrights. All copyrights now held or hereafter acquired by
Borrower and any applications for U.S. copyrights hereafter made by
Borrower; and

(e) Proprietary Information, Computer Data, Etc. All proprietary
information and trade secrets of Borrower with respect to Borrower's
business and all of Borrower's computer programs and the information
contained therein and all intellectual property rights with respect
thereto.

2. Secured Indebtedness. The obligations secured hereby shall
include (a) loans to be made concurrently or in connection with this Agreement
or the Loan Agreement as evidenced by one or more promissory notes payable to
the order of Lender that shall be due and payable as set forth in such
promissory notes, and any renewals or extensions thereof, (b) the full and
prompt payment and performance of any and all other indebtednesses and other
obligations of Borrowers to Lender, direct or contingent (including but not
limited to obligations incurred as indorser, guarantor or surety), however
evidenced or denominated, and however and whenever incurred, including but not
limited to indebtednesses incurred pursuant to any present or future commitment
of Lender to Borrowers and (c) all future advances made by Lender for taxes,
levies, insurance and preservation of the Collateral and all attorney's fees,
court costs and expenses of whatever kind incident to the collection of any of
said indebtedness or other obligations and the enforcement and protection of
the security interest created hereby.

3. Representations. Warranties and Agreements of Borrower. Each
Borrower represents, warrants and agrees as follows:

(a) Borrower will promptly notify Lender, in writing, of any new
place or places of business if the Collateral is used in business, or of
any change in Borrower's residence if the Collateral is not used in
business, and regardless of use, of any change in the location of the
Collateral or any records pertaining thereto.

<PAGE> 3

(b) Except as set forth on Schedule 3(b) hereto, Borrower is the
owner of the Collateral free and clear of any liens and security
interests. Borrower will defend the Collateral against the claims and
demands of all persons.

(c) Borrower will pay to Lender all amounts secured hereby as and
when the same shall be due and payable, whether at maturity, by
acceleration or otherwise, and will promptly perform all terms of said
indebtedness and this or any other security or loan agreement between
Borrower and Lender, and will promptly discharge all said liabilities.

(d) Borrower will at all times keep the Collateral insured against
all insurable hazards in amounts equal to the full cash value of the
Collateral. Such insurance shall be in such companies as may be
acceptable to Lender, with provisions satisfactory to Lender for payment
of all losses thereunder to Lender as its interests may appear. If
required by Lender, Borrower shall deposit the policies with Lender. Any
money received by Lender under said policies may be applied to the
payment of any indebtedness secured hereby, whether or not due and
payable, or at Lender's option may be delivered by Lender to Borrower for
the purpose of repairing or restoring the Collateral. Borrower assigns to
Lender all right to receive proceeds of insurance not exceeding the
amounts secured hereby, directs any insurer to pay all proceeds directly
to Lender, and appoints Lender Borrower's attorney in fact to endorse any
draft or check made payable to Borrower in order to collect the benefits
of such insurance. If Borrower fails to keep the Collateral insured as
required by Lender, Lender shall have the right to obtain such insurance
at Borrower's expense and add the cost thereof to the other amounts
secured hereby.

(e) Borrower will pay all costs of filing of financing,
continuation and termination statements with respect to the security
interests created hereby, and Lender is authorized to do all things that
it deems necessary to perfect and continue perfection of the security
interests created hereby and to protect the Collateral.

(f) The address set forth after Borrower's signature on this
Agreement is Borrower's principal place of business and the location of
all tangible Collateral and the place where the records concerning all
intangible Collateral are kept and/or maintained.

4. Default. Borrower shall be in default upon failure to observe
or perform any of Borrower's agreements herein contained, or upon the
occurrence of a default or Event of Default under the Loan Agreement or any
other Loan Document (as defined in the Loan Agreement) that has not been cured
during the applicable grace period.

5. Remedies Upon Default. Upon default hereunder, all sums secured
hereby shall immediately become due and payable at Lender's option without
notice to Borrowers, and Lender may proceed to enforce payment of same and to
exercise any and all rights and remedies provided by the Uniform Commercial
Code (Tennessee) or other applicable law, as well as all other rights and
remedies possessed by Lender, all of which shall be cumulative. Whenever
Borrowers are in default hereunder, and upon demand by Lender, Borrowers shall
assemble the

<PAGE> 4

Collateral and make it available to Lender at a place reasonably convenient
to Lender and Borrowers. Any notice of sale, lease or other intended
disposition of the Collateral by Lender sent to Borrowers at the address
hereinafter set forth, or at such other address of Borrowers as may be shown
on Lender's records, at least five (5) days prior to such action, shall
constitute reasonable notice to Borrowers.

Lender may waive any default before or after the same has been declared
without impairing its right to declare a subsequent default hereunder, this
right being a continuing one.

6. Severability. If any provision of this Agreement is held invalid,
such invalidity shall not affect the validity or enforceability of the
remaining provisions of this Agreement.

7. Binding Effect. This Agreement shall inure to the benefit of
Lender's successors and assigns and shall bind Borrowers' heirs,
representatives, successors and assigns. If any Borrower is composed of more
than one person, firm and/or entity, their obligations hereunder shall be joint
and several.

8. Financial Reporting. No Borrower has undisclosed or contingent
liabilities that are not reflected in the financial statements on file with
Lender at the execution of this Agreement or disclosed in the Loan Agreement.
Lender shall have the right, at any time, by its own auditors, accountants or
other agents, to examine or audit any of the books and records of Borrowers, or
the Collateral, all of which will be made available upon request. Such
accountants or other representatives of Lender will be permitted to make any
verification of the existence of the Collateral or accuracy of the records that
Lender deems necessary or proper. Any reasonable expenses incurred by Lender
in making such examination, inspection, verification or audit shall be paid by
Borrower promptly on demand and shall be secured by the security interest
granted hereby.

9. Termination Statement. Borrowers agree that, notwithstanding the
payment in full of all indebtedness secured hereby and whether or not there is
any outstanding obligation of Lender to make future advances, Lender shall not
be required to send Borrowers a termination statement with respect to any
financing statement filed to perfect Lender's security interest(s) in any of
the Collateral, unless and until Borrowers shall have made written demand
therefor. Upon receipt of proper written demand, Lender may at its option, in
lieu of sending a termination statement to Borrowers, cause said termination
statement to be filed with the appropriate filing officer(s).

10. Protection of Collateral. Except as provided for in the Loan
Agreement, Borrowers will not permit any liens or security interests other than
those created by this Agreement to attach to any of the Collateral, nor permit
any of the Collateral to be levied upon under any legal process, nor permit
anything to be done that may impair the security intended to be afforded by
this Agreement, nor permit any tangible Collateral to become attached to or
commingled with other goods without the prior written consent of Lender.

<PAGE> 5

11. Special Agreements With Respect to Certain Tangible Collateral.
Each Borrower additionally agrees and warrants as follows:

(a) Borrower will not permit any of the Collateral to be removed
from the location specified herein, except for temporary periods in the
normal and customary use thereof, without the prior written consent of
Lender, and will permit Lender to inspect the Collateral at any time.

(b) If any of the Collateral is equipment or goods of a type
normally used in more than one state (whether or not actually so used),
Borrower will contemporaneously herewith furnish Lender a list of the
states wherein such equipment or goods are or will be used, and hereafter
will notify Lender in writing (i) of any other states in which such
equipment or goods are so used, and (ii) of any change in the location of
Borrower's chief place of business.

(c) Except in the ordinary course of business, Borrower will not
sell, exchange, lease or otherwise dispose of any of the Collateral or any
interest therein without the prior written consent of Lender.

(d) Borrower will keep the Collateral in good condition and repair
and will pay and discharge all taxes, levies and other impositions levied
thereon as well as the cost of repairs to or maintenance of same, and
will not permit anything to be done that may impair the value of the
Collateral in any material way. If Borrower fails to pay such sums,
Lender may do so for Borrower's account and add the amount thereof to the
other amounts secured hereby.

(e) Until default in any of the terms hereof, or the terms of any
indebtedness secured hereby, Borrower shall be entitled to possession of
the Collateral and to use the same in any lawful manner, provided that
such use does not cause excessive wear and tear to the Collateral, cause
it to decline in value at an excessive rate, or violate the terms of any
policy of insurance thereon.

12. Special Agreements With Respect to Intangible and Certain
Tangible Collateral. Each Borrower additionally warrants and agrees as
follows:

(a) So long as no Borrower is in default hereunder, Borrower
shall have the right to process and sell Borrower's inventory in the
regular course of business. Lender's security interest hereunder shall
attach to all proceeds of all sales or other dispositions of the
Collateral. If at any time any such proceeds shall be represented by any
instruments, chattel paper or documents of title, then such instruments,
chattel paper or documents of title shall be promptly delivered to
Lender and subject to the security interest granted hereby. If at any
time any of Borrower's inventory is represented by any document of title,
such document of title will be delivered promptly to Lender and subject
to the security interest granted hereby.

<PAGE> 6

(b) By the execution of this Agreement, Lender shall not be
obligated to do or perform any of the acts or things provided in any
contracts covered hereby that are to be done or performed by Borrower,
but if there is a default by Borrowers in the payment of any amount due
in respect of any indebtedness secured hereby, then Lender may, at its
election, perform some or all of the obligations provided in said
contracts to be performed by Borrower, and if Lender incurs any liability
or expenses by reason thereof, the same shall be payable by Borrower upon
demand and shall also be secured by this Agreement.

(c) At any time after any Borrower is in default hereunder or
under the Loan Agreement, Lender shall have the right to notify the
account debtors obligated on any or all of Borrower's accounts receivable
to make payment thereof directly to Lender, and to take control of all
proceeds of any such accounts receivable. Until such time as Lender
elects to exercise such right by mailing to Borrower written notice
thereof, Borrower is authorized, as agent of the Lender, to collect and
enforce said accounts receivable.

13. Power of Attorney. Each Borrower hereby constitutes the
Lender or its designee, as Borrower's attorney-in-fact with power, upon the
occurrence and during the continuance of an Event of Default, to endorse
Borrower name upon any notes, acceptances, checks, drafts, money orders, or
other evidences of payment or Collateral that may come into either its or the
Lender's possession; to sign the name of Borrower on any invoice or bill of
lading relating to any of the accounts receivable, drafts against customers,
assignments and verifications of accounts receivable and notices to customers;
to send verifications of accounts receivable; to notify the Post Office
authorities to change the address for delivery of mail addressed to Borrower to
such address as the Lender may designate; to execute any of the documents
referred to in Section 3(e) hereof in order to perfect and/or maintain the
security interests and liens granted herein by Borrower to the Lender; to do
all other acts and things necessary to carry out this Security Agreement. All
acts of said attorney or designee are hereby ratified and approved, and said
attorney or designee shall not be liable for any acts of commission or omission
(other than acts of gross negligence or willful misconduct), nor for any error
of judgment or mistake of fact or law; this power being coupled with an
interest is irrevocable until all of the obligations secured hereby are paid in
full and any and all promissory notes executed in connection therewith are
terminated and satisfied.

<PAGE> 7

IN WITNESS WHEREOF, Borrower and Lender have executed this Agreement; or
have caused this Agreement to be executed as of the date first above written

BORROWERS:

EDUCATINAL MEDICAL, INC., a Delaware
corporation, ANDON COLLEGES, INC. d/b/a
Andon College, DBS ACQUISITION CORP. d/b/a
Dominion Business School, MARIC LEARNING
SYSTEMS d/b/a Maric College of Medical
Careers, MTSX ACQUISITION CORP. d/b/a
Modern Technology School of X-Ray, PALO
VISTA COLLEGE OF NURSING AND ALLIED HEALTH
SCIENCES, INC. d/b/a Maric College of
Medical Careers, CALIFORNIA ACADEMY OF
MERCHANDISING, ART AND DESIGN d/b/a
California Academy of Fashion
Merchandising, Art and Design, ICM
ACQUISITION CORP. d/b/a California Academy
of Fashion Merchandising, Art and Design,
ICM ACQUISITION CORP. d/b/a ICM School of
Business, MEADOWS ACQUISITION CORP. d/b/a
Meadows College of Business, OIOPT
ACQUISITION CORP. d/b/a Ohio Institute of
Photography and Technology, SCOTTSDALE
EDUCATIONAL CENTER FOR ALLIED HEALTH
CAREERS, INC. d/b/a Long Medical Institute,
DEST EDUCATIN CORPORATION d/b/a Andon
College

By: /s/ Gary D. Kerber
----------------------------------------
Title: President
-------------------------------------

LENDER:

SIRROM CAPTIAL CORPORATION

By: /s/ Carolyn Perrone
----------------------------------------
Title: CFO
-------------------------------------

7
<PAGE> 8

ADDRESSES OF BORROWERS FOR NOTICE
PURPOSES:

EDUCATIONAL MEDICAL, INC.
1327 North Meadow Parkway
Suite 132
Roswell, GA 30076

ADDRESSES OF BORROWERS:

EDUCATIONAL MEDICAL, INC.
1327 North Meadow Parkway
Suite 132
Roswell, GA 30076

ANDON COLLEGE AT STOCKTON
1201 North El Dorado Street
Stockton, CA 95202

ANDON COLLEGE AT MODESTO
1314 H Street
Modesto, CA 95354

DOMINION BUSINESS SCHOOL
4142-1 Melrose Avenue
Roanoke, VA 24017

DOMINION BUSINESS SCHOOL
933 Reservoir Street
Harrisonburg, VA 22801

DOMINION BUSINESS SCHOOL
825 Richmond Road
Staunton, VA 24401

MARIC COLLEGE AT VISTA
1593-C East Vista Way
Vista, CA 92084

<PAGE> 9

MARIC COLLEGE AT SAN DIEGO
3666 Kearny Villa Road, Suite 100
San Diego, CA 92120

MARIC COLLEGE AT SAN MARCOS
1300 Rancheros Drive
San Marcos, CA 92069

MODERN TECHNOLOGY SCHOOL OF X-RAY
6180 Laurel Canyon Boulevard
Suite 101
North Hollywood, CA 91606

CALIFORNIA ACADEMY OF
MERCHANDISING, ART & DESIGN
1533 Howe Avenue
Suite 208
Sacramento, CA 95825

ICM SCHOOL OF BUSINESS
10-14 Wood Street
Pittsburgh, PA 15222

MEADOWS COLLEGE OF BUSINESS
832 South Slappey Boulevard
Albany, GA 31701

OHIO INSTITUTE OF PHOTOGRAPHY AND
TECHNOLOGY
2029 Edgefield Road
Dayton, OH 45439

LONG MEDICAL INSTITUTE
4126 North Black Canyon Highway
Phoenix, AZ 85017

<PAGE> 10

SCHEDULE 3(b)

(Liens)

<PAGE> 1

EXHIBIT 10.38

PLEDGE AGREEMENT

AGREEMENT, dated as of July 22, 1993 between EDUCATIONAL MEDICAL,
INC., a Delaware corporation (the "Pledgor"), M.T. X-RAY, INC. (the "Pledgee")
and MTSX ACQUISITION CORP. (the "Issuer").

PRELIMINARY STATEMENT

The Pledgor is the owner of all of the issued and outstanding common
stock, par value $.01 per share (the "Pledged Securities"), of the Issuer.

The Issuer and the Pledgor have jointly and severally executed and
delivered to Pledgee (i) their promissory Note in the principal amount of
$500,000 (the "Second Payment Note"), a copy of which is attached as Exhibit 1
to this Pledge Agreement, and (ii) their promissory note (the "Purchase Money
Note") in the principal amount of $450,000, a copy of which is attached as
Exhibit 2 to this Agreement. The Pledgor's obligations with respect to the
payment of the Second Payment Note and the Purchase Money Note (collectively
called the "Secured Obligations") are to be secured by the Pledged Collateral,
as defined in Section 1.

In consideration of the premises and of the mutual covenants herein
contained, the receipt and adequacy of which are hereby acknowledged, the
parties agree as follows:

1. Pledge. As security for the due and punctual payment and
performance of the payment of the Secured Obligations, and this Agreement, the
Pledgor hereby pledges, hypothecates, assigns, transfers, sets over and
delivers unto the Pledgee, and hereby grants to the Pledgee a security interest
in, the following:

(a) the Pledged Securities and the certificates
representing the Pledged Securities, and all cash, proceeds, securities,
dividends and other property at any time and from time to time received,
receivable or otherwise distributed in respect of or in exchange for any or all
of the Pledged Securities; and

(b) all securities hereafter delivered or issued in
substitution for or in addition to any of the foregoing, all certificates and
instruments representing or evidencing such securities, together with the
interest coupons (if any) attached thereto, and all cash, proceeds, securities,
interest, dividends and other property at any time and from time to time
received or otherwise distributed in respect of or in exchange for any or all
thereof (all such Pledged Securities, certificates, interest coupons, cash,
proceeds, securities, interest, dividends and other property being herein
collectively called the "Pledged Collateral");

TO HAVE AND TO HOLD the Pledged Collateral, together with all rights,
titles, interests, privileges and preferences appertaining or incidental
thereto, unto the Pledgee, its successors and assigns, forever, subject,
however to the terms, covenants and conditions hereinafter set forth.

2. Transfer to Escrow Agent. The original certificates
representing all Pledged Collateral shall be held on behalf of Pledgee by
Sacks, Tierney & Kasen, 2929 North Central Avenue, 14th Floor, Phoenix, AZ
85012 (the "Escrow Agent"). The Pledgor shall deliver to the Escrow Agent all
original certificates representing the Pledged Collateral issued in the name of
the Pledgor, endorsed or assigned in blank in favor of the Pledgee. The
Pledgee may, upon request to the Escrow Agent and delivery by

<PAGE> 2

MTSX/Pledge/Execution A

the Escrow Agent of the appropriate Pledged Collateral to the Issuer, exchange
the certificates representing the Pledged Collateral for certificates of
smaller or larger denominations for any purpose consistent with the terms of
this Pledge Agreement.

3. Voting Rights; Dividends. So long as there is no failure to
make due and punctual payment to the Pledgee in accordance with the
terms of the Secured Obligations nor any other continuing event which
would constitute an event of default under this Agreement (an "Event
of Default"):

(a) The Pledgor shall be entitled to exercise any and all
voting and/or consensual rights and powers relating or pertaining to the
Pledged Collateral or any part thereof.

(b) The Pledgor shall be entitled to receive and retain
any and all ordinary cash dividends and interest payable on the Pledged
Collateral, but any and all stock and/or liquidating dividends, distributions
in property, returns of capital or other distributions made on or in respect of
the Pledged Collateral, whether resulting from a subdivision, combination or
reclassification of the outstanding capital stock of an Issuer or received in
exchange for Pledged Collateral or any part thereof, or as a result of any
merger, consolidation, acquisition or other exchange of assets to which the
Issuer may be a party or otherwise, and any and all cash and other property
received in payment of the principal of or in redemption of or in exchange for
any Pledged Collateral (either at maturity, upon call for redemption or
otherwise), shall be and become part of the collateral pledged by the Pledgor
hereunder and, if received by the Pledgor, shall be received in trust for the
benefit of the Pledgee or its assigns or the holder of any subsequent perfected
lien as provided in the addendum to this Pledge Agreement and shall forthwith
be delivered to the Escrow Agent (accompanied by proper instruments of
assignment and/or stock and/or bond powers executed by the Pledgor in
accordance with the Pledgee's instructions) to be held as Pledged Collateral
subject to the terms of this Pledge Agreement.

(c) The Pledgee shall execute and deliver (or cause to
be executed and delivered) to the Pledgor all such proxies, powers of attorney,
dividend orders, interest coupons and other instruments as the Pledgor may
request for the purpose of enabling the Pledgor to exercise the voting and/or
consensual rights and powers which it is entitled to exercise pursuant to
subparagraph (i) above and/or to receive the dividends and/or interest payments
which it is authorized to receive and retain pursuant to subparagraph (ii)
above.

(d) Upon the occurrence and during the continuance of an
Event of Default, all rights of the Pledgor to exercise the voting and/or
consensual rights and powers which it is entitled to exercise pursuant to
Section 3(a)(i) hereof and/or to receive the dividends and interest payments
which it is authorized to receive and retain pursuant to Section 3(a)(ii)
hereof shall cease, and all such rights shall thereupon become vested in the
Pledgee who shall have the sole and exclusive right and authority to exercise
such voting and/or consensual rights and powers and/or to receive and retain the
dividends and/or interest payments which the Pledgor would otherwise be
authorized to retain pursuant to Section 3(a)(iii) hereof. Any and all money
and other property paid over to or received by the Pledgee pursuant to the
provisions of this paragraph (b) or pursuant to the exercise by Pledgee of the
voting and/or consensual rights and powers shall be retained by the Pledgee as
additional collateral hereunder and be applied in accordance with the
provisions of this Pledge Agreement.

4. Events of Default. The occurrence of any one or more of the
following shall constitute an Event of Default:

(a) if the Makers shall default in making any payment with
respect to the Secured Obligations; or

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<PAGE> 3

(b) if Pledgor shall become bankrupt or insolvent, or
file any petition for reorganization or relief from creditors under any
applicable law of any jurisdiction, or make any general assignment for the
benefit of creditors, and in either event

5. Remedies upon Default. If any Event of Default shall have
occurred and be continuing, then, in addition to exercising any rights and
remedies as a secured party under the Uniform Commercial Code in effect in
California, the Pledgee may without being required to give any notice to the
Pledgor:

(a) apply the cash (if any) then held by it as collateral
hereunder, first, to the payment of all costs of collection (including
attorneys' fees) incurred in enforcing Pledgee's rights under the Note and this
Agreement; second to the payment of interest accrued and unpaid on the Second
Payment Note and then on the Purchase Money Promissory Note to and including
the date of such application, third to the payment or prepayment of principal
of the Second Payment Note and then to the Purchase Money Note, and fourth, to
the payment of all other amounts then owing to the Pledgee under the terms of
the Second Payment Note and then to the Purchase Money Note and then otherwise
pursuant to this Pledge Agreement, and

(b) sell the Pledged Collateral, or any part thereof, at
any public or private sale or at any broker's board or in any securities
exchange, for cash, upon credit or for future delivery, as the Pledgee shall
deem appropriate. The Pledgee shall be authorized at any such sale (if it
deems it advisable to do so) to restrict the prospective bidders or purchasers
to persons who will represent and agree that they are purchasing the Pledged
Collateral for their own account for investment and not with a view to the
distribution or sale thereof, and upon consummation of any such sale the
Pledgee shall have the right to assign, transfer and deliver to the purchaser
or purchasers thereof the Pledged Collateral so sold, free and clear from any
claims or rights of Pledgor. Further, it shall be deemed commercially
reasonable for the Pledgee to impose sufficient conditions on any such sale so
as to preclude the necessity of registration of the Pledged Collateral under
the Securities Act of 1933, as amended. Each such purchaser at any such sale
shall hold the property sold absolutely, free from any claim or right on the
part of the Pledgor, and the Pledgor hereby waives (to the extent permitted by
law) all rights of redemption, stay and/or appraisal which he now has or may at
any time in the future have under any rule of law or statute now existing or
hereafter enacted. The Pledgee shall give the Pledgor and the holder of any
subsequent perfected lien as provided in the addendum to this Pledge Agreement
at least 30 days' written notice in the manner specified for notices under this
Agreement of the Pledgee's intention to make any such public or private sale or
sales at any broker's board or on any such securities exchange, and the Pledgor
agrees that such notice of sale will be commercially reasonable notice to it.
Such notice, in case of public sale, shall state the time and place fixed for
such sale, and, in the case of sale at a broker's board or exchange at which
such sale is to be made, the day on which the Pledged Collateral, or portion
thereof, will first be offered for sale at such board or exchange. Any such
public sale shall be held at such time or times within ordinary business hours
and at such place or places, as the Pledgee may fix in the notice of such sale.
At any such sale, the Pledged Collateral, or portion thereof, to be sold may be
sold in one lot as an entirety or in separate parcels, as the Pledgee may (in
its sole and absolute discretion) determine and the Pledgee or other holder of
the Secured Obligations may bid (which bid may be in whole or in part, in the
form of cancellation of indebtedness) for and purchase for the account of the
Pledgee or other holder of the any Secured Obligation the whole or any part of
the Pledged Collateral. If the proceeds of the Pledged Collateral are
insufficient to satisfy Pledgor's obligations under the Second Payment Note and
then the Purchase Money Note

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<PAGE> 4

and this Agreement, Pledgor shall remain liable for any deficiency. The
Pledgee shall not be obligated to make any sale of Pledged Collateral if it
shall determine not to do so, regardless of the fact that notice of sale of
Pledged Collateral may have been given. The Pledgee may, without notice or
publication, adjourn any public or private sale or cause the same to be
adjourned from time to time by announcement at the time and place fixed for
sale, and such sale may, without further notice, be made at the time and place
to which the same was so adjourned. In case sale of all or any part of the
Pledged Collateral is made on credit or for future delivery, the Pledged
Collateral so sold may be retained by the Pledgee until the sale price is paid
by the purchaser or purchasers thereof, but neither the Pledgee nor any other
holder of the Secured Obligations or the assignee of any of the Pledgee's
rights, shall incur any liability in case any such purchaser or purchasers
shall fail to take up and pay for the Pledged Collateral so sold and, in the
case of such failure, such Pledged Collateral may be sold again upon like
notice. As an alternative to exercising the power of sale herein conferred
upon it, the Pledgee may proceed by a suit or suits at law or in equity to
foreclose this Pledge Agreement and to sell the Pledged Collateral, or any
portion thereof, pursuant to a judgment or decree of a court or courts of
competent jurisdiction.

6. Application of Proceeds of Sale. The proceeds of sale of
Pledged Collateral sold pursuant to Section 5 (c) hereof shall be applied by
the Pledgee as follows:

First: in the manner provided in paragraph (a) of Section 5
hereof; and

Second: the balance (if any) of such proceeds shall be paid
to the holder of any subsequent perfected lien as provided in the addendum to
this Pledge Agreement and then the Pledgor, its successors or assigns in
proportion to their ownership of the Pledged Collateral, or as a court of
competent jurisdiction may direct.

7. Extension or Modification of the Second Payment Note and the
Purchase Money Note. The Pledged Collateral pledged hereunder secures the
payment and performance of all of the indebtedness of the Pledgor with respect
to the Secured Obligations and the Pledgor agrees that the Second Payment Note
or the Purchase Money Note may be extended or otherwise modified in accordance
with its terms without affecting this Pledge Agreement or the obligations of
Pledgor hereunder, which shall continue in full force and effect until the
Secured Obligations shall have been fully paid and performed.

8. Authority of Pledgee. The Pledgee shall have and be entitled
to exercise all such powers hereunder as are specifically delegated to the
Pledgee by the terms hereof, together with such powers as are reasonably
incidental thereto. The Pledgee may execute any of its duties hereunder by or
through agents or employees and shall be entitled to retain counsel and to act
in reliance upon the advice of such counsel (whether written or oral)
concerning all matters pertaining to its duties hereunder. Neither the
Pledgee, nor any director, officer or employee of the Pledgee, shall be liable
for any action taken or omitted to be taken by it or them hereunder in
connection herewith, except for its or their own gross negligence or willful
misconduct. The Pledgor hereby agrees to reimburse the Pledgee, on demand, for
all expenses incurred by the Pledgee in connection with the administration and
enforcement of this Pledge Agreement (including expenses incurred by the Escrow
Agent or any subagent employed by the Pledgee) and agrees to indemnify and hold
harmless the Pledgee and/or any such subagent against any and all liability
incurred by the Pledgee (or such subagent hereunder or in connection herewith),
unless such liability shall be due to willful misconduct or gross negligence on
the part of the Pledgee or such subagent.

9. Pledgee Appointed Attorney in Fact. The Pledgor hereby
appoints the Pledgee the Pledgor's attorney-in-fact for the purpose of
carrying out the provisions of this Pledge Agreement and, upon the

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<PAGE> 5

occurrence of any Event of Default, taking any action and executing any
instrument which the Pledgee may deem necessary or advisable to accomplish the
purposes hereof, which appointment is irrevocable and coupled with an interest.
Without limiting the generality of the foregoing, upon an Event of Default, the
Pledgee shall have the right and power to receive, endorse and collect all
checks and other orders for the payment of money made payable to the Pledgor
representing any dividend, interest payment or other distribution payable or
distributable in respect of the Pledged Collateral or any part thereof and to
settle or compromise any claims relating thereto and to give full discharge for
the same.

10. Representations and Warranties of Pledgor. To induce Pledgee
to accept the Second Payment Note and the Purchase Money Note, Pledgor
represents and warrants to Pledgee, and covenants with Pledgee that:

(a) it owns the Pledged Securities and by the execution
and delivery of this Agreement and delivery of the Pledged Collateral it has
created is a first priority lien granted in favor of the Pledgee with respect
to such Pledged Collateral; and

(b) this Agreement is the valid and binding obligation of
Pledgor, enforceable in accordance with its terms.

11. No Waiver; Cumulative Remedies. No failure on the part of the
Pledgee to exercise, and no delay in exercising any right, power, privilege or
remedy hereunder, shall operate as a waiver thereof, nor shall any single or
partial exercise of any such right, power, privilege or remedy of the Pledgee
preclude any other or further exercise thereof or the exercise of any other
right, power, privilege or remedy. All remedies hereunder are cumulative and
are not exclusive of any other remedies provided herein or by law.

12. Termination. This Pledge Agreement shall terminate when all
indebtedness secured hereby has been fully paid and performed, at which time
the Pledgee shall reassign and redeliver (or cause to be reassigned and
redelivered) to the Pledgor, or to such person or persons as the Pledgor shall
designate, such of the Pledged Collateral (if any) as shall not have been sold
or otherwise applied by the Pledgee pursuant to the terms hereof and shall
still be held hereunder, together with appropriate instruments of reassignment
and release. Any such reassignment shall be without recourse against or
express or implied representation or warranty by the Pledgee and at the expense
of the Pledgor.

13. Assignability. The Pledgee may assign, in whole or in part,
any or all of its rights, title and interests provided for in this Pledge
Agreement, to any holder of the Secured Obligations or portion thereof.

14. Terms Relating to Escrow Agent.

(a) Sacks, Tierney & Kasen shall initially act as Escrow
Agent under this Agreement. The Escrow Agent shall acknowledge its receipt of
the original certificate(s) representing the Pledged Securities by executing
this Agreement. Pledgor shall also deliver to the Escrow Agent any and all
original certificates, funds or documents as may hereafter become part of the
Pledged Collateral. The possession of the original certificates and other
documents relating to the Pledged Collateral shall be deemed to constitute the
Pledgee's possession thereof in order to perfect Pledgee's security interest in
the Pledged Collateral.

(b) The Escrow Agent shall hold all certificates, funds
and documents representing the Pledged Collateral (collectively, the
"Instruments") subject to the following terms and conditions:

-5-
<PAGE> 6

(i) If the Pledgee at any time instructs the Escrow
Agent to exchange any certificates representing any securities
included in the Pledged Collateral to change the denominations of such
certificates, the Escrow Agent shall comply with such request promptly
by so exchanging certificates directly with the Issuer. The Escrow
Agent shall give Pledgor and the holder of any subsequent perfected
lien as provided in the addendum to this Pledge Agreement notice of
any such action within 10 days after it is completed.

(ii) Either Pledgor or Pledgee may give the Escrow
Agent a notice requesting the Escrow Agent to make any delivery or take any
action with respect to any Instruments that is proposed to be taken pursuant to
this Agreement. If the notice describing any such request is executed by both
the Pledgor and the Pledgee, the Escrow Agent shall promptly comply with the
request.

If the notice is given by Pledgor or Pledgee, and is not signed by
both, the Escrow Agent shall promptly forward by hand or overnight delivery a
copy of such notice to the party that did not sign it. Thereafter, the Escrow
Agent shall refrain from taking any action with respect to such request for at
least 5 business days, or until the other party authorizes the Escrow Agent in
writing to comply with such request. If the other party fails to deliver
written notice of objection to the Escrow Agent within such 5-day period, the
Escrow Agent shall be fully protected in complying with such request.

(c) In order to induce the Escrow Agent to act under this
Agreement, the Pledgor and the Pledgee jointly and severally agree as follows:

(i) The Escrow Agent shall not in any way be bound or
affected by any notice or modification or cancellation of this
Agreement unless in writing, signed by all parties hereto, nor shall
the Escrow Agent be bound by any modification hereof unless the same
shall be satisfactory to the Escrow Agent. The Escrow Agent shall be
entitled to rely upon any judgment, certification, demand or other
writing (including but not limited to any instructions given to it
under (b), above) without being required to determine the authenticity
or the correctness of any fact stated therein, the propriety of
validity of the service thereof, or the jurisdiction of the court
issuing such judgment or order.

(ii) The Escrow Agent may act in reliance upon any
document, instrument or signature believed by it to be genuine, and
the Escrow Agent may assume that any person purporting to give any
notice or instructions in accordance with the provisions hereof has
been duly authorized to do so.

(iii) The Escrow Agent may act relative hereto in
reliance upon advice of counsel in reference to any matter(s)
connection herewith, and shall not be liable for any mistake of fact
or error of judgment, or for any acts or omissions of any kind, unless
caused by the Escrow Agent's willful misconduct or gross negligence.
The Escrow Agent shall be entitled to consult with its counsel, which
shall include any attorney employed by it, and the Escrow Agent shall
not be liable for any action taken, suffered or omitted by it in
accordance with the advice (whether written or oral) of such counsel.

(iv) This Agreement sets forth exclusively the Escrow
Agent's duties with respect to any and all matters pertinent hereto.
The Escrow Agent shall not refer to, and shall not be bound by, the
provisions of any other agreement.

(v) The Escrow Agent may at any time resign hereunder
by giving written notice of its resignation to all parties hereto at
least thirty (30) days prior to the date specified

-6-
<PAGE> 7

for such resignation to take effect, and upon the effective date of
such resignation, all cash, documents and all other property then held
by the Escrow Agent hereunder shall be delivered by it to such persons
as may be designated in writing by all parties hereto, whereupon all
its prospective obligations as Escrow Agent hereunder shall cease and
terminate. The Escrow Agent's sole responsibility thereafter shall be
to keep safely all property then held by it and to deliver same to a
person designated by all parties hereto or in accordance with the
directions of a final order or judgment of a court of competent
jurisdiction. In addition, the Escrow Agent shall be discharged of
its prospective duties and obligations hereunder upon its
interpleading in a court of competent jurisdiction all of the funds
and property then held by it hereunder. All parties hereto hereby
submit to the personal jurisdiction of said court (but solely for the
purpose of implementing this Agreement) and waive all rights to
contest said jurisdiction. However, the Escrow Agent's resignation
and/or interpleading of the Property shall not in any manner affect or
impair any of its obligations under this Agreement.

(vi) Pledgor and Pledgee shall be jointly and
severally obligated to reimburse the Escrow Agent for all its fees,
costs and expenses in connection herewith, including reasonable
counsel fees, and to indemnify it and hold it harmless against any
claim asserted against it or any liability, loss or damage incurred by
it in connection herewith.

(vii) Nothing herein contained shall be deemed to
obligate the Escrow Agent to deliver any securities, cash,
instruments, documents or any other property referred to herein,
unless the same shall have first been received by the Escrow Agent
pursuant to this Agreement.

(viii) Pledgor acknowledges that the Escrow Agent is
general counsel of the Pledgee, and agrees that no action taken by the
Escrow Agent under this Agreement shall affect or impair the right of
the Escrow Agent to represent the Pledgee in any matter, including an
interpleader action pursuant to this Agreement.

15. Miscellaneous. This Agreement shall be binding on and inure
to the benefit of the respective parties hereto and their successors and
assigns. This Agreement may be executed simultaneously in counterparts, each
of which shall be deemed an original, but both of which together shall
constitute one and the same instrument. This Agreement represents the entire
understanding of the parties hereto, and supersedes any and all other prior
agreements between the parties. The terms and provisions of this Agreement
cannot be terminated or modified or amended except in writing and signed by the
party against whom enforcement is sought. This Agreement shall be construed in
accordance with the laws of the State of California, and any suit, action or
proceeding arising out of or relating to this Agreement may be commenced and
maintained in any court of competent subject-matter jurisdiction in Los Angeles
County, California, and each party waives objection to such jurisdiction and
venue. The provisions of this Agreement are severable, and any invalidity,
unenforceability or illegality in any provision or provisions hereof shall not
affect the remaining provisions of this Agreement. In any suit, action or
proceeding arising out of or in connection with this Agreement, the prevailing
party shall be entitled to an award of the amount of attorneys' fees and
disbursements actually billed to such party in connection herewith, including
fees and disbursements on one or more appeals.

All notices required or allowed hereunder shall be in writing and
shall be deemed given upon (i) hand delivery or (ii) deposit of same in the
United States Certified Mail, Return Receipt Requested, first class postage and
registration fees prepaid and correctly addressed to the party for whom
intended at their address written in the first paragraph hereof, or such other
address as is most recently noticed

-7-
<PAGE> 8

MTSX/Pledge/Execution A

for such party as aforesaid.

IN WITNESS WHEREOF, the Pledgee has caused this Pledge Agreement to be
duly executed and delivered by its officer thereunto duly authorized, and the
Pledgor has duly executed and delivered this Agreement, as of the date first
above written.

In the Presence of: EDUCATIONAL MEDICAL, INC.

- --------------------------
By: /s/ Gary Keiber
- -------------------------- -----------------------------
Authorized Signatory

MTSX ACQUISITION CORP.

- --------------------------
By: /s/ Gary Keiber
- -------------------------- -----------------------------
Authorized Signatory

M.T. X-RAY, INC.

- --------------------------
By: /s/ Donna Juds Caplan
- -------------------------- ----------------------------
Authorized Signatory

ACCEPTANCE OF ESCROW AGENT

Sacks, Tierney & Kasen acknowledges receipt of the foregoing Agreement
and agrees to act as Escrow Agent under its terms.

By:
------------------------------
Authorized Signatory

-8-
<PAGE> 9

for such party as aforesaid.

In the Presence of: EDUCATIONAL MEDICAL, INC.

- --------------------------
By:
- -------------------------- -----------------------------
Authorized Signatory

MTSX ACQUISITION CORP.
- --------------------------

- -------------------------- By:
-----------------------------
Authorized Signatory

M.T. X-RAY, INC.

- --------------------------
By:
- --------------------------
------------------------
Authorized Signatory

ACCEPTANCE OF ESCROW AGENT

Sacks, Tierney & Kasen acknowledges receipt of the foregoing
Agreement and agrees to act as Escrow Agent under its terms.

By: /s/ Michael R. Rooney
----------------------------
Authorized Signatory
Vice President
Sacks, Tierney & Kasen, P.A.

-8-
<PAGE> 10

AGREEMENT OF ESCROW AGENT TO HOLD AS AGENT FOR SECOND LIENOR

The Escrow Agent acknowledges that the Pledged Collateral is subject
to a second lien held by Bank South, N.A., and in order to perfect such lien
agrees to hold the Pledged Collateral as agent for Bank South, N.A., subject to
the first lien otherwise provided for in this Agreement, and to promptly
deliver the Pledged Collateral to Bank South, N.A. upon the earlier of payment
in full of the Secured Obligations or termination of this Pledge Agreement at
Bank South, N.A., P.O. Box 4387, Atlanta, Georgia, Attn: Mr. Randall P.
Coerver.

The obligation of the Escrow Agent to Bank South, N.A., shall be
limited by the provisions of Section 14(c)(1) to 14(c)(v), inclusive, and by
Section 14(c)(vii) and 14(c)(viii).

SACKS, TIERNEY & KASEN

By: Michael R. Rooney
----------------------------
Authorized Signatory
Vice President
Sacks, Tierney, and Kasen, P.A.

Acknowledged, Accepted and Agreed to as of July 22, 1993.

EDUCATIONAL MEDICAL, INC.

By: /s/ Gary Keiber
--------------------------
Authorized Representative

-9-
<PAGE> 11

EXHIBIT "1"

SECOND PAYMENT PROMISSORY NOTE

U.S. $500,000 Hollywood, California
July _, 1993

FOR VALUE RECEIVED, each of the undersigned, jointly and severally,
(each individually called a "Maker" and collectively called the "Makers")
hereby unconditionally promises to pay to the order of M.T. X-RAY, INC.,
("MTSX, Inc."), or assigns ("Holder") at 6180 Laurel Canyon Boulevard, Suite
101, North Hollywood, CA 91606, or at such other place or to such other party
as Holder may from time to time designate in writing, the principal sum of Five
Hundred Thousand and 00/100 Dollars (U.S. $500,000.00) in lawful currency of
the United States.

This Note evidences a payment to be made to the Holder pursuant to the
Asset Purchase Agreement among Educational Medical, Inc., MTSX Acquisition
Corp., Educational Medical, Inc., MTSX, Inc., and the Shareholders of MTSX,
Inc. dated the date of this Promissory Note, and providing for the purchase by
MTSX Acquisition Corp. of substantially all of the Assets of MTSX, Inc. (the
"Agreement"). The terms of the Agreement are incorporated into this note, and
this note is the Second Payment Promissory Note referred to in the Agreement
representing a portion of the purchase price of Assets as defined in the
Agreement.

The principal amount of this Note will be due (1) as provided in
Section 1(e)(1) of the Agreement, (2) within 5 days following notice to the
Maker from the Holder that a payment of principal or interest has not been made
in accordance with the terms of this Note, which notice specifically declares
the entire amount owned to Holder and provided for in this Note immediately due
and payable, or (3) the first anniversary of this Note, (the earlier of the
dates referred to in the preceding three clauses is called the "Maturity
Date"). All amounts owing pursuant to this Note and not paid upon the Maturity
Date shall. bear interest at the highest rate of interest permitted by law
until paid.

Maker for itself, its heirs, legal representatives, successors and
assigns, waives presentment for payment, demand, notice of dishonor or
non-payment, notice of default, notice of protest, and protest of this Note,
and waives any right to be released by reason of any extension of time or
change in terms of payment or any change, alteration or release of any security
given for the payment hereof. Maker hereby consents to any number of
extensions of time, and any and all renewals, waivers, and modifications of
this Note or any combination of the foregoing that may be made or granted by
Holder.

<PAGE> 12

Maker agrees to pay immediately upon demand all reasonable costs and
expenses of Holder, including attorneys' fees, (i) if after default this Note
be placed in the hands of an attorney or attorneys for collection, or (ii) if
Holder finds it necessary or desirable upon default to secure the services or
advice of one or more attorneys with regard to collection of this Note against
Maker, or for the protection of its rights under this Note, or any instrument
relating to property securing the Note. The term "attorneys' fees" shall
include attorneys' fees incurred by Holder whether or not suit is brought and
if suit is brought, the term shall include attorneys' fees at trial and on
appeal, and shall include attorneys' fees incurred in connection with
consultations, arbitration, bankruptcy, conservatorship, receivership or any
other proceeding.

This Note shall be interpreted, construed and enforced in accordance
with the laws of the State of California, excluding its choice of law
principles.

EACH OF HOLDER AND MAKER HEREBY KNOWINGLY, VOLUNTARILY, AND
INTENTIONALLY WAIVE THE RIGHT EITHER IT OR ITS SUCCESSORS, PERSONAL
REPRESENTATIVES OR ASSIGNS MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH THE
LOAN EVIDENCED BY THIS NOTE AND ANY AGREEMENTS CONTEMPLATED THEREBY TO BE
EXECUTED IN CONJUNCTION THEREWITH, OR IN CONJUNCTION WITH ANY COURSE OF
CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS
OF THE PARTIES.

IN WITNESS WHEREOF, the undersigned has duly executed and delivered
this Note in Hollywood, California, the date first above written.

EDUCATIONAL MEDICAL, INC.

By:
----------------------------
Authorized Signatory

MTSX ACQUISITION CORP.

By:
----------------------------
Authorized Signatory

-2 -
<PAGE> 13

EXHIBIT "2"

PURCHASE MONEY PROMISSORY NOTE

U.S. $450,000.00 Hollywood, California
July _, 1993

FOR VALUE RECEIVED, each of the undersigned, jointly and severally,
(each individually called a "Maker" and collectively called the "Makers")
hereby unconditionally promises to pay to the order of M.T. X-RAY, INC.,
("MTSX, Inc."), or assigns ("Holder") at 6180 Laurel Canyon Boulevard, Suite
101, North Hollywood, CA 91606, or at such other place or to such other party
as Holder may from time to time designate in writing, the principal sum of Four
Hundred Fifty Thousand and 00/100 Dollars (U.S. $450,000.00) in lawful currency
of the United States.

This Note evidences obligations of the Makers to the Holder provided
for in to the Asset Purchase Agreement among Educational Medical, Inc., MTSX
Acquisition Corp., Educational Medical, Inc. MTSX, Inc., and the Shareholders
of MTSX, Inc. dated the date of this Promissory Note, and providing for the
purchase by MTSX Acquisition Corp. of substantially all of the Assets of MTSX,
Inc. (the "Agreement"). The terms of the Agreement are incorporated into this
note, and this note is the Purchase Money Promissory Note referred to in the
Agreement representing a portion of the purchase price of Assets as defined in
the Agreement.

This Note shall bear interest at the rate of eight percent (8%) per
annum and amortize in 5 equal principal payments of Ninety Thousand Dollars
payable on the 22nd day of July commencing July 22, 1994, along with all
accrued interest.

All amounts represented by this Note shall be due and payable (1)
within 15 days following notice to the Maker from the Holder that a payment of
principal or interest has not been made in accordance with the terms of this
Note, or that a Non-Competition Payment (as defined in the Agreement) has not
been made in accordance with the terms of the Agreement (1), which notice
specifically declares the entire amount owned to Holder and provided for in
this Note immediately due and payable, or (2) within 1 5 days following notice
to the Maker from the Holder that EMI has failed to meet the conditions
provided for in Section 7(i) of the Agreement, which notice specifically
declares the entire amount owned to Holder and provided for in this Note
immediately due and payable, or (3) July 22, 1998

- --------------------
1 / In the event of a dispute as to the payment of such Non Competition
Payment, the relevant payment may be made into the registry of any court of
competent jurisdiction subject to the resolution of such dispute or, at the
discretion of the Buyer (as defined in the Agreement) into the escrow account
of counsel for the Holder.

<PAGE> 14

(the earlier of the dates referred to in the preceding three clauses is called
the "Maturity Date"). All amounts owing pursuant to this Note and not paid
upon the Maturity Date shall bear interest at the highest rate of interest
permitted by law until paid.

This Note shall be interpreted, construed and enforced in accordance
with the laws of the State of California, excluding its choice of law
principles.

-2-
<PAGE> 15

IN WITNESS WHEREOF, the undersigned has duly executed and delivered
this Note in Hollywood, California, the date first above written.

EDUCATIONAL MEDICAL, INC.

By:
-------------------------
Authorized Signatory

MTSX ACQUISITION CORP.

By:
------------------------
Authorized Signatory

-3-

<PAGE> 1

EXHIBIT 10.39

AMENDMENT TO BUSINESS LOAN AGREEMENT

This Amendment to Business Loan Agreement ("Amendment") is made this 28th
day of August, 1995, by and between OIOPT Acquisition Corp., a Delaware
corporation ("Borrower"), and Bank One, Dayton, NA ("Bank One").

WITNESSETH:

WHEREAS, Borrower and Bank One entered into a Business Loan Agreement dated
July 14, 1993 (the "Agreement"); and WHEREAS, Borrower desires and Bank One has
agreed to amend certain financial covenants set forth in the Agreement.

NOW, THEREFORE, in consideration of the premises and the terms and conditions
set forth herein, Borrower and Bank One agree to amend the Agreement as
follows:

1. In Section 6.3, delete the first paragraph in its entirety and insert
the following in its place:

6.3 NET WORTH. Guarantor agrees to maintain a Net Worth
of not less than the amounts set forth for the
following periods:

Periods Amounts
------- -------
03/31/95 - 03/30/96 $8,000,000
03/31/96 - 03/30/97 $8,500,000
03/31/97 and all times thereafter $9,000,000

and a ratio of Total Debt (defined as any and all
debt of Guarantor) to Net Worth of not more than 2.0
to 1.0 at March 31, 1995 and all times thereafter.

2. Delete Section 6.4 in its entirety,and insert the following in its
place:

6.4 DEBT SERVICE COVERAGE RATIO. Guarantor agrees to
maintain a ratio of Cash Flow (defined as the sum of
net income, interest expense and non-cash charges) to
Debt Service (defined as the sum of CMLTD and
Interest Expense) of not less than 1.2 to 1.0, tested
each fiscal quarter for the most recently completed
four (4) fiscal quarter period, beginning December
31, 1995.

<PAGE> 2

3. In Section 6.6, delete the first paragraph and the sections referring
to Periods, Amounts and Ratios and insert the following in their place:

6.6 TANGIBLE NET WORTH. Borrower agrees to maintain a
Tangible Net Worth of not less than the amounts set
forth at the following dates:

Dates Amounts
----- -------
03/31/95 & 09/30/95 $745,000
03/31/96 & 09/30/96 $775,000
03/31/97 and all times thereafter $795,000

and a ratio of Debt to Tangible Net Worth of not more
than 1.75 to 1.0 at March 31, 1995 and all times
thereafter.

4. Delete Section 6.7 in its entirety and insert the following in its
place:

6.7 OPERATING INCOME RATIO. Borrower agrees to maintain a
ratio of Operating Income (defined as school
contribution before depreciation, interest and taxes)
to debt service (defined as principal plus interest) of
not less than 1.75 to 1.0, tested each fiscal quarter
for the most recently completed four (4) fiscal quarter
period.

5. In Section 6.10, line 9, the word "value" shall be defined as the
midpoint between the Alternative Use Market Value and the Continued
Use Market Value, as defined in the appraisal completed by the Gem
Real Estate dated July 21, 1994.

6. The following shall be included as a new Section 8.13:

8.13 REAPPRAISAL REQUIREMENT. In the event that the
Borrower and/or Guarantor is in default of any of the
covenants contained in the Loan Agreement, Borrower
and/or Guarantor will reimburse Bank One for any
reappraisal expenses incurred as a result of the loan
to OIOPT Acquisition Corp.

7. The following shall be included as a new Section 8.14:

8.14 Bank One, Dayton, NA hereby consents to the
additional debt taken on by the Guarantor in its form
of $2,200,000.00 term loan to Sirron Capital
Corporation, as defined in the Loan Agreement dated
March 31, 1995.

8. This Amendment is a modification only and not a novation. Except for
the above-quoted modification(s), the Agreement, any agreement or
security document, and all the terms and conditions thereof, shall be
and remain in full force and effect with the changes herein deemed to
be incorporated therein. This Amendment is to be considered attached
to the Agreement and made a part thereof. This Amendment shall not
release or affect the liability of any guarantor, surety or

<PAGE> 3

endorser of the Agreement or release any owner of collateral securing
the Agreement. The validity, priority and enforceability of the
Agreement shall not be impaired hereby. To the extent that any
provision of this Amendment conflicts with any term or condition set
forth in the Agreement, or any agreement or security document executed
in conjunction therewith, the provisions of this Amendment shall
supersede and control.

IN WITNESS WHEREOF, the parties have executed this Amendment effective as of
the day and year first written above.

OIOPT ACQUISITION CORP.-Borrower

By: /s/ Vince Pisano
-----------------------------------
Its: V.P. Finance
----------------------------------

EDUCATIONAL MEDICAL, INC.-
Guarantor

By: /s/ Vince Pisano
-----------------------------------
Its: V.P. Finance
----------------------------------

BANK ONE, DAYTON, NA

By: /s/ Scott E. Roman
-----------------------------------

Its: Senior Commercial Banking Officer
----------------------------------
<PAGE> 4

Bank One, Dayton, NA ("Bank One") July 14, 1993

Executed at Dayton, Ohio
---------------------
(City) (State)

FOR VALUE RECEIVED, the receipt of which is hereby acknowledged, and for the
purpose of inducing Bank One, its successors and assigns, to make, renew,
extend or continue a loan or to extend any other financial accommodation to
OIOPT Acquisition Corp. ("Debtor") whose address is
- -----------------------------------------------
2029 Edgefield Rd. Moraine, Ohio
- --------------------------------------------------------------------------

in such amounts, at such times, and on such terms as may be agreed upon by Bank
One and Debtor, the undersigned, jointly and severally, hereby absolutely and
unconditionally guarantee the prompt payment when due, whether by acceleration
or otherwise, of the principal of, interest on and all other sums payable in
connection with, and the prompt performance of all promises, covenants and
agreements contained in, any and all obligations of Debtor to Bank One, whether
as debtor, maker, comaker, drawer, endorser, guarantor, surety or otherwise
whatsoever, whether direct, indirect or contingent, whether guaranteed or
secured, due or to become due, direct or contingent, and whether now existing
or contemporaneously or hereafter arising and any and all renewals,
modifications, extensions or substitutions thereof ("Obligations").

[x] Liability hereunder is unlimited as to amount.

[ ] Liability hereunder shall not exceed the sum of
$___________________, plus accrued interest thereon at the
rate(s) specified in the Obligations plus fees, costs and
expenses incurred with respect thereto or in the collection
thereof, including reasonable attorneys' fees.

This Guaranty [ ] is [x] is not supported by other security documents.

1. All credits, deposits, accounts or moneys of any of the undersigned,
and all other property belonging to or in which any of the undersigned has any
interest, now or hereafter in the possession or control of Bank One shall be
held by Bank One as security for the payment of this Guaranty.

2. The undersigned, jointly and severally, hereby authorize any attorney
at law to appear for any one or more of us in an action on this Guaranty or on
any or all of the Obligations covered by this Guaranty at any time after this
Guaranty or any of the Obligations become due by the terms thereof, by
operation of law, or otherwise, in any court of record in or of the State of
Ohio or of elsewhere, to waive the issuing and service of process against us
and to confess judgment in favor of the legal holder of this Guaranty or of any
Obligation, direct or indirect, covered by this Guaranty for the amount that
may be due by the terms thereof, including interest at the rate mentioned
therein, and costs of suit, and to waive and release all errors in said
proceedings and judgment, and all petitions in error, and right of appeal from
the judgment rendered. The death, dissolution, termination of existence or the
like of any one or more of the undersigned shall not impair the authority
herein granted as to the survivor or survivors of the undersigned.

3. Bank One shall not be required, as a condition of the liability of the
undersigned, to resort to, enforce or exhaust any of its remedies against the
Debtor or any other party who may be liable for payment on any Obligation or to
resort to, marshall, enforce or exhaust any of its remedies against any
property given or held as security for this Guaranty or any Obligation.

4. The undersigned hereby waive and grant to Bank One, without notice to
the undersigned and without in any way affecting the liability of the
undersigned, the right at any time and from time to time, to extend other and
additional credit, loans or financial accommodations to Debtor apart from the
Obligations, to deal in any manner it shall see fit with any Obligation of
Debtor to Bank One and with any security for such Obligation, including, but
not limited to, (i) accepting partial payments on account of any Obligation,
(ii) granting extensions or renewals of all or any part of any Obligation,
(iii) releasing, surrendering, exchanging, dealing with, abstaining from
taking, taking, perfecting, or accepting substitutes for any or all security
which it holds or may hold for any Obligation, (iv) modifying, waiving,
supplementing or otherwise changing any of the terms, conditions or provisions
contained in any Obligation and (v) the addition or release of any other party
or person liable hereon, liable on the Obligations or liable on any other
guaranty executed to guarantee any of Debtor's Obligations. The undersigned
jointly and severally hereby agree that any and all settlements, compromises,
compositions, accounts stated and agreed balances made in good faith between
Bank One and Debtor shall be binding upon them.

<TABLE>
<CAPTION>
===========================================================================================================================
WARNING: BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT TRIAL. IF YOU DO NOT PAY ON TIME A COURT JUDGMENT
MAY BE TAKEN AGAINST YOU WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT FROM YOU REGARDLESS OF
ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE
AGREEMENT, OR ANY OTHER CAUSE.
===========================================================================================================================

<S> <C> <C>
Educational Medical, Inc.
- ------------------------------------- -------------------------------- ----------------------------------------

Vince Pisano
- ------------------------------------- -------------------------------- ----------------------------------------

V.P. - C.F.O.
- ------------------------------------ -------------------------------- ----------------------------------------

ADDITIONAL TERMS AND CONDITIONS OF THIS GUARANTY ARE CONTAINED ON THE REVERSE SIDE OF THIS DOCUMENT.
===========================================================================================================================
CAT. NO. 03963 (11/91) Bank One is an affiliate of BANC ONE CORPORATION, Columbus, Ohio. (c) BANC ONE CORPORATION
1991 (Form to be used in the State of Ohio only)
</TABLE>

<PAGE> 5

Additional Terms and Conditions of Guaranty

5. Any and all payments upon the Obligations made by the Debtor, or by
the undersigned, or by any other person, and proceeds of any and all collateral
securing the payment of the Obligations and the Guaranty may be applied by Bank
One upon such of the items of the Obligations as it may determine in its sole
discretion.

6. Any and all money now, or at any time hereafter, owing to the
undersigned from the holder of this Guaranty is hereby pledged for the security
of any Obligation covered by this Guaranty to the legal holder hereof, and may
at anytime be paid and applied to such Obligation whether the same be then due
or to become due.

7. Every right, power and discretion herein granted to Bank One shall be
for the benefit of the successors or assigns of Bank One and of any transferee
or assignee of any indebtedness covered by this Guaranty, and in the event any
such indebtedness shall be transferred or assigned, every reference herein to
Bank One shall be construed to mean, as to such indebtedness, the transferee or
assignee thereof. This Guaranty shall be binding upon our executors,
administrators, heirs, successors and assigns.

8. This Guaranty shall continue in force for so long as Debtor shall be
indebted to Bank One, and thereafter until Bank One shall have actually
received written notice of the termination hereof from the undersigned, it
being contemplated that Debtor may borrow, repay and subsequently borrow money
from, or become indebted to, Bank One from time to time, and the undersigned,
not having given notice of the termination hereof as herein provided for, shall
be deemed to have permitted this Guaranty to remain in full force and effect
for the purpose of inducing Bank One to make further loans to Debtor; provided,
however, no notice of termination of this Guaranty shall affect in any manner
the rights of Bank One arising under this Guaranty with respect to any
indebtedness incurred by Debtor prior to receipt by Bank One of written notice
of termination or indebtedness incurred after receipt of such written notice
pursuant to a written agreement entered into by Bank One prior to receipt of
such notice. The undersigned expressly waive notice of the incurring by Debtor
of any indebtedness to Bank One. The undersigned also waive presentment,
demand of payment, protest, notice of dishonor or nonpayment of or
nonperformance of any Obligation.

9. The undersigned hereby waive any claims or rights which they might now
have or hereafter acquire against Debtor or any other person primarily or
contingently liable on any Obligation of Debtor, which claims or rights arise
from the existence or performance of the undersigned's obligations under this
Guaranty or any other guaranty or under any instrument or agreement with
respect to any property constituting collateral or security for this Guaranty
or any other guaranty, including, without limitation, any right of subrogation,
reimbursement, exoneration, contribution, indemnification, or any right to
participate in any claim or remedy of Bank One or any other creditor which the
undersigned now has or hereafter acquires, whether such claim or right arises
in equity, under contract or statute, at common law, or otherwise.

10. The undersigned hereby represent and warrant that they have not
received any promissory note from Debtor or entered into any other written or
oral agreement with Debtor stating that the undersigned will be reimbursed by
Debtor if the undersigned make any payments under this Guaranty or any other
guaranty and further covenant that they have not received any property of the
Debtor as security for such reimbursement. The undersigned hereby covenant and
agree that they will not, at any time, accept any promissory note or enter into
any written or oral agreement with Debtor which has the effect of requiring
Debtor to reimburse the undersigned for any payments that they may make under
this Guaranty or any other guaranty, accept any property of the Debtor as
security for any such reimbursement, or make any claim for the reimbursement or
any claim that the undersigned should be subrogated to the rights of Bank One
or any other creditor against Debtor. The waivers, representations,
warranties, covenants and agreements contained in this paragraph and the
preceding paragraph are for the benefit of and may be enforced by Bank One or
any other creditor and Debtor and their respective successors and assigns,
including, without limitation, any trustee in bankruptcy of the Debtor.

11. The undersigned agree to repay all monies, including but not limited to
attorneys' fees, paid by Bank One in defense of any action asserted against
Bank One by Debtor, as a debtor-in-possession, or by a trustee in bankruptcy in
a proceeding brought under 11 U.S.C. Section 547 of the United States
Bankruptcy Code for the recovery of monies received by Bank One from Debtor as
a result of the undersigned's obligations hereunder. The undersigned further
agree to repay any monies paid by Bank One in settlement of any such action or
in satisfaction of any judgment rendered against Bank One in such an action.

12. Bank One's rights hereunder shall be reinstated and revived, and this
Guaranty shall be fully enforceable, with respect to any amount at any time
paid on account of the Obligations which thereafter shall be required to be
restored or returned by Bank One upon the bankruptcy, insolvency or
reorganization of the Debtor, the undersigned, or any other person, or as a
result of any other fact or circumstance, all as though such amount had not
been paid.

13. The undersigned jointly and severally agree to pay to Bank One all
costs and expenses, including reasonable attorneys' fees, incurred by Bank One
in the enforcement or attempted enforcement of this Guaranty, whether or not
suit is filed in connection therewith, or in the exercise by Bank One of any
right, privilege, power or remedy conferred by this Guaranty.

14. The undersigned have, to their own satisfaction, independently
investigated: (a) the Debtor's credit history; (b) the Debtor's payment history
with Bank One; (c) the Debtor's past, current, and projected financial
condition; and (d) the sufficiency of any collateral supporting Debtor's
Obligations. The undersigned represent and warrant that they have relied
exclusively on their own independent investigate of Debtor and the collateral
for their decision to guarantee Debtor's Obligations now existing or hereafter
arising. The undersigned agree that they have sufficient knowledge of the Debt
or and the collateral to make an informed decision about this Guaranty, and that
Bank One has no duty or obligation to disclose any information in its
possession or control about Debtor and the collateral to the undersigned.

15. As long as any indebtedness under any of the Obligations remains
unpaid or any credit is available to Debtor under any of the Obligations, the
undersigned agree to furnish to Bank One, at such times as reasonably requested
by Bank One, current financial statements on the undersigned, including income
tax returns, balance sheets, and statements of income and expense for such
period requested by Bank One. The undersigned warrant to Bank One that they
have adequate means to obtain from the Debtor on a continuing basis information
concerning the financial condition of the Debtor and that they are not relying
on Bank One to provide such information either now or in the future.

16. No postponement or delay on the part of Bank One in the enforcement of
any right hereunder shall constitute a waiver of such right. The failure of
any person or entity to sign this Guaranty shall not discharge the liability of
any of the undersigned.

17. This Guaranty remains fully enforceable irrespective of any claim,
defense or counterclaim which the Debtor may or could assert on any of the
Obligations including but not limited to failure of consideration, breach of
warranty, payment, statute of funds, statute of limitations, fraud, bankruptcy,
accord and satisfaction, and usury, same of which the undersigned hereby waive
along with any standing by the undersigned to assert any said claim, defense or
counterclaim.

18. This Guaranty contains the entire agreement of the parties and
supersedes all prior agreements and understandings, oral or written, with
respect to the subject matter hereof.

19. This Guaranty is governed by the laws of the State of Ohio.

<PAGE> 1
GUARANTY AGREEMENT

This Guaranty Agreement entered into this 22nd day of June, 1993, by and
between Educational Medical, Inc. (hereinafter referred to as "Guarantor"),
with its principal place of business situate at Roswell, Georgia party of the
first part (hereinafter referred to as "Guarantor").

A
N
D

VANDAB ASSOCIATES, a Pennsylvania Partnership, with its principal office
situate in the Municipality of Monroeville, County of Allegheny, Commonwealth
of Pennsylvania, party of the second part (hereinafter referred to as
"Vandab"),

W I T N E S S E T H:

WHEREAS, Vandab Associates entered into a Lease Agreement with ICM
Acquisition Corp. (hereinafter referred to as "Corporation and/or Tenant"), for
certain office space which Lease was conditioned upon the Guarantor's execution
of this Guaranty; and

WHEREAS, the Guarantor in order to induce Vandab to enter into the
Lease Agreement with the Corporation guarantees faithful performance of the
Corporation's obligations in accordance with the Lease Agreement.

NOW THEREFORE, in consideration of the above-mentioned premises and the
promises contained herein, and of other good and valuable consideration, and in
order to induce Vandab to enter into the Lease Agreement with Corporation,
intending to be legally bound, the Guarantor unconditionally and absolutely,
hereto agrees as follows:

1. GUARANTY. The Guarantor, for itself and its successors and
assigns, guarantees the prompt payment when due, or whenever payment may become
due under the terms of the Lease Agreement, all payments of rent, additional
rent, and all other charges, expenses (including but not limited to attorney's
fees) and costs of every kind and nature, which are or may be due now or in the
future under the terms of the Lease Agreement, any agreements or documents
related to the Lease Agreement, or any other transaction between Vandab and
Corporation directly or indirectly related to the Lease Agreement; and the
complete and timely performance, satisfaction and observation of the terms and
conditions of the Lease Agreement, rules and regulations and related
obligations and agreements arising by reason of the Lease Agreement required to
be performed, satisfied or observed by Corporation.

<PAGE> 2
2. COVERAGE OF GUARANTY. This guaranty extends to any and all
liability which Corporation has or may have to Vandab by reason of matters
occurring before the signing of the Lease Agreement by the parties or
commencement of the term of the Lease Agreement or by matters contained in all
Agreements executed by Corporation in connection with the Corporation's lease
with Vandab.

3. PERFORMANCE GUARANTY. In the event that Corporation fails to
perform, satisfy or observe the terms and conditions of the Lease Agreement and
related Lease Agreement obligations required to be performed, satisfied or
observed by Corporation, the Guarantor will promptly and fully perform, satisfy
and observe the obligation or obligations in the place of Corporation. The
Guarantor shall pay, reimburse and indemnify Vandab for any and all damages,
costs, expenses (including but not limited to attorney's fees), losses and
other liabilities arising or resulting from the failure of Corporation to
perform, satisfy or observe any of the terms and conditions of the Lease
Agreement and related Agreements.

4. WAIVER OF NOTICES. Without notice to or further assent from the
Guarantor, Vandab may waive or modify any of the terms or conditions of the
Lease Agreement, any related Agreements; or compromise, settle or extent the
time of payment of any amount due from Corporation or the time of performance
of any obligation of Corporation. These actions may be taken by Vandab without
discharging or otherwise affecting the obligations of the Guarantor.

5. LEASE AGREEMENT SECURITY. This guaranty shall remain in full force
and effect, and the Guarantor fully responsible, without regard to any security
or other collateral for the performance of the terms and conditions of the
Lease Agreement, or the receipt, disposition, application, or release of any
security or other collateral, now or hereafter held by or for Vandab.

6. UNCONDITIONAL OBLIGATIONS. The liability of the Guarantor is
direct, immediate, absolute, continuing, unconditional and unlimited. Vandab
shall not be required to pursue any remedies it may have against Corporation or
against any security or other collateral as a condition to enforcement of this
guaranty. Nor shall the Guarantor be discharged or released by reason of the
discharge or release of Corporation for any reason, including a discharge in
Bankruptcy, receivership or other proceedings, a disaffirmation or rejection of
the or related Agreements by a trustee, custodian, or other representative in
Bankruptcy, a stay or other enforcement restriction, or any other reduction,
modification, impairment or limitations of the liability of Corporation or any
remedy of Vandab. The Guarantor assumes all responsibility for being and
keeping itself informed of Tenant's financial condition and assets, and of all
other circumstances bearing upon the risk of non-performance by Tenant under
the Lease Agreement and related Agreements. The Guarantor agrees that Vandab
shall have no duty to advise the Guarantor of information known to it
regarding such circumstances or risks.

7. CONFESSION OF JUDGMENT. Whenever liability of Corporation and/or
Guarantor shall accrue, the Guarantor hereby empowers any attorney of any Court
of record within the United States of America or elsewhere to appear for the
Guarantor and, with or without complaint filed, confess judgment, or a series
of judgments, against the Guarantor in favor of
<PAGE> 3
Vandab, as of any term, for the liability of Guarantor and/or Tenant and all
other sums paid by Vandab hereof to or on behalf of Corporation or any
successor in interest pursuant to the terms of this Guarantee, together with
unpaid interest thereon, costs of suit and attorney's commission for collection
of ten (10) percent of the total indebtedness or Five Hundred and xx/100
($500.00) Dollars, whichever is the larger amount, on which judgment or
judgments one or more executions may issue forthwith upon failure to comply
with any of the terms and conditions of this Guarantee. The Guarantor hereby
forever waives and releases all errors in said proceedings, waives stay of
execution, the right of inquisition and extension of time of payment, agrees to
condemnation of any property levied upon virtue of any such execution, and
waives all exemptions from levy and sale of any property that now is or
hereafter may be exempted by law.

No single exercise of the foregoing power to confess a judgment, or a
series of judgments, shall be deemed to exhaust the power, whether or not any
such exercise shall be held by any Court to be valid, voidable, or void, but
the power shall continue undiminished and it may be exercised from time to time
as often as Vandab hereof shall elect until such time as Vandab shall have
received payment in full of the obligations due under the terms of this
Guarantee.

THIS GUARANTEE AUTHORIZES THE ENTRY OF JUDGMENT UPON DEFAULT THEREON. BY
SIGNING THIS PAPER YOU GIVE UP THE RIGHT TO NOTICE AND A COURT TRIAL UPON
DEFAULT.

8. SUBORDINATION OF SUBROGATION RIGHTS. The Guarantor subordinates any
and all claims which the Guarantor has or may have against Corporation by
reason of subrogation for payments or performances under this guaranty or
claims for any other reason or cause. The Guarantor agrees not to assert any
claims which it has or may have against Corporation, including claims by reason
of subordination under this guaranty, until such time as the payment and other
obligations of Corporation to Vandab are fully satisfied and discharged.

9. BINDING EFFECT. This Guaranty is binding upon the Guarantor, its
successors and assigns is binding upon and shall inure to the benefit of
Vandab, its successors and assigns. No assignment or delegation by the
Guarantor shall release the Guarantor of his obligations under this guaranty.
The term "Tenant" used in this guaranty includes also the first and any
successive assignee Corporation or any assignee Corporation.

10. SEVERABILITY. The validity or unenforceability of any particular
provisions of this Agreement shall not affect the other provisions hereof.

11. AMENDMENT. No change or modification of this Agreement shall be
valid unless the same be in writing and signed by Vandab and Guarantor.

<PAGE> 4
12. Governing Law. The parties hereto agree that it is their
intention and covenant that this Agreement shall be governed by the laws of the
Commonwealth of Pennsylvania.

Attest: Guarantor:

/s/ Wendy L. Riggs /s/ Morris Brown
- ----------------------------- -----------------------------
Assistant Secretary Educational Medical, Inc.
Secretary

<PAGE> 1

EXHIBIT 10.48

EMPLOYEE LOAN AGREEMENT

Agreement dated this 20th day of September, 1991 by and between VINCE
PISANO ("Employee") and GAIL PISANO, his wife, residing at 13446 Providence
Road, Alpharetta, Georgia 30201 (collectively, the "Borrower") and Educational
Medical, Inc. ("EMI"), having an office at 1050 Cambridge Square, Suite C,
Alpharetta, GA 30201.

Employee has agreed to continue his position with EMI and relocate his
principal residence to Georgia. In consideration for such agreement, EMI will
loan to Borrower the sum of SEVENTY-FIVE THOUSAND AND NO/100 DOLLARS
($75,000.00) (the "Loan") under the following terms:

1. AMOUNT OF LOAN.

The amount of the Loan is Seventy-Five Thousand and No/100
Dollars ($75,000.00).

2. LOAN REPAYMENT.

The outstanding balance of the Loan will become immediately due
and payable at the earlier to occur of: (a) September 12, 1994; (b) the tenth
(10th) business day following the date Employee's employment with EMI is
terminated, provided such termination is by Employee's action; (c) one hundred
and eighty (180) calendar days following the date Employee's employment with
EMI is terminated, provided such termination is by EMI's action; or (d) upon
the earlier to occur of (i) the sale of the Property (as hereinafter defined),
or (ii) the sale of the California Property (as hereinafter defined).

3. CANCELLATION OF INDEBTEDNESS.

The first Ten Thousand Dollars ($10,000.00) of the Loan will
be cancelled if the Loan is paid at or prior to its stated maturity in
accordance with its terms.

4. USE OF PROCEEDS.

Borrower certifies that the proceeds of the Loan shall be used
only to purchase the property described in Exhibit A of this agreement (the
"Property") and that the Property shall be Employee's new principal residence.

5. SECURITY.

To secure Borrower's repayment to EMI of the Loan, Borrower
has signed a promissory note which evidences the Loan to be secured by a deed
to secure debt (the "Georgia Deed to Secure Debt") on the Property and by a
deed of trust on certain real property (the "California Property") owned by
Borrower and located in Orange County, California (the "California Deed of
Trust"). EMI's security interest in the Property and the property encumbered
by the California Deed of Trust shall end and EMI shall discharge the Georgia
Deed to Secure Debt and the California Deed of Trust when Borrower shall have
repaid the Loan in full.

<PAGE> 2

6. RIGHT OF EITHER PARTY TO TERMINATE EMPLOYMENT.

Nothing in this Agreement gives Employee the right to continue
work for EMI and nothing in this Agreement obligates Employee to continue to
work for EMI (except in order to receive the benefits of paragraph 3 of this
Agreement).

7. ENTIRE AGREEMENT.

This Agreement and the documents referred to herein contain
the entire agreement of the parties in respect of the subject matter hereof.

AGREED:

/s/ Vince Pisano 09-20-91
- -------------------------------- ----------------------------
Borrower, VINCE PISANO Date)

/s/ Gail E. Pisano 09-20-91
- -------------------------------- ----------------------------

Educational Medical, Inc.

By: /s/ Morris C. Brown 09-20-91
------------------------------- ----------------------------
Title: Secretary (Date)

-2-
<PAGE> 3
EXHIBIT "A"

All that tract or parcel of land lying and being in Land Lots 961 and 962 of
the 2nd District, 2nd Section of Fulton County, Georgia, and being more
particularly described as follows:

BEGIN at an iron pin found on the south line of Land Lot 961, said pin being
located North 89 degrees 28 degrees West 306.90 feet along said line from the
southeast corner of said Land Lot; thence North 89 degrees 28 degrees 00 degrees
West 439.96 feet along the south land lot line to an iron pin found; thence
North 00 degrees 15 degrees 43 degrees West 873.40 feet to an iron pin found;
thence North 87 degrees 31 degrees 01 degrees East 990.38 feet to an iron pin
found on the westerly righty-of way of Providence Road (based on a 40 foot
right-of-way); thence southeasterly along said right of way along an arc of
171.78 feet (chord distance of 171.42 feet) to an iron pin found; thence South
87 degrees 30 degrees 59" West 470.90 feet to an iron pin found; thence South
07 degrees 20 degrees 46 degrees East 273.78 feet to an iron pin found; thence
South 38 degrees 33 degrees 57 degrees West 226.98 feet to an iron pin found;
thence South 0 degrees 16 degrees 17 degrees East 286.3 feet to an iron pin
found at the point of beginning, all as shown on plat of survey for JAMES M.
BRENNAN and SUSAN W. BRENNAN by JOHN W. STANZILIS, JR., RLS, dated September
27, 1984.

<PAGE> 1

EXHIBIT 10.50

MORTGAGE LOAN PROMISSORY NOTE
("MORTGAGE NOTE")

$75,000.00 September 20, 1991

FOR VALUE RECEIVED, THE UNDERSIGNED, VINCE PISANO ("Employee") and
GAIL PISANO, his wife (collectively, "Makers"), hereby jointly and severally
promise to pay, on the earlier of (i) September 12, 1994 or (ii) such date
provided for in paragraph 2 of the Employee Loan Agreement between Pisano and
EMI of even date (the "Loan Agreement"), to the order of Educational Medical,
Inc. ("EMI") at 1050 Cambridge Square, Suite C, Alpharetta, GA 30201, or at
such other place as shall be designated by EMI, the sum of SEVENTY-FIVE
THOUSAND AND NO/100 DOLLARS ($75,000.00)("principal") in lawful money of the
United States of America.

Except as provided in the next following paragraph of this
Promissory Note, the principal amount payable hereunder shall not bear
interest. This Promissory Note may be prepaid, in whole or in part, at any
time, without penalty.

If payment of any principal balance outstanding under this
Promissory Note shall remain unpaid for thirty (30) days after it is due or
after earlier demand therefor is made as provided herein, Makers shall pay, in
addition to any other amounts due hereunder, interest on such outstanding
balance at a rate of eighteen percent (18%) per annum, such interest to accrue
from the date that is thirty (30) days from and after the date this Promissory
Note is due or the date of such earlier demand therefor until such balance and
the accrued interest thereon are paid in full. Makers further agree to pay all
costs of collection, including reasonable attorneys' fees and paralegal charges
incurred through all appellate levels and in any bankruptcy and post-judgment
proceedings, in the event of any failure of the Makers to pay when due any sum
payable under this Promissory Note.

This Promissory Note is made incident to the Loan Agreement of even
date herewith and will be secured by a deed of trust covering certain real
estate located at 33831 Grenada Drive, Dana Point, California 92629 (the
"California Deed of Trust"), as more particularly described in the California
Deed of Trust, and by a deed to secure debt covering certain real estate
located at 13446 Providence Road, Alpharetta, Georgia 30201 (the "Georgia Deed
to Secure Debt") as more particularly described in the Georgia Deed to Secure
Debt (the properties encumbered by the California Deed of Trust and the Georgia
Deed to Secure Debt are hereinafter referred to collectively as the "Mortgaged
Premises"). This Promissory Note is entitled to all the benefits of the Loan
Agreement, the California Deed of Trust and the Georgia Deed to Secure Debt and
specific reference is made to such Loan Agreement, the California Deed of Trust
and the Georgia Deed to Secure Debt for all purposes. The terms and conditions
of the Loan Agreement are hereby made part of this Promissory Note to the
extent and with the same effect as if they were fully set forth herein.

<PAGE> 2

Makers waive presentment for payment, protest and demand, and
notice of protest, demand and/or dishonor and nonpayment of this Promissory
Note, notice of any event of default under the Loan Agreement, the California
Deed of Trust or the Georgia Deed to Secure Debt and all other notices or
demands otherwise required by law that the Makers may lawfully waive. Makers
expressly agree that this Promissory Note, or any payment hereunder, may be
extended from time to time, without in any way affecting the liability of
Makers. No unilateral consent or waiver by EMI with respect to any action or
failure to act which, without consent, would constitute a breach of any
provision of this Promissory Note shall be valid and binding unless in writing
and signed by EMI.

The rights and obligations of Makers and all provisions hereof
shall be governed by and construed as a sealed instrument in accordance with
the laws of the State of Georgia.

Makers shall remain primarily liable on this Promissory Note, the
Loan Agreement, the California Deed of Trust and the Georgia Deed to Secure
Debt until full payment, and such obligation shall not be affected by any
alienation of the Mortgaged Premises, by any agreement or transaction between
EMI and any subsequent owner or alienee of the Mortgaged Premises as to payment
of principal, interest or other moneys, by any forbearance or extension of
time, guaranty or assumption by others, or by any other matter, as to all of
which notice is hereby waived by Makers.

EMI and Makers hereby knowingly, voluntarily and intentionally
waive the right either may have to a trial by jury in respect of any litigation
based hereon, or arising out of, under or in connection with this Promissory
Note and any document contemplated to be executed in conjunction herewith, or
any course of conduct, course of dealing, statements (whether oral or written)
or actions of either party. The preceding provision is a material inducement
for EMI accepting this Promissory note.

All of the provisions hereof shall be binding upon and inure to the
benefit of the undersigned and holder and their respective personal
representatives, successors and assigns.

IN WITNESS WHEREOF, Makers have caused this Promissory Note to be
duly executed, sealed and delivered in Atlanta, Georgia on the day and year
first above written.

/s/ Vince Pisano [Seal]
---------------------------
VINCE PISANO

/s/ Gail E. Pisano [Seal]
---------------------------
GAIL PISANO

-2-

<PAGE> 1

EXHIBIT 23.1

CONSENT OF INDEPENDENT AUDITORS

We consent to the reference to our firm under the caption "Experts" and to
the use of our reports dated May 24, 1996 (except as to the first paragraph of
Note 7, as to which the date is June 20, 1996), in Amendment No. 3 to the
Registration Statement (Form S-1 No. 333-09777) and the related Prospectus of
Educational Medical, Inc. for the registration of 3,105,000 shares of its common
stock.

/s/ Ernst & Young LLP
--------------------------------------

Atlanta, Georgia

October 22, 1996

<PAGE> 1

EXHIBIT 23.3

CONSENT OF INDEPENDENT AUDITORS

We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated March 12, 1996, except for Note 1, which is August
2, 1996, in Amendment No. 3 to the Registration Statement (Form S-1 No.
333-09777) and related Prospectus of Educational Medical, Inc. for the
registration of 3,105,000 shares of its common stock.

Tsakopulos Brown Schott & Anchors

San Antonio, Texas

October 22, 1996